t Arine Al repor An M Annu Sev 2008

Transcription

1 Annual report Sevan Marine 2008

2 Contents Letter from CEO 4 The Company Key Figures in Brief 7 Contract Status 8 Project Status 9 The Sevan FPSOs 10 FPSO Sevan Piranema 12 FPSO Sevan Hummingbird 14 FPSO Sevan Voyageur 16 Sevan 1000 FPSO (Goliat) 18 FPSO Sevan 300 no. 4 and 5 19 The Sevan Drilling Units 20 Sevan Driller 22 Sevan Driller II and Sevan Driller III 22 Operations 24 Topside and Process Technology 26 Kanfa Group of Companies 28 The Sevan Technology 30 The Sevan Technology 32 New Applications 35 A Global Company a Global Market 36 Market Outlook 38 Board of Directors Statement on Policy for Corporate Governance 40 Business Strategy 43 Shareholder Information 44 QHSE Management 46 Focus on Building a Company 47 Financial Statements 48 Board of Directors Report 50 Sevan Marine Group Board of Directors 55 Consolidated Balance Sheet 56 Consolidated Income Statement 57 Consolidated Statement of Changes in Equity 58 Consolidated Cash Flow Statement 59 Notes to the Consolidated Financial Statements 60 Sevan Marine ASA Balance Sheet 94 Income Statement 96 Cash Flow Statement 97 Notes to the Financial Statements 98 Auditor s Report 116 Responsibility Statement 117

3 Annual report 08 Sevan Marine 3 Editor: Sevan Marine ASA Design and Production: Sør Stangebye Reklamebyrå AS, RRA 21 Photo and 3D illustrations: Sevan Marine ASA Print: Birkeland Trykkeri AS

4 LETTER FROM THE CEO Time for consolidation It has been twelve challenging months for Sevan Marine. Although we have seen a continuous improvement in our operations and projects, the financial crisis has had a signi ficant impact. Solid contracts with reputable clients are no longer easy to finance. It is difficult to find both debt and equity financing for our projects. This is an unprecedented situation; something we have never experienced before and hopefully never will experience again. In times like this, our priority is to consolidate our position, manage through the difficult times and be prepared when the market turns. In the middle of the financial world going sour, there have been several significant events for Sevan Marine during the last year. Perhaps the most important event, and the one with the most wide ranging effects, was the award of the Goliat contract. This market is not only the entry into the market for large FPSOs, it was also our first FPSO contract in the Norwegian market. The Goliat project will be a key project for Sevan in the next four years (and hopefully also in the operations phase). Following the start-up of FPSO Sevan Piranema in 2007, our second FPSO, the Sevan Hummingbird, produced its first oil in September 2008 in the central North Sea. Both units have demonstrated excellent uptime, thanks to very qualified crews supported by good motion behavior (in line with model testing and analyses). Our third FPSO, the Sevan Voyageur, was ready to start oil production in the North Sea in January 2009, following a successful construction project (on schedule), when the client reported financial difficulties. This was a big disappointment to all of us. Fortunately, an MOU has been signed with a new client Premier Oil and we are all looking forward to start production on the Shelley field as soon as possible. On the drilling side, we celebrated mid-2008 by signing two long-term drilling contracts with Petrobras and ONGC. This celebration proved to be premature as we have been struggling since then to find financing for the two units. The first drilling unit, the Sevan Driller, will be heading towards Brazil later this year, teaming up with FPSO Sevan Piranema. The operations in Brazil are very important to us, and we hope to add more business there in the years to come. Kanfa, our gas and oil processing team, continues to deliver strong results. Kanfa Aragon s contract with Samsung for the development of a liquified natural gas production topside to the world s first Floating LNG vessel market a break through for us in this growth area. In challenging times like this we also need to put seeds in the ground to harvest in the future. We will therefore continue to focus on research and development within our core business areas. The R&D activity is a key contributor to our continued success. On the back of the Goliat contract, we are experiencing that several (also new) clients are interested in our technology. I see this as a token of the good performance we have had on our three FPSOs and the quality of our personnel. During the year we have regularly met with shareholders and potential investors. We will continue to prioritize these investor relations activities, which are important, not least in challenging times. I would like to thank our employees for the loyalty that you are showing. I am impressed with the energy you are putting in and very proud of the results that we have achieved together. If we continue like this, we will come out even stronger. On behalf of the Sevan Marine team I would like to thank our clients, vendors, shareholders and financiers for a good cooperation and your continued confidence and support. April 30, 2009 Jan Erik Tveteraas CEO

5 Annual report 08 Sevan Marine 5 THE COMPANY Sevan Marine ASA is listed on Oslo Børs (ticker SEVAN) and is specializing in building, owning and operating floating units for offshore applications. The Company has developed a cylinder shaped floater, suitable in all offshore environments. Presently, Sevan Marine is focusing its business on floating production and drilling. Sevan Marine s vision is to be a world-class company in the technologically challenging segments of the offshore market. Sevan Marine shall utilize its competitive advantages within design, engineering, project execution and operations to offer cost-efficient, innovative products and solutions, based on its proprietary Sevan technology. Priority shall always be given to safety and environment. The Company shall aim at maintaining a local presence in international markets. Corporate structure Sevan Marine ASA Corporate Topside and Process Technology Floating Production Drilling

6 2008 KEY FIGURES INCOME STATEMENT Amounts in USD million Operating income Total operating expense EBITDA Depreciation/write-down Operating profit/(loss) Financial income Financial expense Share of profit/(loss) from associates Net financial gain/(loss) Profit/(loss) before tax Tax income/(expense) Annual net profit/(loss) BALANCE SHEET ASSETS Sevan capital assets Other fixed assets Intangible assets Investment in associate Deferred tax assets Other non-current assets Total non-current assets Trade and other receivables Inventory Derivative financial instruments Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Share capital Other equity Total shareholders equity Minority interest Total equity Interest-bearing loans and borrowings Derivative financial instruments Retirement benefit obligations Deferred tax liabilities Provisions for other liabilities and charges Total non-current liabilities Interest-bearing loans and borrowings Trade and other payables Other current liabilities Provisions Total current liabilities Total equity and liabilities

7 Annual report 08 Sevan Marine in Brief On May 19, Sevan Marine ASA signed a Letter of Intent (LOI) with Eni Norge, the operator of the Goliat license (PL229), for the Goliat FPSO Design Competition FEED Phase. Under the LOI, Sevan undertook to further mature the Sevan FPSO for the proposed Goliat offshore solution based on Sevan s proprietary technology. On June 11, a private placement of 17,804,000 shares was completed at a subscription price of NOK per share, raising gross proceeds of approximately NOK 1.2 billion in accordance with the proxy established at the Company s General Meeting held on April 30, The proceeds of the transaction were to be applied towards projects within floating oil production and floating LNG production and for general corporate purposes. On June 13, Sevan received a firm order from India s Oil and Natural Gas Corporation LTD (`ONGC`) for the charter hire of an ultra deepwater drilling unit based on a drilling contract of a fixed term of three years, starting from December 31, 2010, with expected revenues over the three year period of approximately USD 569 million including mobilization. On August 5, Petrobras S.A. and a subsidiary of Sevan Drilling AS, signed a firm six-year drilling contract for a new build drilling unit intended for operations off the coast of Brazil, in water depths down to 2,400 m with start-up by end-2011 and with expected revenues of approximately USD 975 million, including a bonus arrangement and mobilization fee. On September 21, the FPSO Sevan Hummingbird commenced oil production on Venture s Chestnut field, in the central UK North Sea. On October 29, Sevan Drilling ASA, a wholly-owned subsidiary of Sevan signed a mandate letter with two leading financial institutions to arrange construction financing, intended to partfinance the construction of two deepwater drilling units (Sevan Driller II and III) that have been contracted to Petrobras and ONGC on charter contracts. On October 29, Sevan advised that the syndication of a USD 300 million senior debt project finance facility for the FPSO Sevan Voyageur had been successfully completed On January 22, Kanfa Aragon AS, a subsidiary of Sevan, signed a contract with Samsung Heavy Industries Co., LTD in Korea for the development of a liquefied natural gas production topside to the world s first Floating Liquefied Natural Gas (FLNG) Production Vessel. The contract value is approximately USD 200 million. On February 2, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. On February 27, Sevan announced that it had received an offer from an industry player for one of its units. The offer, which is subject to documentation and final agreement, represents a purchase price reflecting the book value of the unit. Sevan engaged Pareto Securities and SEB Enskilda as financial advisors to assist in exploring and assessing strategic options. On March 13, with reference to an article in Upstream regarding FPSO Sevan no. 4 and 5, Sevan informed that negotiations were ongoing with the Jiangsu Hantong Ship Heavy Industry shipyard about the further progress of the construction of the two units. On March 26, Eni Norge AS and Sevan signed a firm contract for the Post Feed Engineering for the Sevan 1000 FPSO for the Goliat field in the Barents Sea. The value of the contract is approximately NOK 150 million from February to September On April 13, Sevan Production UK Ltd, a wholly-owned subsidiary of Sevan entered into a Memorandum of Understanding ( MOU ) with Premier Oil and Gas Services Ltd ( Premier ), for the continued provision and operation of the FPSO Sevan Voyageur by Sevan for the development of the Shelley field, in the event that Premier or one of its affiliates becomes the successful purchaser of either Oilexco North Sea Ltd or the Shelley field. The FPSO Sevan Voyageur will be opera ted under a production sharing contract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field. On April 16, Eni Norge and Sevan Marine ASA signed a firm Technology License agreement for the Sevan 1000 FPSO for the development of the Goliat field in the Barents Sea. On April 22, Sevan Marine ASA completed a convertible bond issue of USD 12 million directed towards Luxor Capital Group, LP.

8 Contract status FPSO/drilling units The Company has 6 Sevan units contracted to clients, three Sevan 300 floating, production and storage units (FPSOs) and three Sevan 650 drilling units, all based on the Sevan technology. In addition, the Company has one technology licence for a Sevan 1000 FPSO. FPSOs Year FPSO Sevan Piranema Petrobras S.A. 11 years fixed + 6 x 1 year options + 5 x 1 year mutually agreed FPSO Sevan Hummingbird Venture Production Ltd. 2.5 years fixed + options FPSO Sevan Voyageur MoU with Premier Oil and Gas Services Ltd Life of field Sevan 1000 FPSO Eni Norge AS Licensed to Eni Norge AS O&M contract at Eni s option Sevan 300 No. 4 Marketed to clients Sevan 300 No. 5 Marketed to clients Drilling units Year Sevan Driller Petrobras S.A. 6 years fixed Sevan Driller II ONGC 3 years fixed Sevan Driller III Petrobras S.A. 6 years fixed Project phase Fixed period Option Available

9 Annual report 08 Sevan Marine 9 Project status FPSO Sevan Piranema The FPSO Sevan Piranema is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil processing capacity of 30,000 bbls, and a daily gas injection capacity of 3.6 million m 3. The unit may carry up to 21 risers and umbilicals. Petrobras S.A is a national oil company founded in 1953 by the Brazilian government. Petrobras has been ranked as the world s 8 th biggest oil company and closed 2008 with a production of 1,855 million barrels per day of oil and 32 million m 3 per day of gas. FPSO Sevan Hummingbird The FPSO Sevan Hummingbird is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil processing capacity of 30,000 bbls, and a daily water injection capacity of 20,000 bbls. The unit may carry up to 3 risers and umbilicals. Venture Production Plc is a leading new generation oil & gas company focused on recapturing the potential of stranded reserves, using advanced technologies and modern operating practices. At the end of 2008, Venture produced 45,000 barrels per day. FPSO Sevan Voyageur The FPSO Sevan Voyageur is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls, a daily oil process capacity of 30,000 barrels, and a daily water injection capacity of 20,000 barrels. The unit may carry up to 10 risers and umbilicals. Premier Oil and Gas Services Ltd is integrated in the Premier Oil plc group which was founded in Scotland in The Group has interests in 11 countries around the world, and has significant operations in the North Sea where it acquired its first interest in At the end of 2008, Premier produced 36,500 barrels of oil equivalents per day. The Sevan 1000 FPSO (Goliat) The Sevan 1000 FPSO for the Goliat development in the Barents Sea will be owned by Eni Norge AS under a license model. The unit will have an oil production capacity of 100,000 bbls/day, a gas production of 3.9 million Sm3/day and an oil storage capacity of 1 million bbls. The FPSO will be especially designed for environmentally friendly operations and energy recovery. The specially designed winterisation solution will provide good working conditions for the crew. Eni Norge AS is owned by the Italian energy company Eni and is one of the largest operators on the Norwegian Continental Shelf. The company was established in Norway in 1965, and has a daily production of approximately 140,000 barrels of oil equivalents. Eni is operator of 14 licenses, including the Goliat field in the Barents Sea. The Sevan 300 no. 4 The FPSO Sevan 300 no. 4 is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls. The hull is currently under construction and is marketed to clients. Process capabilities will be tailored following determination of field location. FPSO Sevan 300 no. 5 The FPSO Sevan 300 no. 5 is a Sevan 300 FPSO with an oil storage capacity of 300,000 bbls. The hull is currently under construction and is marketed to clients. Processing capabilities will be tailored following determination of field location. Sevan Driller The Sevan Driller has a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls. Sevan Driller is contracted to Petrobras S.A. Sevan Driller II The Sevan Driller II will have a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls. Oil and Natural Gas Corporation Limited (ONGC) has been ranked as the world s 20 th largest amongst publicly listed energy companies and holds the largest share of hydrocarbon acreages in India. ONGC contributes to approximately 80% of India s oil and gas production. Sevan Driller III The Sevan Driller III will have a capacity of drilling of wells up to 40,000 feet in water depths of up to 10,000 feet, a variable deck load capacity of more than 15,000 metric tons and high storage capacity of bulk materials. The unit will be equipped with an internal storage capacity of up to 150,000 bbls. Sevan Driller III is contracted to Petrobras S.A.

10 THE SEVAN FPSOs

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13 Annual report 08 Sevan Marine 13 FPSO SEVAN PIRANEMA FPSO Sevan Piranema has performed with consistently high production uptime levels since its start up in October At end of March 2009, the unit has performed at an average of 99.9% efficiency in the production systems over the last 12 months and with no lost time incidents over the same period. The unit, which is the first cylindrical FPSO ever to commence operations, is operating for Petrobras S.A. on the Piranema field, located in the deep waters of the Brazilian state of Sergipe. Installed at a 1,100 m water depth, the FPSO Sevan Piranema is currently interconnected to three wells; two producing wells, and one gas injection well. Current daily production levels are approximately 5,000 bbls of produced oil and 800,000 m 3 of gas re-injection. During 2009, another three wells will be connected to the unit, of which two are dedicated to gas injection and the third to production. This marks the completion of the first phase of the Piranema development project. Subsequent daily production levels are expected to increases to 15,000 bbls of produced oil and 2 million m 3 of gas-reinjection. At the end of 2008, the FPSO Sevan Piranema s accumulated production reached 3.5 million barrels of petroleum. 17 offloading operations to export tanker had been carried out; all of them with a high level of efficiency.

14 FPSO Sevan Hummingbird 2008 was an eventful year for FPSO Sevan Hummingbird. Fol lowing completion of the mooring operations and offshore commissioning, first oil was finally achieved on September 20, FPSO Sevan Hummingbird was the first cylindrical FPSO to be installed in the North Sea and actual measurements from the unit during her first winter offshore, confirmed performance in accordance with model tests and theoretical analysis. In addition, the ability to take delivery of helicopters even during severe winter storms and no processing restriction experienced in relation to weather conditions, has additionally demonstrated the suitability of the Sevan design for operations in harsh environments. An important milestone was achieved on October 10, when the first cargo off-take was completed from the unit. By end of March 2009, a total of 8 cargoes and approximately 2.0 million bbls of oil had been offloaded from the unit. On December 16, the unit had its first anniversary offshore. A committed crew and contractors have demonstrated excellent health safety and environmental awareness with no lost time incidents experien ced during the year. This first year of offshore activities has included the implementation of support systems like maintenance and integrity management systems and health, safety and environmental reporting systems. These systems will assist in maintaining the focus on the FPSO s technical integrity and follow-up of safety critical equipment as well as verification of performance standards. At the end of 2008, FPSO Sevan Hummingbird had achieved stable production and water injection on the Chestnut field. In March 2009, a second production well was interconnected and increased daily production to 12,000 bbls.

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17 Annual report 08 Sevan Marine 17 FPSO Sevan Voyageur The construction of the hull of the FPSO Sevan Voyageur was completed at Yantai Raffles Shipyard in China in November On December 16, 2007, the unit arrived at Keppel Verolme in Rotterdam, Holland. During her stay at Keppel Verolme, 3,000 tonnes of modules, equipment, piping and cables were installed onboard. Having completed a less than 12 months period of hook up and commissioning of the topside and marine systems, the unit left the shipyard in Holland early in the morning on November 29, 2008, only 19 months after the contract signature with Oilexco North Sea Ltd. In order to achieve such results within this short time frame, all involved parties have worked with intensity, drive and enthusiasm. Experience from previous project executions was a valuable resource as the project team from both Sevan and Keppel Verolme consisted mainly of personnel who had been involved in the execution of the two earlier Sevan projects carried out at the same shipyard; namely FPSO Sevan Piranema and FPSO Sevan Hummingbird. Early involvement of the crew and personnel with operation experience from FPSO Sevan Hummingbird added further important knowledge to the project. The FPSO Sevan Voyageur was moored at the Shelley field in early Following the commencement of the sales process of Oilexco North Sea Limited, a Memorandum of Understanding between Sevan and Premier Oil and Gas Services Ltd for the continued provision and operation of the FPSO Sevan Voyageur for the development of the Shelley field was entered into. The hook-up of the field subsea facilities is expected to take place mid-2009 to enable production start up of the Shelley field. The FPSO Sevan Voyageur will be operated under a production sharing contract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field.

18 THE SEVAN 1000 FPSO (GOLIAT) From February through December 2008 Sevan has participated in the design competition arranged by Eni Norge AS (Eni) for the Goliat development where the Sevan concept with its proprietary cylindrical steel hull was competing with alternative concepts. Following several feed-phases involving Sevan engineers during 2008, the Sevan 1000 FPSO was selected as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. Sevan was subsequently awarded a Post Feed Engineering contract and a Licence Agreement and will continue to work closely with Eni during 2009 to further optimize the concept for a safe and efficient operation at the Goliat field and develop the documentation to be used as basis for the EPC phase. The Goliat field development The Goliat field is located in the Barents Sea, 85 km North West of Hammerfest in the PL 229 and the PL 229B license areas. The present owners of the Goliat licence are Eni Norge AS (65% and operator of the field) and StatoilHydro ASA (35%). The field will be developed with subsea wells drilled from eight subsea templates and tied back to the Sevan 1000 FPSO. The well stream will be routed to the FPSO for separation, oil stabilization and gas conditioning. Stabilized crude oil will be directly offloaded from the FPSO unit to shuttle tankers with VOC recovery. The gas will be re-injected for pressure support. The Sevan concept satisfies the very strict HSE requirements specified by Eni and is designed to withstand the harsh environmental conditions at the Goliat field.

19 Annual report 08 Sevan Marine 19 FPSO Sevan 300 no. 4 and 5 FPSO Sevan 300 no. 4 and 5 are sister hulls both under construction at Hantong Shipyard in China. The hulls are being marketed to clients and expected delivery of complete units are approximately 18 months following definitive contracts being achived. September Slipway launching of Sevan 300 no. 4 November Hull erection of FPSO Sevan 300 no. 5

20 THE SEVAN DRILLING UNITS

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23 Annual report 08 Sevan Marine 23 SEVAN DRILLING Sevan Driller Execution of the Sevan Driller project has been organised in two dedicated teams of specialized personnel. The Operations team is handling the pre-operational activities and will be responsible for the day to day operation of the unit following delivery, and the Project team is handling for engineering, procurement, construction, and commissioning activities. In order to safeguard the opera tional aspects already in the construction phase, and to properly train the crew for the unit, the Operations team has been involved in all stages of the project; from initial design to commissioning. By the end of 2008, all key equipment was delivered for installation on the unit in China. The main milestones achieved during the year include launching of the hull, installation of the diesel generators, construction of hull up to main deck, installation of living quarter, installation of drill floor, erection and installation of the bottom derrick section, and erection of middle and top derrick sections. Due to height limitations of a bridge downstream its original location, the Sevan Driller was relocated to Cosco yard, Qidong Shipyard, in March 2009 for installation of the middle and top derrick sections. Mechanical completion and commissioning is ongoing and is powered by the rig s own diesel generators. Following completion of the installation of thrusters, the unit is scheduled for sea trials and acceptance by the Operations team, DNV and the client. The unit was originally intended for operations in the US Gulf of Mexico for drilling at 5,000 feet for the first year of operations and 8,000 feet from the second year onwards. However, in 2008 Petrobras requested for the unit to be relocated to the Santos Basin off the Brazilian coastline and equipped for drilling at 10,000 feet at commencement date. Subsequent changes in the specifications caused a rescheduling of delivery of the unit to end of third quarter of 2009 at location in Brazil. Sevan Driller II and III During 2008, Sevan was awarded two more contracts for drilling units by ONGC in India and Petrobras in Brazil respectively. These units will be based on the Sevan 650 hull design for operations in water depths up to feet. The units will be constructed at Cosco shipyard in China. No further capital expenditure or liabilities will be entered into relating to Sevan Driller II or Sevan Driller III untill the following conditions are met: Securing of a longer contract with ONGC and one year postponement of delivery time for Sevan Driller II Reduce the need for equity and defer equity payments during the construction phase Reduce the expected cost to complete to USD 650 million for each unit Raise the required equity in Sevan Drilling In the event that these criterias are not met, Sevan will not be able to pursue the two drilling contracts at this stage.

24 Operations During 2008, the Operations team has mainly concentrated its efforts on the preparation for the commencement of operations of the Sevan Driller and has continued its development into a highly qualified organisation of personnell with extensive experience from deepwater drilling. At the end of 2008, the recruitment processes were on schedule with a majority of the key personnel already employed. The experience held by these employees satisfies the high qualification requirements for deepwater operations as defined both by client Petrobras and the relevant Brazilian authorities. A further addition to the current organization is in process by recruitment of additional Brazilian nationals for the operations to commence in Brazilian waters. The members of the Operations team have been recruited at an early stage in order to ensure that their experience is utilized also during the construction phase for Sevan Driller as well as for the purpose of executing pre-operational activities and training. Sevan has defined and established detailed qualification requirements and job descriptions for each key position for the offshore organization, which forms the basis for the selection process for recruitment. To further ensure and complement the competencies of the employees, a detailed Competency Development Program has been developed and defines the plan for both the external training (mandatory regulatory training) and internal training for each position onboard. This training plan has formed the basis for the training program executed throughout 2008 and for the training plan for 2009 to ensure that all personnell are fully prepared for the commencement of operations. Throughout 2008, the key pre-operational activities have included the following main elements: Design and construction project interface activities Rig operations preparations activities including - Recruitment of personnel - Competency development and training - Planned maintenance system development and implementation - Operational spare parts/inventory/stock control system development and implementation Regulatory compliance process activities Development and implementation of QHSE management system and operational documentation Client interface activities The pre-operational activities have progressed in accordance with schedule. As Sevan Driller is currently undergoing mechanical completion and commissioning, the majority of the Operations team are currently at the site in China for hands-on support to the construction project. The bulk of the corporate and unit-specific QHSE management system for Sevan Drilling has been developed by the Operations team during 2008, and is expected to be finalized during first quarter of This documentation will be subject to review by DNV as part of the ISO, ISM and ISPS certification processes accordingly. Detailed implementation of the QHSE management system and procedures will continue throughout the first half of 2009, ensuring that the system will be fully implemented and certified prior to commencement of operations. During 2009, the Operations team will continue these processes and to be ready for a safe and successful start-up of operations of Sevan Driller according to plan. July Loadout of the drillfloor from Nymo yard in Norway for transporation to Cosco Nantong Shipyard in China

25 Annual report 08 Sevan Marine 25 November Double bottom layer erection on construction barge January Sevan Driller ready for launching off construction barge April Continued construction floating April Sevan Driller on towing from Nantong to Qidong for the last commissioning April Sevan Driller being towed under the Sutong bridge April Sevan Driller quayside at Cosco Qidong Shipyard

26 Topside and process technology

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29 Annual report 08 Sevan Marine 29 KANFA GROUP OF COMPANIES The KANFA group of companies (KANFA) includes KANFA AS (100%), Mator AS (100%), Kanfa Aragon AS (50%), and Kanfa-Tec AS (49,9%) and is a process design and engineering group offering services to the international Oil & Gas offshore industry. The group of companies is located in Oslo, Porsgrunn, and Bergen in Norway. Kanfa s business idea is to remain a leading supplier of EPC contract to the international Oil and Gas, FLNG and FPSO markets. KANFA s strategy is to remain a world leader within its technological areas, focus on demanding projects, and expand within existing product areas. KANFA shall continue to provide superior financial returns. KANFA has a unique position in the market handling both Sevan Marine projects as well as other FPSO and FLNG clients like Teekay Petrojarl AS, Aker Floating Production ASA, FlexLNG ASA and Fred. Olsen Production ASA oil companies like BP, Statoil, Maersk, Venture Production, Total, Eni and major equipment suppliers like Dresser-Rand, Solar and GE. KANFA Group of Companies Products KANFA AS The liquid and gas EPC provider Process equipment and systems for FPSOs Kanfa-Tec AS Thermal Energy equipment and systems; WHRU and HRSG Mator AS Separation and chemical experts, operational phase Kanfa Aragon AS The FLNG EPC provider Key KANFA Projects in 2008: Client Field Scope Fred. Olsen Production/Allan Pte/CNR The Olowi, Gabon Complete topside, FPSO Sevan Marine ASA/Oilexco NSL Shelley, UK North Sea Complete topside, FPSO Abu Dhabi Gas/Nouvo Pignone OAG, Abu Dhabi 2 x 10,7 MW WHRU BP/Dresser-Rand Angola Block 31 PSVM 3 x 22 MW WHRU FlexLNG/Samsung Heavy Industries Generic Complete topside, FLNG

30 THE SEVAN TECHNOLOGY

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32 THE SEVAN TECHNOLOGY The Sevan technology developed for offshore installations meets the oil and gas industry s long standing challenge for versatility, flexibility, and fast deployment. The Sevan design has proved to be an efficient basis for Floating Production, Storage and Offloading (FPSO) units as well as for deep water Mobile Offshore Drilling Units (MODU). The three Sevan FPSO s currently installed at their respective locations; FPSO Sevan Piranema in Brazil, and FPSO Sevan Hummingbird and FPSO Sevan Voyageur in the North Sea, have demonstrated to meet these challenges and provide confidence that the Sevan technology will continue to perform successfully also on future developments. The first Sevan drilling unit, Sevan Driller, is in its final construction phase and is ready for operation in second half of The main components of the Sevan FPSO s and MODU are the cylindrical hull. The FPSOs utilize the hull for cargo storage and segregated ballast tanks as well as for marine and utility systems. The MODU has mud and drillwater storage in the hull as well as cargo and ballast tanks. Pumps and other utility systems related both to the drilling equipment and to the marine systems are located inside the hull. A large moonpool is arranged in the centre of the MODU hull. The Sevan hull is suitable for operation in water depths ranging from 30 m to more than 3,000 m and Sevan units may operate in both benign and harsh environments. Model tests have been made for the most extreme North Atlantic conditions as well as for the toughest cyclonic conditions with excellent results. Main features of the design are: Circular hull with symmetry of the design High capacity for oil storage and deck loads No turret or swivel Any number of risers may be carried by the FPSOs Excellent motion characteristics High safety standards The symmetry of the design and the simplicity of the structural arrangement make the construction of the hull simple and efficient. No special facilities or infrastructure are required, thus standard shipyard facilities existing worldwide are sufficient to construct Sevan units. Sevan FPSO The Sevan FPSO has all the facilities related to accommodation, utility systems and the process plant located on a process deck which is elevated above the main deck. The topside process systems are separated from the living quarter and utility areas by the provision of a blast and fire wall. The process facilities for treating and stabilizing the incoming oil and gas are located at an elevated deck. Gas compression for export or reinjection as well as produced water treatment and reinjection are normally included in the process plants. The processed crude oil is dropped into the cargo tanks for later offloading to shuttle tankers. The pro cess systems are modularized and may be fabricated at different yards and transported and lifted on board the hull for integration and completion. As the hull, accommodation, utility systems, and the process plant only to a limited extent are integrated, the construction, hook-up and commissioning of a Sevan FPSO may be completed within a short time frame. Sevan MODU The Sevan MODU is using the upper part of the main hull as a part of the topside structure. This upper section is carrying the main power generation plants, mudhandling systems, derrick and drilling equipment and storage for risers, drill-string, casings, etc. A large accommodation block is located in the bow section of the unit. The drilling operation is made through the centre moonpool. At this location the drilling riser and related equipment is well protected and the unit may safely operate even in areas with ice. The station keeping of the MODU is based on a Dynamic Positioning (DP) system by use of azimuth thrusters. For operation in more shallow water depths a conventional mooring system may be installed in combination with the DP system. Design Principles Sevan Marine has through experience and effective recruitment developed a competent engineering and construction department covering all disciplines such as Safety, EIT, Marine and Process systems, Structural Design and Marine Analysis including Mooring and Riser design. The team is encouraged to be innovative and also develop new applications for the Sevan technology. This philosophy has resulted in the development of Sevan Driller, as well as other potential applications like floating LNG production (FLNG), and offshore power plant (Gas to Wire, GTW). Hull Structure The aim in the development of the Sevan technology was to provide a unit that would provide ample cargo storage in tanks within the hull, be able to carry a significant topside load and at the same time give favorable motions and accelerations when exposed to harsh wave environments such as the North Sea wave climate. The cylindrical Sevan unit with its characteristic bilge box offers these capabilities. The development of the hull and tank configuration is a joined effort requiring competencies on hydrodynamics and stability as

33 Annual report 08 Sevan Marine 33 The centershaft pumproom well as on structural design. The design is made with focus on safety and robustness, operability and efficiency in construction. Advanced tools such as the CATIA V5 and the DNV SESAM package including GeniE, WADAM, SESTRA, PULS and XRACT are applied in an iterative process to end up with a design that puts the steel in the right place. In addition to the yield and buckling check used as the basis for determining the main scantlings such as plate thickness and stiffener cross section, extensive fatigue analysis is also included in the design process to explicitly control the fatigue life of critical details such as stringers/girder terminations and side structure subject to dynamic sea pressures. Once completed, the basic design (main scantling level) is forwarded to Class for approval and passed on to the shipyard for development of fabrication drawings. As a part of the verification process, the Sevan Structure Section reviews both the fabrication drawings and closely follows the yard during the construction phase to ensure that the unit is built in accordance with the design specifications. Marine and Utility Systems The marine systems onboard the Sevan units are in general based on conventional technology used onboard any ship (e.g. an oil tanker), FPSO, or drilling unit. However, the cylindrical shaped platform offers advantages compared to a ship shaped or column stabilized unit. With the pump room located in a shaft in the middle of the unit, the amount of piping required for cargo handling is significantly reduced compared to a ship shaped unit. The design development of the marine systems has focused on incorporating the experiences obtained from years of operating FPSO s in the North Sea. One example is the introduction of a hydrocarbon blanketing system (HC blanketing) as standard on the Sevan FPSOs. The HC blanketing system uses hydrocarbon gas from the process plant to inert the cargo tanks as opposed to using inert gas from an inert gas generator, making the cargo system a fully closed system with no emissions to the atmosphere. All VOC release is routed back into the gas handling system in the process plant. FPSO Sevan Hummingbird is the first FPSO on the UK Shelf fitted with a HC blanketing system. FPSO Topside Process Systems The process plant on the Sevan FPSOs is designed with basis in specification for the actual operation at a defined oil field. The main separation is normally designed as a generic unit that may serve a certain range of operational requirements. The gas treatment as well as the water treatment part of the process plant will to a larger extent be tailor made for the actual location. This design philosophy reduces the modification costs when a unit is relocated. For more long term installations, an optimized tailored process plant will be installed, e.g. as on the Sevan Piranema FPSO.

34 The design of the topside processing plant is made by the in-house expertise in Sevan Marine, Kanfa, Kanfa Aragon, Mator and Kanfa-Tec. Functional description documents as FFD, P&IDs, cause and effect diagrams, commissioning procedures and operational man uals are established as a basis for the procurement of equipment, construction, functional testing, pre-commissioning, hook-up and commissioning of the topside modules. The process system is constructed in modules, including the inlet and export manifold module, the separation, the gas treatment and the water treatment and injection module, the utility modules (chemical injection, flare and drain systems), etc. The way of arranging the modules depends on the complexity of the process and the functional requirements. The basic arrangement of the modules is in open air resulting in good venitlation of any gas release. The Sevan FPSOs designed for operation in arctic areas will be built with a cover creating a good working environment for the crew and protecting the equipment from exposure to the arctic climate. The cover has a transperancy sufficient for maintaining natural ventilation. FPSO Process Flow The process flow in the process plant is starting by receiving oil from flexible risers running from the producing well to riser connections at the hull. From the risers, the well-stream is routed via the inlet manifold to the 1st stage separator. The well-stream normally consisting of gas, oil and produced water is separated into three phases in the 1st stage separator. The gas is routed to the gas treatment module, the produced water to further treatment and the produced oil is transferred to the 2nd stage separator for further gas removal and stabilizing. The 2nd stage separator has a reduced pressure thus releasing most of the gas still present in the crude oil. The gas is routed via a gas recompression unit back to the gas treatment module. Crude oil from the 2nd stage separator is drained into the cargo tanks. Sevan FPU-ICE sucessfully tested in 2 m surface ice and 20 m deep ice ridges The produced water is treated normally for reinjection into the reservoir. The treatment may include filtration, de-aeration, chemical treatment, etc. A flare system is required for flaring gas in case of shutdown in the process systems or if any unexpected gas releases are experienced. Both on the process side and on the utility side of the process deck a drain system is arranged to enable an operation with zero discharge. MODU Topside Arrangement A drilling unit is designed and optimized for drilling operations. The Sevan drilling units are equipped for deep water drilling operations and are operated as DP units. A typical drilling operation includes activities as top hole drilling and casing operations, cementing, riser and BOP (Blow Out Preventer) installation, drilling, mud operation, logging, well completion, etc. A major part of the operations include handling of pipes, e.g. casing, drillpipes, riser joints, etc. The Sevan MODU is prepared for well testing after the well is completed. The hull has ample storage for a normal well testing operation. The gas treatment module may be a gas compression for reinjection (as on FPSO Sevan Piranema), gas compression for export to a pipeline, or the gas may be used for gas lift to improve the well stream flowgas lift. Some of the gas will also be routed to the fuel gas module to be used for power production. In the fuel gas module the received gas is cleaned and compressed as required for the gas turbines used for power production. In house stress analyses of local and global structural elements

35 Annual report 08 Sevan Marine 35 New Applications FLNG (Floating LNG Production) Sevan FLNG is applying in-house technology to process, liquify, store and offload LNG, LPG and condensate in exportable parcels. GTW (Gas to Wire) Sevan GTW is a floating gas driven powerplant. The unit will be configured with a modularized set of gas and steam turbines ensuring maximum plant efficiency. CO 2 can be extracted from the feed gas for injection into subsea reservoirs.

36 RUSSIA Sevan focus: FPSO, (MODU) NW EUROPE Sevan focus: FPSO, GTW Gulf of Mexico Sevan focus: MODU, (FPSO) INDIA Sevan focus: FPSO, MODU, GTW WEST AFRICA Sevan focus: FPSO, MODU, GTW, FLNG SOUTHEAST ASIA Sevan focus: FPSO, MODU BRASIL Sevan focus: FPSO, MODU, GTW, FLNG AUSTRALIA Sevan focus: FPSO, FLNG

37 Annual report 08 Sevan Marine 37 A global Company A global market The Sevan cylindrical hull provides competitive advantages related to the requirements of the various regions of the world: Brazil Gulf of Mexico North West Europe Russia India South East Asia Australia West Africa Avoiding turret in Avoid disconnecting in High potential for Suitable for Drilling in harsh environments cyclonic environments local content arctic operations deepwater areas

38 MARKET OUTLOOK Forecasted market development for floating drilling units (MODU) and FPSOs are shown in the graphs below. Sevan s cylindrical FPSO offers some very significant benefits such as avoiding the turret and swivel system of a ship shaped FPSO. This particular feature has proven very valuable for developments requiring transfer of large amounts of gas or electric power, which is highly relevant for upcoming gas field developments and for fields to be run on external electric power. For both of the Sevan units currently in operation; FPSO Sevan Piranema and FPSO Sevan Hummingbird, the operational experience and in particular the production uptime has been very good. These references are now bringing Sevan into position with the larger and more conservative oil companies. Fredrik Major, Vice President Business Development/R&D Effected by the recent financial turmoil, a slowdown in contract awards for floating drilling units (MODU) and floating production and storage units (FPSO) was seen towards the end of The recent announcement from Eni Norge AS of the selection of the Sevan 1000 as FPSO for the Goliat development in the harsh and sub arctic Norwegian Barents Sea proves the value of the conceptual benefits and is an excellent reference case. Global FPSO Fleet Working/Contracted Vessels * Global FPSO Fleet Regional Presence Working Vessels FPSO FSO SEMI SPAR TLP OTHER *Calculations for future years are made on the basis of the present fleet, vessels under construction, visible demand and minimum 3-year contract extensions on ½ of contract expirations Aust./N. Zea. Canada FPSO Caspian FSO Far East Indian Ocean Latin America SEMI Med./Black Sea Mid. East SPAR NW Europe TLP SE Asia U.S. Gulf West Africa OTHER Source: ODS Petrodata, March 2009

39 Annual report 08 Sevan Marine 39 It is broadly accepted that the main undiscovered hydro carbon reserves are to be found in Arctic waters. Sevan has during 2008 performed a comprehensive study developing an ice breaking version of its cylindrical hull. The results are demonstrating the superiority of the Sevan design also in these challenging environments with level ice, ice ridges and ice bergs. resources and Sevan has during 2008 matured its FLNG concept with the same conceptual advantages as seen in the other application areas. Another promising emerging market is offshore power generation (GTW) where Sevan has developed a modular floating powerplant with potential for onboard CO 2 extraction and injection. For MODUs, the challenging financial markets have already led to cancellation of construction contracts, adding to the current shortage of ultra deepwater drilling units. Drilling programs in ultra deep waters may therefore be postponed due to shortage of available units, and due to this situation, rates are expected to stay at the current high level for at least another five years. Sevan s MODUs are targeted at the same areas as the traditional drillships and semisubmersibles, but with significant competitive advantages including: better motion characteristics than a drillship, higher carrying capacity and storage volume for oil than a semisubmersible as well as better suitability for arctic and ice infested environments. The Sevan Driller is, due to the cylindrical hull form, combining the best features from the two competing concepts as well as avoiding the disadvantages. The Sevan Driller is also significantly more construction friendly due to the simple hull shape and the clear cut between hull and drilling system. The increased demand for LNG is calling for floating production units (FLNG) with the potential of releasing stranded gas Global Floating Rig Fleet * 350 Besides being well positioned for new jobs in the established markets, Brazil and UK, Sevan has during 2008 been awarded its first projects in Norway and India. During 2008, Sevan has also carried out study work for projects in Australia and West Africa, thereby positioning the company for jobs in these regions as well. There are several advantages with the Sevan concept that can facilitate a higher local content, even in areas with limited existing construction facilities. Examples of this are the potential for hull construction on a barge (selected method for the Sevan Driller) and the very low water depth requirements for outfitting of the unit quayside. Global Floating Rig Fleet Regional Presence SEMI DRILLSHIP *Calculations for future years are based on the current fleet plus the addition of rigs presently on order and under construction Aust./N. Zea. Canada Caspian Far East Indian Ocean SEMI Latin America Med./Black Sea DRILLSHIP NW Europe SE Asia U.S. Gulf West Africa

40 BOARD OF DIRECTORS STATEMENT ON POLICY for CORPORATE GOVERNANCE Corporate Governance in Sevan Marine The Company shall be managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. Sevan Marine follows the Norwegian Code of Practice for Corporate Governance of The following sections provide an explanation of how Sevan Marine addresses the various issues covered by the Norwegian Code of Practice. Business Sevan Marine s vision is to be a world-class company in the technologically challenging segments of the offshore market. Sevan shall utilize its competitive advantages within design, engineering, project execution and operations to offer costefficient and innovative products and solutions to its clients, based on the patented Sevan technology. The Company shall aim at maintaining a local presence in international markets. Growth is to be achieved mainly through organic development and partnership arrangements. The Board believes that the business objectives laid down in the Company s Articles of Association provide predictability and direction for the Company s business strategy and the activities that it may acquire or initiate. The Articles of Association of Sevan Marine is posted at the corporate website. Equity and Dividend The Company shall aim at establishing a sound financial structure, reflecting the capital intensive nature of its business, the offshore market fluctuations, and the duration of the contract portfolio for the Sevan units. In this respect, the Company shall ensure that its equity basis is sufficient. The Company shall provide its shareholders with a competitive return on investment over time. The Company s target is that the underlying values shall be reflected in the share price. Long-term, the Company shall aim at paying a dividend to its shareholders on a regular basis. Near-term, the Company s focus will be on expanding the fleet of Sevan units based on the proprietary Sevan design and on growth in the Company s share price, based on the market s valuation of existing and future earnings. Authorisations granted to the Board of Directors with regards to increasing the share capital shall specify its purpose. The authorizations granted to issue new shares in connection to the financing of capital requirements related to its business activities, stock based incentive schemes, acquisition of treasury shares and issuance of convertible loans are outlined in more detail in the minutes from the Annual General Meeting on April 30, 2008, which are available at the corporate website. The authorization to issue new shares in connection to the employee stock option programme granted at the Annual General Meeting in April 2008 is effective for the maximum statutory period of two years and is not limited to the time of the next Annual General Meeting. This is because the rights granted under the employee stock option programme are effective also for the period following the next Annual General Meeting. Equal Treatment of Shareholders and Transactions with Close Associates The Company has only one class of shares and each share entitles the holder to one vote at General Meetings. Transactions with close associates shall be on an arms-length basis, and always according to the Norwegian Public Limited Companies Act. A private placement of 17.8 million new shares at NOK per share with gross proceeds of NOK 1.2 billion was carried out in June The share issue was carried out pursuant to the authorization to the Board of Directors granted at the Annual General Meeting in April The private placement was effected in order for the Company to part finance its capital requirements including those relating to projects within floating oil production and floating LNG production and for general corporate purposes. In relation to the private placement effected during 2008, the Board of Directors considered the prevailing market conditions and was of the view that the additional equity should be raised in a share issue directed towards large investors with a limited subscription period. Also, the amount of equity desired dictated that professional investors beyond the existing group of shareholders should be invited to participate. Based on this, the Board of Directors concluded that derogation from existing shareholders preferential right to subscribe for the new shares as set out in the Public Limited Liability Companies Act were in the best interest of the Company and the shareholders in general. The subscription price was decided taking into consideration the current reported share price on Oslo Børs, the likelihood of placing the shares and recommendations from the lead managers of the offering. During 2008, the Company has issued a total of 899,767 new shares in connection to the exercise of options under the Company s employee stock option programme. The issuance of 248,647 shares in March 2008 was made pursuant to the Board s authorisations given at the General Meeting in May All other share issuances under the Company s employee stock option programme, a total of 651,120, were made pursuant to

41 Annual report 08 Sevan Marine 41 the authorisations given to the Board of Directors at the General Meeting in April The subscription prices for these issues were based on stock options previously awarded to employees, where the exercise prices were set equal to the market prices at the time of the awards. Freely Negotiable Shares All the shares of the Company are freely negotiable. General Meetings The General Meeting is the Company s supreme corporate body. It elects the Board members and the auditor and is the forum for presentation and discussion of other issues of general interest to shareholders. Every shareholder of the Company has the right to attend the General Meetings. The date of the Annual General Meeting is published as a part of the Financial Calendar for the year, no later than October each preceding year. The Financial Calendar is posted at the Company s website. Notice of the Annual General Meeting is given three weeks in advance at the corporate website. All shareholders are notified two weeks in advance at the address under which they are registered in the Register of Shareholders. Attendance forms may be sent to the Company until the day before the General Meeting in order to enable as many shareholders as possible to attend. If any shareholder is unable to attend, he or she may attend by proxy. The minutes from the General Meeting are published as soon as possible at the corporate website. Nomination Committee A Nomination Committee, which works under the mandate and authority of the General Meeting, makes preparations and recommends candidates for the General Meeting s election of the Board members, as well as proposing the remuneration of the Board of Directors. Pursuant to the Articles of Association, the Nomination Committee consists of the Chairman of the Board of Directors and two members elected by the General Meeting. The members elected by the General Meeting are appointed for two years. Currently, the Nomination Committee consists of Arne Smedal (in capacity of being the Chairman of the Board), Mimi Kristine Berdal, and Christel Borge. Mimi Kristine Berdal works as a lawyer in private practice. Christel Borge is a business and management graduate and works with strategic development at the Telenor group. Within three weeks prior to the General Meeting, the Nomination Committee will provide contact information for its members and any deadlines for submitting proposals to the committee at the corporate website. Corporate Assembly and Board of Directors As of today, the Company is not required to have a Corporate Assembly. The Company s Board of Directors shall pursuant to the Articles of Association consist of five to nine members. Two members shall be elected by and amongst the employees in the Sevan Marine Group and the remaining members shall be elected by the General Meeting. The members are normally elected for a period of two years. During 2008, the Board of Directors has consisted of seven members (five elected by the General Meeting and two by and amongst the employees). Biographical information on each Director is outlined on page 55 of the annual report. All Board members are independent of the Company s main shareholders, whilst three out of five Board members elected by the shareholders are independent of the Company s senior management and material business contacts. The Company aims at complying with applicable gender requirements for Board composition as required. The Work of the Board of Directors The Board of Directors is ultimately responsible for administering the Company s affairs and for ensuring that the Company s operations are organized in a satisfactory manner. Moreover, the Board is responsible for establishing supervisory systems and for overseeing that the business is run in accordance with the Company s core values and ethical guidelines. The Board of Directors established an Audit Committee in 2008 consiting of Board member Hilde Drønen and Deputy Chairman Vibeke Strømme. The Audit Committee assists the Board of Directors in matters relating to the integrity of the Company s financial statements, financial reporting processes and internal controls, and the qualifications, independence and performance of the external auditor. The Board of Directors meets a minimum of 6 times a year and more frequently if required. Risk Management and Internal Control The Board of Directors shall ensure that the Company has good internal control fuctions and appropriate systems for risk management tailored to its operations and in accordance with the Company s core values and ethical guidelines. A review of the Company s most important risk areas and its internal control functions is conducted by the Board on an annual basis. The Group s activities expose it to a variety of risks; including market risks, financial risks and operational risks. The Group s overall risk management programme seeks to minimize the potential adverse effects on the Group s financial performance likely to be caused by its exposure to such risk factors, including but not limited to the use of derivative financial instruments and development of sound health, safety and environment (HSE) principles as well as prudent monitoring of constructional and operational activities. Remuneration of the Board of Directors The remuneration of the Board of Directors is determined on a yearly basis by the General Meeting. The Directors may also be reimbursed for travelling, hotel and other expenses incurred by them in attending Board meetings or in connection with the business of the Company.

42 At the Company s Annual General Meeting in April 2008, the remuneration of the Board of Directors for the financial year 2007 was set to NOK 400,000 for the Chairman, NOK 275,000 for the Deputy Chairman and NOK 225,000 for each of the Board members. Remuneration of each of the Employee representatives was set to NOK 112,500 with equivalent amounts reserved in an Employe Benefit Fund to benefit all employees in Sevan. A Director who has been given a special assignment, besides his or her normal duties as a Director, in relation to the business of the Company, may be paid such additional remuneration as the Directors may determine. The members of the Audit Committee will be separately remunerated for duties relating to the committee responsibilites. Remuneration of the Senior Management The Board of Directors has established guidelines for the remuneration of the members of the Senior Management team. These guidelines are communicated to the Annual General Meeting and are described in the Statement Regarding Establishment of Salary and Other Benefits for Senior Management in Sevan Marine According to the Joint Stock Public Companies Act 6-16A First and Second Article, and is outlined in further detail on page 54. Information and Communication Sevan Marine has establish guidelines for the Company s reporting of financial and other information based on openness and taking into account the requirements for equal treatment of all participants in the securities market. In order to ensure equal treatment of its shareholders, an important aim for Sevan Marine is to make sure that the securities market is in possession of correct, clear and timely information about the Company s operations and condition at all times. This is essential for an efficient pricing of the shares and bonds and for the market s confidence in the Company. symbols. These symbols have been established to identify issuers working professionally and systematically to make financial information readily available to investors and other market players, both nationally and internationally. The Company s Financial Calendar is available at the corporate website. Shareholder information is published at the website as well as sent directly to -subscribers. Take-Overs The Board will handle any possible take-over in accordance with Norwegian corporate law. There are no mechanisms against take-over bids in the Articles of Association or in any underlying steering document, nor are any measures to limit the opportunity to acquire shares in the Company implemented. The Board will not seek to hinder or obstruct an offer for the Company s activities or shares unless there are particular reasons for this. Auditor The Board of Directors has established an Audit Committee. The auditor participates in relevant agenda items at meetings with the Audit Committee and meet with the committee at least once each year. The auditor annually reports the main features of the plan for the audit of the Company to the Audit Committee. Once a year, the auditor presents a review of the Company s internal control procedures, including identifying weaknesses and proposals for improvement. The auditor presents the view on inter nal control procedures through the annual management letter. In connection with the issue of the auditor s report, the auditor provides the Board with a declaration of independence and objectivity, and the auditor participates in the Board meeting at which the Board approves the annual accounts. The proposal for approval of the remuneration paid to the auditor provides a breakdown of the total remuneration related to statutory audit tasks and other assignments and is reported to the Annual General Meeting. Approaches taken to meet this aim include timely and comprehensive reporting of the Company s interim results, and the distribution of the annual and quarterly financial reports. In addition, information of significance for assessing the Company s underlying value and prospects is reported through Oslo Børs and are made available at the Company s website as well as distributed to -subscribers. Further details, such as contact names, addresses and news about the Company, are available at the corporate website. The Company will also strive to ensure that its progress is monitored by securities analysts. The Company has established a designated Investor Relations position for relations with shareholders, bondholders, Oslo Børs, analysts and investors in general. The Company shall seek to clearly communicate its long-term potential, including its strategy, value drivers and risk factors. The Company shall maintain an open and proactive investor relations policy, a best practice website and shall give presentations regularly in connection with interim financial reports. Sevan Marine has been awarded the Oslo Børs Information and English

43 Annual report 08 Sevan Marine 43 Business Strategy Sevan Marine s vision is to be a world-class company in the technologically challenging segments of the offshore market. Sevan shall utilize its competitive advantages within design, engineering, project execution and operations to offer costefficient and innovative products and solutions, based on the proprietary Sevan technology. Priority shall always be given to safety and environment. The Company shall aim at maintaining a local presence in international markets. The Company has so far concentrated its efforts in utilizing the Sevan unit for floating production and drilling purposes. However, due to its versatility, the Sevan design may also be used in connection with applications such as a floating LNG (FLNG) and gas to wire (GTW). The business model has traditionally been based on a build-ownoperate scheme, whereby the Company takes the responsibility for the construction, ownership and operation of the Sevan units. co-ownership in the units may be considered if it is deemed beneficiary. Operations may be carried out by in-house personnel or in cooperation with recognized O&M. Under this model, the Sevan units will typically be leased to clients under multi-year contracts whereby Sevan undertakes to carry out the production or drilling activities on a specific offshore location. Under the build-own-operate scheme, the Company s remuneration typically consists of an agreed day rate, which the client (i.e. the oil company) pays for the bareboat or time charter of the unit. Such day rate will consist of an operating element and a capital element. The Company aims at minimizing the amount of reservoir risk in the remuneration it receives. The license model is an alternative business model which is parti cularly attractive in the current financial market conditions. Should the client prefer to be the owner of a Sevan unit, the Company will evaluate this on a case-by-case basis, taking into consideration factors like risk, remuneration, and construction and engineering capacity. Design Engineering Construction Ownership Operation RATIONALE FOCUS Proprietary technology In-house expertise - Hull - Topside (Kanfa) The Sevan Technology forms the basis for the Company s core competencies and competitive advantages In-house marine and process expertise provides optimization and flexibility through project execution Long-term construction capacity secured with key yards In-house expertise in project management and execution Construction capacity is a critical success factor Construction program requires key competence in execution Ownership to be decided on a case-by-case basis Ownership of units (BOO) or license model Retain full control of own technology Depends on size of project and availability of financing sources Operation & maintenance (O&M) responsibility Combining internal and external resources Lease contracts In-house O&M expertise secures ownership and feedback from operations (lessons learnt)

44 SHAREHOLDER INFORMATION Shareholder Policy The Company shall aim at making the shares of the Company an attractive investment object. The Company shall provide its shareholders with a competitive return on investment over time, in terms of dividend and development in the share price. The Company s target is that the underlying values shall be reflected in the share price. The Company shall be managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. The Company shall seek to clarify its long-term potential, including its strategy, value drivers, and risk factors. The Company shall maintain an open and proactive investor relations policy, a best-practice website, and shall give presentations regularly in connection with interim results. The Company shall provide shareholders, Oslo Børs, and the market as a whole with timely and accurate information. Such information will take the form of annual reports, quarterly interim reports, press releases, stock exchange notifications, and investor presentations, as applicable. Dividend Policy Long-term, the Company shall aim at paying a dividend to its shareholders on a regular basis. Near term, the Company s focus will be on expanding the fleet of Sevan units, based on the proprietary Sevan technology, and on growth in the Company s share price based on the market s valuation of existing and future earnings. In the last five years, there has been no payout of dividends from the Company. Investor Relations Policy In order to treat all its shareholders equally, an important aim for Sevan Marine is to ensure that the securities market at all times is in possession of correct and complete information about the Company s operations and condition, and thereby contribute to the most accurate pricing of its shares. Approaches taken to meet this aim include prompt and comprehensive reporting of the Company s interim results and the distribution of annual and quarterly reports. In addition, information of significance for assessing the Company s underlying value and prospects is reported to the Oslo Børs and made available at the corporate website. Presentations are given in connection with the publication of the quarterly results and throughout the year, both nationally and internationally, to inform existing and potential investors about the Company and its activities. Stock Performance IPO Dec 13, 2004 Sevan Marine ASA Osebx Oslo Børs Oil Service Index

45 Annual report 08 Sevan Marine 45 Shareholder structure The 20 largest shareholders as at April 14, 2009 Shareholder no of share Ownership share % GOLDMAN SACHS & CO - Equity % JP MORGAN CLEARING Corp % BANK OF NEW YORK, Brussels Branch % CLEARSTREAM BANKING % SMEDAL ARNE % MORGAN STANLEY & CO % BR INVESTERING AS % PENSJONSKASSEN STATOILHYDRO % SUPERNOVA AS % HALLINGEN AS % AASEN AS % DEUTSCHE BANK AG LONDON % BANK OF NEW YORK, Brussels Branch % MP PENSJON % JPMORGAN CHASE BANK % EUROCLEAR BANK S.A./N.V % STATE STREET BANK AND TRUST CO % SOCIETE GENERALE GLOBAL SEC % AVANSE NORGE (II) VPF % STATOIL FORSIKRING A.S % 20 largest shareholders % Remaining % Total % Shareholder Distribution As at April 14, 2009 Holding Norwegian shareholders Foreign shareholders Total shareholders From To No of No of % of No of No of % of No of No of % of share- shares shares share- shares shares share- shares shares holders holders holders % % % % % % % % % % % % < % % % Total % % %

46 QHSE Management Sevan Marine promotes and supports the HSE zero mindset, and we believe that all accidents resulting in harm to people and environment can be prevented by a proactive approach to QHSE. The corporate quality policy promotes and supports customer focus and commitment to the activities undertaken by Sevan Marine, and continuous improvement is one of the key principles of the policy. Sevan Marine has implemented a QHSE Management System (MS) that is electronically based and available and accessible on the corporate webpage. Supporting IT systems are implemented to assure the quality of QHSE processes as well as business processes. The QHSE MS is designed on the basis of the principles found in both legislation and internationally recognized standards. The QHSE MS is certified by DNV to the listed standards below. Reidun B Olsen Vice President QHSE Basis for the QHSE MS: ISO 9001:2000 Quality Management System DNV Certified in 2007 ISO 14001:2004 Environmental Management System DNV Certified in 2008 OHSAS 18001:2007 Occupational Health and Safety Assessment Series DNV Certified in 2008 ISM Code International Safety Management DNV Certified in 2008 ISPS Code International Ship and Port Facility Security DNV Certified in 2008 Achilles Joint Qualification System Certified in 2007 FPAL (First Point Assessment) Certified in 2008 SEVAN MARINE GROUP QHSE POLICY Ensuring the safety and health of our employees, protecting the environment, and deliver quality in everything we do, are core business principles of Sevan. The QHSE Management System was established with participation from employees from different sections of the organization, ensuring acknowledgement and commitment to its principles: Health We shall evaluate and mitigate the risks to reduce the hazards at work places to an acceptable level. We shall monitor occupational health for our employees. Safety We shall manage our activities based on international recognized safety standards. We shall focus on the communication and implementation of these standards. Environment We shall protect the environment and minimize the amount and effect of discharges, emissions and waste disposals from our activities. Quality Management We shall fulfill our customers needs and expectations and make commitments we fully understand. Continuous Improvement We shall verify that our operations meet agreed requirements. We shall monitor and continuously improve our operational activities and the organization s performance at large. Sevan Marine shall comply with HSE legal requirements as well as any other requirements applicable to our operations.

47 Annual report 08 Sevan Marine 47 Focus on building a company Diversity and competence has been, are, and will continue to be two of Sevan s key factors to success. A wide range of nations are represented through employment in Sevan, and during 2008 new employees and additional nations have become a part of our organization. The increase in number of employees during the year is largely contributed by the operations part of the Sevan organization. We currently have own employees, as well as contractors, both on the English sector of the North Sea, as well as in Brazil. This means new and exiting challenges to HR, and we are looking forward to continue to develop our organization through increasing our staff with competent personnel as well as continue to improve our systems. During 2008, Sevan has continued the preparations for the commencement of operations for the first Sevan drilling unit and are organizing for doing this with our own crew on board. The change of location of the Sevan Driller from the Gulf of Mexico to Brazil has constituted new challenges that the Brazilian part of the Sevan organization is looking forward to take on in collaboration with the other areas of the Sevan organization. Hanna Moland Vice President Human Resource & Administration Motivated and competent employees are one of the key competitive advantages for Sevan. We will continue to develop our efforts to enable our employees to be fit to meet new challenges. Commitment and creation of opportunities to make use of, and continue to develop, each individual s skills are key factors we aim to stimulate. Our goal is to utilize the workforce as well as organizational tools for creating a stimulating environment, developing and encouraging all employees to make the utmost of their skills and talents for the best for each employee as well as for Sevan. In this way we shall succeed in building Sevan even stronger, and remain competitive with regards to each individual employee s success as well as Sevan s success. Numbers of employees (Group)

48 Financial statements Board of Directors Report 50 Statement regarding Salary and Benefits for Senior Management 54 Board of Directors 55 SEVAN MARINE GROUP Consolidated Balance Sheet 56 Consolidated Income Statement 57 Consolidated Statement of Changes in Equity 58 Consolidated Cash Flow Statement 59 Notes to the Consolidated Financial Statements 60 Note 1 General Information 60 Note 2 Summary of Significant Accounting Policies 61 Note 2.1 Basis of Preparation 61 Note 2.2 Consolidation 61 Note 2.3 Segment Reporting 62 Note 2.4 Foreign Currency Translation 62 Note 2.5 Property, Plant and Equipment 62 Note 2.6 Construction in Progress 63 Note 2.7 Construction Contracts 63 Note 2.8 Intangible Assets 63 Note 2.9 Impairment of Non-Financial Assets 63 Note 2.10 Financial Assets 63 Note 2.11 Inventory 64 Note 2.12 Trade Receivables 64 Note 2.13 Cash and Cash Equivalents 64 Note 2.14 Share Capital 64 Note 2.15 Borrowings 64 Note 2.16 Deferred Income Tax 64 Note 2.17 Employee Benefits 64 Note 2.18 Provisions 65 Note 2.19 Revenue Recognition 65 Note 2.20 Leases 65 Note 2.21 Dividend Distribution 65 Note 3 Financial Risk Management 66 Note 3.1 Financial Risk Factors 66 Note 3.2 Fair Value Estimation 66 Note 4 Critical Accounting Estimates and Judgements 67 Note 4.1 Critical Accounting Estimates and Assumtions 67 Note 4.2 Critical Judgements in Applying the Entity s Policies 67 Note 5 Segment Information 68 Note 6 Property, Plant and Equipment 70 Note 7 Intangible Assets 71 Note 8 Investments in Associates 72 Note 9 Derivative Financial Instruments 73 Note 9a Financial Instruments by Category 73 Note 9b Credit Quality of Financial Assets 74 Note 10 Trade and Other Receivables 75 Note 11 Cash and Cash Equivalents 76 Note 12 Share Capital 76 Note 13 Share-based Payments 77 Note 14 Trade and Other Payables 78 Note 15 Borrowings 79 Note 16 Deferred Income Tax 80 Note 17 Retirement Benefit Obligations 81 Note 18 Provisions for Other Liabilities and Charges 83 Note 19 Construction Contracts 83 Note 20 Employee Benefit Expense 84 Note 21 Financial Income and Financial Expense 87 Note 22 Income Tax Expense 87 Note 23 Earnings per Share 88 Note 24 Dividend per Share 88 Note 25 Cash Generated from Operations 88 Note 26 Contingencies 89 Note 27 Commitments 89 Note 28 Related-party Transactions 90 Note 29 Operating Leases 90 Note 30 Events after Balance Sheet Date 91 Note 31 Other Expense 92 Note 32 Inventory 92 Note 33 Other Long Term Receivables 92 Note 34 Revenues 92 Note 35 Business Combinations 92

49 Annual report 08 Sevan Marine 49 SEVAN MARINE ASA Balance Sheet 94 Income Statment 96 Cach Flow Statement 97 Notes to the Financial Statements 98 Note 1 Equity 100 Note 2 Taxes 101 Note 3 Tangible and Intangible Fixes Assets 102 Note 4 Investments in Subsidaries and Receivables and Liabilities to Companies within the Group 103 Note 5 Receivables and Liabilities 105 Note 6 Cash and Bank Deposits 105 Note 7 Shares and Shareoptions owned or Controlled by the Board of Directors and Senior Management 105 Note 8 Shareholder Information 106 Note 9 Employee Benefit Expense 107 Note 10 Pension Liabilities 108 Note 11 Other Operating Expense 110 Note 12 Rental and Lease Agreements 110 Note 13 Earnings Per Share 110 Note 14 Construction Contracts 110 Note 15 Share Based Incentive Plans 111 Note 16 Related-party Transactions 112 Note 17 Financial Risk 112 Note 18 Contingencies 113 Note 19 Events After Balance Sheet Date 113 Note 20 Borrowings 114 Note 21 Derivate Financial Instruments 115 Note 22 Financial Income and Financial Expense 115 Note 23 Inventory 115 Auditor s Report 116 Responsibility Statement 117

50 BOARD OF DIRECTORS REPORT 2008 Sevan Marine ASA (the Company ) and its subsidiaries (together with the Company; the Group ) is a leading company within floating production and also has activities within deepwater drilling, based on its proprietary cylindrical hull technology. The Company is also developing other applications, including floating LNG production and power plants with CO 2 capture. The Group s business is based on a build-own-operate model. Alternatively, a license model may be applied. The Company is a Norwegian public limited liability company. Several of its unit-owning subsidiaries are Singaporean private companies with registered office in Singapore. The Company also has offices in Brazil and UK. In 2008 the most significant event was the award by Eni Norge AS of the Goliat contract in the Barents Sea, marking the Company s entry into the segment for large FPSOs in sub-arctic conditions. Two new drilling contracts were awarded in June, for Petrobras and ONGC. The Board will continue to evaluate strategic options for the drilling activities including, but not limited to, a possible de-merging into a separate listed entity. Unprecedented difficult financial markets during the last year caused challenges for the Company. In spite of the firm drilling contracts awarded with significant counterparties, it has proven difficult to secure the required financing. The working capital position of the Group has suffered, mainly due to higher-than-expected costs for completing Sevan Driller, commissioning and start-up costs for FPSO Sevan Hummingbird and deferred income from the FPSO Sevan Voyageur, due to the liquidation of Oilexco North Sea Ltd. Although to some extent mitigated by income from the Goliat post-feed contract, these events have in total adversely affected the financial condition of the Group. The Company has evaluated and invested significant efforts in exploring the possibilities of securing necessary funding by way of equity raising, asset sales, alternative financing schemes and attracting investors to its drilling business. These efforts are ongoing. The total capital requirement is estimated to a minimum of USD million, including a Group working capital requirement of USD million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. The Company is aiming at financing as much as possible of the capital requirements by way of asset sales. As of the date of this report, the Group has four FPSO contracts with clients, including the Goliat Sevan 1000 FPSO. FPSO Sevan Piranema, the Group s first cylindrical FPSO, continued to demonstrate high efficiency with a 99.9% production uptime during the last 12 months. The FPSO is operating for Petrobras on the Piranema field in Brazil. During 2008, FPSO Sevan Hummingbird became the Group s first FPSO to operate in the North Sea. Following some delays relating to problems with the ballast piping which occurred during the commissioning, oil production commenced on the Chestnut field in the central UK North Sea on September 20, 2008, for Venture Production Plc. The FPSO has been exposed to severe weather and motions were in line with model testing and analyses. For its first six months of operation, the unit had an average technical availability of 97.6%. The Group s third FPSO, the Sevan Voyageur, started mobilization for the Shelley field in the Central UK North Sea on November 29, The unit left the shipyard 19 months after signing the contract with the client. Early 2009, the client was taken under administration. In March 2009, Sevan entered into a Memorandum of Understanding with Premier Oil and Gas Services Ltd for the continued provision and operation of the FPSO Sevan Voyageur on the Shelley field. The FPSO is currently moored on the field. Hook-up of the field subsea facilities is expected to take place mid The unit will be operating under a production sharing contract whereby Sevan will be compensated for its actual operating cost and additionally receive a tariff payment based on actual monthly revenue from oil production from the field. In February 2009, Eni Norge AS selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the parties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement. The hulls for FPSO Sevan 300 no. 4 and 5 are under construction at the Jiangsu Hantong Shipyard in China. The units are currently marketed to clients and expected delivery time for complete units is approximately 18 months after contract award. The Group has as of the date of this report only entered into commitments in relation to the construction of the hulls for the two units. Negotiations are ongoing with the shipyard regarding construction scope and progress. As of the date of this report, the Group has entered into three drilling contracts with clients. The commissioning of the Sevan Driller, which is contracted to Petrobras under a six-year contract, is ongoing at COSCO s shipyard in Nantong, China. The drilling unit which will operate in Brazil

51 Annual report 08 Sevan Marine 51 was originally intended to go to the US Gulf. The relocation has caused a rescheduling of the delivery of the unit to third quarter of Petrobras will cover any additional costs relating to change of location. In June 2008, Sevan was awarded two additional drilling contracts. Sevan Driller II was contracted to ONGC for three years with delivery end-2010, and Sevan Driller III was contracted to Petrobras S.A. for six years with delivery by mid Sevan is working to secure financing for the two units. The required capital and related processes is described in further detail in the Capital and Financing section of this report. These contracts will only be pursued if financing can be raised. Should the contracts be terminated, estimated future termination cost amounts to USD 50 million in total. In January 2009, Kanfa Aragon AS and Samsung Heavy Industries signed a contract for the supply of a liquefied natural gas production topside to the world s first Floating Liquefied Natural Gas (FLNG) production vessel. Income Statement and Balance Sheet Consolidated revenues for 2008 totaled USD 120 million. The Group incurred an operating loss of USD 130 million, an increase of USD 23 million from 2007, mostly related to certain one-off items including expensing of the mobilization of FPSO Sevan Hummingbird of USD 61 million as well as a provision made for receivables from Oilexco North Sea Ltd of USD 4 million. Net loss came to USD 108 million, compared to a loss of USD 115 million in At December 31, 2008, total consolidated assets amounted to USD 1,927 million, of which Sevan capital assets amounted to USD 1,693 million and USD 50 million was cash and cash equivalents. At year end, the equity ratio was 38%. The Group has prepared the financial statements in accordance with International Financial Reporting Standards (IFRS). Research and Development Between 2001 and 2008, Sevan invested a total of USD million in relation to the development of the Sevan Technology which was expensed through the Profit and Loss as incurred. USD 0.5 million of this amount was expensed in In addition, Sevan has capitalized USD 3 million in relation to development of the Sevan design for production, storage and offloading of LNG during The Group expects to capitalize on those expenses in the future. Capital and Financing Net consolidated cash flow for 2008 was minus USD 173 million. Cash flow from operations amounted to minus USD 157 million, cash flow from investments amounted to minus USD 538 million and cash flow from financing amounted to USD 522 million. In June, the Company completed a share issue with gross proceeds of USD 224 million in order to part-finance the Company s projects within floating oil production and floating LNG production and for general corporate purposes. In April 2009, Luxor Capital Partners, LP and Luxor Capital Partners Offshore, Ltd. or affiliates thereof ( Luxor ) agreed to subscribe for a USD 12 million convertible bond to be issued by the Company, pursuant to the proxy given in the general meeting on April 30, Subject to the approval by shareholders in an extraordinary general meeting (EGM) to be held on May 4, 2009, Luxor has also undertaken to subscribe for convertible bonds in the amount of an additional USD 12 million. In addition, Luxor will have the right to subscribe for additional convertible bonds up to the amount of USD 24 million within 30 days of the EGM (which period may be extended by the Company to 60 days). The convertible bond has a term of four years and a fixed coupon of 15 per cent p.a. Interest payments may, at the Company s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD at the day of the exercise of the conversion right. The net proceeds of the Bonds shall be used for general corporate purposes. The convertible bond issue is a part of the Company s strategy of establishing a sound financial basis for its activities. Limited availability of funding has resulted in a tight financial position for the Group. This has adversely affected the Group s ability to finance its ongoing projects. The Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. Should the contracts be terminated, estimated future termination cost amounts to USD 50 million in total. For the other business of the Group (including the construction of Sevan Driller), the Board estimates the capital requirement, to be in the order of USD million. The Company is in the process of securing the required funding. The Company has received an offer for one of its units and is also experiencing interest from investors to invest in its floating production and drilling business. The received offer for purchase of a unit is subject to documentation and final agreement and represents a purchase price in line with book values. In total, it is the Board s opinion that the measures taken will be sufficient to raise the required capital, including covering the working capital need, and continue the operations as a going concern. Going Concern In accordance with the Norwegian Accounting Act s section 3-3, the Board confirms that the annual accounts have been prepared based on the going concern assumption. The basis for this assump tion is the Company s strategic plan, financial prognoses and successful outcome of the ongoing financing initiatives. As described in further detail above, the estimated minimum total capital requirement is USD million. Over the last year, the Company has evaluated several possibilities of securing necessary funding, and is aiming at financing as much as possible of the capital requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD million directed towards Luxor may be subscribed subject to approval by the EGM on May 4, 2009.

52 Group. The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group s assets in a strained situation are lower than book values. Risk The Company was founded in 2001 and has since its inception focused on the engineering, construction and the subsequent operation of the Sevan units, based on its proprietary technology. The Group s new-building program requires continuous monitoring and ability to control and adapt to inherent risks. Following more than 18 months operation in Brazil and six months in the North Sea, the Sevan Technology is proven in these areas and the technology risk is therefore reduced. Recorded motions have been in line with model testing and analyses. The Group s activities expose it to a variety of financial risks, including market risks, credit risks and liquidity risks. The Company s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects of such risks on the financial performance of the Company. The Company will therefore continue to manage its currency and interest exposures through certain derivative financial instruments in accordance with market practice and to maintain flexibility in funding by keeping committed credit lines available. The Company utilizes a combination of equity and bank/bond financing to finance the construction of the Sevan units. Obtaining such financing may be subject to market risks and other risks that may influence the availability, structure and terms of such financing. When the financial markets do not function properly, this risk becomes particularly prevailing for a capital intensive company like Sevan which is not yet in a position to support its new building program with cash flow from operations. Historically, demand for offshore exploration, development and production has been volatile and closely linked to the price of hydrocarbons. The demand for the Group s services in connection with production and exploration in the offshore oil and gas sector is particularly sensitive to price decreases, fluctuations in production levels and disappointing exploration results. Contracts in the offshore sector require high standards of performance and safety, entailing considerable risks and responsibilities. These include technical, operational, commercial and political risks. There is often considerable uncertainty as to the duration of offshore charters because most of the agreements give the operator extension options. Changes in the legislative and fiscal framework, including tax rules, governing the activities of the oil companies could have material impact on exploration, production and development activity or affect the Company s operations directly. The clients of the Group are generally oil companies with a strong financial basis, but as with suppliers and customers in general there is always a risk that unforeseen financial difficulties on the client side may arise which could have material adverse effects on the financial condition, the cash flows and/or the prospects of the Parts of the Group s loan financing carry floating interest rates, which adjust with the market on a periodic basis. The Group may therefore be exposed to risks due to fluctuations in interest rates for any unhedged portion of such exposure. The value of the Group s charter contracts may be affected by changes in currency exchange rates or exchange control regulations. Currency exchange rates are determined by forces of supply and demand in the currency exchange markets. In addition to the capital required to fund existing projects and operations, the Group may require additional capital in the future due to unforeseen liabilities or potential acquisitions, joint ventures or other business opportunities that may be presented to it. There can be no assurance that the Company will be able to obtain necessary financing in a timely manner on acceptable terms, particularly given the prevailing turmoil in the global financial markets. In connection with the construction of the Sevan units, the Company has used its best efforts to prepare proper specifications, including the supply and installation of equipment. Despite these efforts, there can be no assurances that delays and cost overruns will not occur and such events, if occurring, could have an adverse impact on the Company s financial position. The cost of constructing offshore units has increased considerably over the recent years. Delays have incurred on several projects. Although the cost escalations in the industry is expected to stabilize going forward, it is not possible to fully hedge against such cost increases and delays, as the Group s construction contracts contain both fixed price elements and variable elements, including the use of labour and materials. The cost of the Sevan units has therefore increased more than expected, and some delays have occurred, although the relative cost advantage and competitiveness compared to conventional units has, in the Company s opinion, been kept. The experience gained to date by Sevan, the shipyards and main suppliers, is expected to benefit the construction of future units. However, the Company cannot guarantee that cost overruns and delays will not occur in the future. HSE and Corporate Governance Developing sound health, safety and environment (HSE) principles is a critical success factor for the Company. The Company has an environmentally friendly profile and continually seeks new ways to reduce the environmental impacts of its operations. Sick leave came to 2.4% for the Company and 1.8% for the Group. No serious work incidents or accidents resulting in personal injuries or damages to materials or equipment occurred in The Company is certified according to several ISO standards with respect to concept development, design, engineering, procurement, construction, installation and operation of mobile offshore units, including ISO 9001:2000 (quality), ISO 14001:2004 (environment), OHSAS :2007 (health and safety), as well as ISM (international safety code) and ISPS (international ship and port facility security code). The Company is also registered in the FPAL and Achilles supplier management information systems. The working environment is good. The Board and the management continue to focus on equal positions and opportunities for men and

53 Annual report 08 Sevan Marine 53 women among its employees and Board members. 35% and 24% of the employees in the parent company and the Group respectively, are women. Four of twelve members of the senior management team are women. Two of five board members elected by the shareholders are women. The Company aims at maintaining sound corporate governance routines that provide the basis for long-term value creation, to the benefit of shareholders, employees, other interested parties and the society at large. As a basis for its conduct of corporate governance, the Company uses the national Norwegian Code of Practice for Corporate Governance of December The status of corporate governance is addressed in a separate section of the annual report. During 2008, the number of employees increased from 242 to 343. The Board There has been no change in the composition of the Board during the financial year. Outlook The main focus for Sevan is to consolidate its ongoing business in light of the challenging market conditions. As a part hereof, priority is given to optimize the current contract portfolio, secure the required financing for existing commitments, reduce operating cost and maintain a high uptime on operating units. A special focus is given to the execution of the Sevan Driller new-building contract. Several oil companies have announced a reduction in E&P budgets. However, the Board still sees opportunities for cost efficient solutions. For new projects, focus will be on securing contracts for the Sevan 300 no. 4 and 5 hulls. The Board would like to thank the employees for the great efforts and achievements during a challenging year. Annual Results and Year-End Appropriations The Board proposes the following appropriation of the annual loss of USD 13,473,731 in the parent company Sevan Marine ASA: Loss transferred from other equity : USD 13,473,731 Total appropriation : USD 13,473,731 The Company had unrestricted equity of USD 339,431,720 as of December 31, Arendal, April 30, 2009 The Board Directors of Sevan Marine ASA Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO

54 STATEMENT REGARDING ESTABLISHMENT OF SALARY AND OTHER BENEFITS FOR SENIOR MANAGEMENT IN SEVAN MARINE ASA ACCORDING TO THE JOINT STOCK PUBLIC COMPANIES ACT 6-16A FIRST AND SECOND A R T I C L E The Board of Directors of Sevan Marine ASA has in accordance with the Joint Stock Public Companies Act 6-16a first and second article prepared a statement that includes instructions for establishment of salary and other benefits to CEO and senior management. Information Regarding Senior Management Senior management include the following employees: Jan Erik Tveteraas, CEO Oskar Mykland, CFO Birte Norheim, Vice President Finance Erling Ronglan, Vice President Operations Fredrik Major, Vice President Business Development/R&D Helle Hundseid, Vice President Projects Erskine Rozario, Vice President Engineering and Construction Hanna Moland, Vice President HR & Administration Reidun B. Olsen, Vice President QHSE Stein Giljarhus, President Sevan Drilling Aslak Hjelde, Managing Director Kanfa AS Gerson Peccioli, President Sevan Brazil Salary and Payment-in-Kind The major objectives of the Company s salary policy for senior management is to provide a framework for remuneration, contribute to the recruitment of the skills required and secure relevant competence development. The salary package for the CEO and other senior management includes company car, along with news papers, mobile phone and refund of internet subscription, in accordance with common market practice. Senior management participates in the Company s bonus, stock option, collective pension and insurance schemes along with all employees in the Group. The Company s salary system is based on defined roles and responsibilities, clear goals and performance indicators, combined with evaluation of results and performance. The total salary package shall be at a level that corresponds to the market median in the different markets in which the Company operates. The annual wage and salary regulation is set to July 1, and shall be based on the general wage and salary development in the market, combined with an evaluation of the previous year s results and performance. Any individual salary adjustment shall be based on the Company s Annual Performance Appraisal. Bonus Program, Performance Incentives and Pension Plan The Group s and the business areas results, both financial and non-financial, form the basis of the bonus program. The relevant performance targets are tied to the Group s main objectives. The Company s bonus system rewards all employees when the objectives are met, and may constitute up to 20-50% of the yearly base salary, pending on work tasks and responsibilities. Bonus is paid annually, based on a performance appraisal linked to the previous year s results, following the approval of the Board of Directors. The Board s intention with the bonus program is to realign objectives between the Company and the employees, increase motivation, enthusiasm and team spirit in the organization, as well as reward good leadership and internal cooperation. Stock Option Program The Company uses stock options as a part of the remuneration package for the senior management. Any distribution of stock options is subject to authorization from the Annual General Meeting. Severance Pay The CEO will receive 18 months salary following termination, subject to certain conditions. Consequences for the Company and the Shareholders The Board has confidence in the employees and their motivation and capacity to contribute to the Company s results. The Board believes that the Company s future success depends to a high degree on highly motivated, qualified and competent staff. An established and well defined salary and compensation program allows the Company to remain competitive in the market. The employee remuneration is considered an essential contributor to the strategy of creating shareholder value. Arendal, April 30, 2009 The Board Directors of Sevan Marine ASA Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO

55 Annual report 08 Sevan Marine 55 The board of directors Arne Smedal Chairman Mr. Smedal holds an MSc in hydro dynamics from the Norwegian institute of Techno logy (NTNU) in Trondheim. Mr. Smedal has previous experience as President and CEO of Navis ASA 1997 to 2001, Executive Vice President of Hitec ASA from 1996 to 1997, founder and President of Marine Consulting Group and Advanced Production and Loading (APL) from 1989 to 1996, as well as various positions, incl. President at Pusnes from 1979 to Before this, Mr. Smedal worked for Det Norske Veritas (DNV) from 1974 to 1979, and has been a Board member of various companies within shipping and electronics industry. Mr. Smedal is a Norwegian citizen with residence in Arendal, Norway. Vibeke Strømme Deputy Chairman Mrs. Strømme holds an MSc in petroleum technology engineering and an MBA from IMD, Lausanne. Mrs. Strømme is Senior Vice President of Mesta AS and has previously held leading positions in Philips Petroleum Company Norway AS, Viken Engerginett AS and Hafslund ASA. She also has experience within managment consulting. Mrs. Strømme has experience from several Boards of Directors and is a Norwegian citizen with residence in Oslo, Norway. Kåre Syvertsen Board member and Vice President Technology Mr. Syvertsen holds an MSc in ship construction from the Norwegian Institute of Technology (NTNU) in Trondheim from Mr. Syvertsen was previously Vice President Technology of Navis from 1997 to 2001, Vice President Technology of Advanced Production Loading (APL) from 1994 to 1997, Project Manager of Marine Consulting Group from 1990 to 1994 and Professor in Marine Technology at the Norwegian Institute of Technology (NTNU), Trondheim, from 1976 to Mr. Syvertsen is a Norwegian citizen with residence in Kristiansand, Norway. Hilde Drønen Board member Mrs. Drønen holds a Business Administration degree from the Norwegian School of Management (BI) from Mrs. Drønen works as CFO of DOF ASA and has, inter alia on this basis, extensive experience from the offshore sector. Mrs. Drønen is represented in several other Boards of Directors; inter alia the Board of Directors of Tide ASA and DOF Subsea ASA. Mrs. Drønen is a Norwegian citizen with residence in Bekkjarvik, Norway. Stephan M. Zeppelin Board member Mr. Zeppelin holds a Bachelor of Science degree in Business Administration with emphasis on finance from the University of Colorado, Leeds School of Business (1997). From 2004 to 2009 he worked as Director of Research at Wexford Capital LLC focusing on oil services, shipping and shipbuilding. Mr. Zeppelin has previous experience as Analyst/Associate at Bear Stearns & Co., New York, from 2000 to 2004, as Associate at Globecon Group Ltd from 1999 to 2000 and as Associate at Bankers Trust, New York, from 1998 to Mr. Zeppelin is an American citizen with residence in CT, USA. Kristin Urdahl Employee representative of the Board and Senior Engineer Mrs. Urdahl holds an MSc in Mechanical Engineering from South Dakota School of Mines and Technology, USA, from Since 2005, she has been employed as Senior Engineer for Sevan Marine ASA. Mrs. Urdahl worked for Det Norske Veritas from 1991 to She has broad experience from various departments within DNV, including Manager and Safety Consultant/Class Surveyor towards both the Maritime- and the offshore Industries. Mrs. Urdahl is a Norwegian citizen with residence in Arendal, Norway. Kjetil Soma Employee representative of the Board and Controller Mr. Soma holds a BA in Business and Administration from the University of Stavanger, Norway. Since 2006, Mr. Soma has been employed as Controller for Sevan Marine ASA. Mr. Soma has previous experience as Auditor in PricewaterhouseCoopers from 1998 to Mr. Soma is a Norwegian citizen with residence in Sandnes, Norway.

56 Consolidated balance sheet as at December 31 Figures in USD 1,000 note ASSETS Non-current assets Sevan capital assets Other fixed assets Intangible assets Investments in associates Deferred tax assets Other non-current assets Total non-current assets Current assets Trade and other receivables 10, Inventory Derivative financial instruments Cash and cash equivalents Total current assets Total assets EQUITY Capital and reserves attributable to equity holders of the Company Share capital Other equity Total shareholders equity Minority interest Total equity LIABILITIES Non-current liabilities Interest-bearing loans and borrowings Derivative financial instruments Retirement benefit obligations Deferred tax liability Total non-current liabilities Current liabilities Interest-bearing loans and borrowings Trade and other payables Other current liabilities 14, Provisions Total current liabilities Total liabilities Total equity and liabilities

57 Annual report 08 Sevan Marine 57 Consolidated income statement Figures in USD 1,000 note Operating income 5,19, Operating expense 5, Depreciation, amortisation and impairment 6, Employee benefit expense Other operating expense Net operational currency gain/(loss) Total operating expense Operating profit/(loss) Financial income Financial expense Share of profit/(loss) from associates Net financial profit/(loss) Profit/(loss) before tax Tax income/(expense) Annual net profit/(loss) Attributable to: Equity holders of the Company Minority interest Earnings per share for profit/(loss) attributable to the equity holders of the Company during the year (USD per share): - Basic Diluted Arendal, April 30, 2009 The Board Directors of Sevan Marine ASA Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO

58 Consolidated statement of changes in equity Figures in USD Attributable to equity holders of the Company Other equity Share Share CTA Retained Minority Total note capital premium earnings interest equity Balance at January 1, Total proceeds from share issues Share issue costs Tax effect of share issue costs Net loss for the year Expensed portion of value of share options Currency translation adjustment (CTA) Balance at December 31, Figures in USD Attributable to equity holders of the Company Other equity Share Share CTA Retained Minority Total note capital premium earnings interest equity Balance at January 1, Total proceeds from share issues Minority interest through acquisition Share issue costs Reclassification from prior years Tax effect of share issue costs Net loss for the year Expensed portion of value of share options Currency translation adjustment (CTA) Balance at December 31,

59 Annual report 08 Sevan Marine 59 Consolidated cash flow statement Figures in USD 1,000 note Cash flows from operating activities Cash from operations Income from associates Interest paid Net cash generated from operating activities Cash flows from investment activities Acquisition of subsidiary, net of cash acquired Purchases of property, plant and equipment (PPE) Purchases of intangible assets Net cash for investment activities Cash flows from financing activities Proceeds from issuance of ordinary shares Proceeds from borrowings Repayments of borrowings Exchange rate changes foreign subsidiary Exchange rate effects Net cash from financing activities Net cash flows for the period Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

60 Sevan Marine group Notes to the consolidated financial statement Note 1 Corporate information Sevan Marine ASA (the Company ) and its subsidiaries (together with the Company the Group ) are engaged in development, construction, ownership, and chartering of floating production units and drilling units, which are based on the proprietary technology of the Company. The Group is also developing other application types for its cylindrical Sevan hull, including floating LNG production and power plants with CO 2 capture. The Company is a public limited liability company incorporated and domiciled in Norway. The address of its registered office is Kittelsbuktveien 5, 4836 Arendal. The Company s shares are listed on the Oslo Stock Exchange. These consolidated financial statements were approved by the Board of Directors on April 30, Overview of the Group s structure as of December 31, 2008: Subsidiaries Registered office Interest held Equity Profit/(loss) 2008 Kanfa AS Asker 100% Mator AS Porsgrunn 100% Kanfa Aragon AS Bergen 50% Sevan Production Pte Ltd Singapore 100% Sevan Marine do Brasil Ltda Brazil 100% Piranema Servicos de Petroleo Ltda Brazil 100% Sevan Production AS Arendal 100% Sevan Invest AS Arendal 100% Sevan Production General Partnership Singapore 80% Sevan Production Services Ltd UK 80% Sevan Production UK Ltd UK 100% Sevan Pte Ltd Singapore 100% Sevan Drilling AS Arendal 100% Sevan Drilling Rig Pte Ltd Singapore 100% Sevan Drilling Pte Ltd Singapore 100% Sevan 300 Pte Ltd Singapore 100% Sevan Drilling ASA Arendal 100% Sevan Holding I AS Arendal 100% Sevan Holding II AS Arendal 100% Sevan Holding III AS Arendal 100% 11-5 Sevan Holding IV AS Arendal 100% 11-5 Sevan Holding I Pte Ltd Singapore 100% Sevan Holding II Pte Ltd Singapore 100% Sevan Holding III Pte Ltd Singapore 100% Sevan Holding IV Pte Ltd Singapore 100% Sevan Drilling Limited UK 100% 0 0 Sevan Marine Servicos de Perfuracao Ltda Brazil 100% Sevan Services AS Arendal 100% 12-7 Sevan Drilling Rig AS Arendal 100% 14-5 Sevan Drilling Rig II AS Arendal 100% 14-6 Sevan Drilling Rig IV AS Arendal 100% 14-6 Sevan Drilling Rig V AS Arendal 100% 14-6 Sevan Drilling Rig VI AS Arendal 100% 14-6 Sevan Drilling Rig VII AS Arendal 100% 14-6 Sevan Drilling Rig VIII AS Arendal 100% 14-6 Sevan Drilling Rig IX AS Arendal 100% 14-6 Sevan Drilling Rig II Pte Ltd Singapore 100% Sevan Drilling Rig IV Pte Ltd Singapore 100% Sevan Drilling Rig V Pte Ltd Singapore 100% -4-4 Sevan Drilling Rig VI Pte Ltd Singapore 100% -4-4 Sevan Drilling Rig VII Pte Ltd Singapore 100% -4-4 Sevan Drilling Rig VIII Pte Ltd Singapore 100% -4-4 Sevan Drilling Rig IX Pte Ltd Singapore 100% -4-4 Associated Companies Registered office Interest held Equity Profit/(loss) 2008 Kanfa-Tec AS Asker 49.99% (Amounts in the table above have been prepared in local GAAP and presented in USD 1,000)

61 Annual report 08 Sevan Marine 61 Note 2 - Summary of significant accounting POLicies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all financial years presented. The presentation currency applied is USD and is corresponding with the functional currency in the main part of the underlying group companies. All numbers are in USD 1,000 unless otherwise stated. 2.1 Basis of Preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by EU and valid as of The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation available-for-sale financial assets and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. Amendments to published standards effective in 2008 IFRIC 14, IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction effective from January 1, IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognized as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. Adoption of this standard and interpretation did not have any effect on the financial performance or position of the Group and did not give rise to additional disclosures. Standards early adopted by the Group The Group has no early adopted standards. Standards, amendments and interpretations effective in 2008 but not relevant to the Group: The following standards, amendments and interpretations to issued standards are mandatory for accounting periods beginning on or after January 1, 2008: IFRIC 11 IFRS 2 Group and Treasury Share Transactions effective from January 1, IFRIC 11 applies to arrangements whereby an employee is granted rights to an entity s equity instruments to be accounted for as an equity-settled scheme, even if the entity buys the instruments from another party, or the shareholders provide the equity instruments needed. The Group has not issued instruments caught by this interpretation. IFRIC 12, Service concession arrangements effective from January 1, IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the Group s operations because none of the Group s companies provide for public sector services. IFRIC 13, Customer loyalty programmes effective from July 1, IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example loyalty points or free products), the arrangement is a multipleelement arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Group s operations because none of the Group s companies operate any loyalty programmes. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group: The following standards, amendments and interpretations to existing standards have been issued and are mandatory for the Group s accounting periods beginning on or after January 1, 2009, or later periods, but the Group has not early adopted them: IFRS 2 Share-based Payment (Revised) effective from 1 January The IASB issued an amendment to IFRS 2 that clarifies the definition of a vesting condition and prescribes the treatment for an award that is effectively cancelled. IAS 23 Borrowing costs (Revised) effective from January 1, The standard requires an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. As the Group capitalizes interest during the construction period, the Group s financial statements will not be affected by this change. IFRS 8, Operating segments effective from January 1, IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, Disclosures about segments of an enterprise and related information. The new standard requires a management approach, under which segment information is presented on the same basis as the segmentation used for internal reporting purposes. Presentation of segment data is currently performed at operational basis. Geographical segmentation is still under assessment (see note 2.3). 2.2 Consolidation Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The Group uses the purchase method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated but considered an impairment

62 indicator of the asset transferred. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group. Transactions and minority interests The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests resulting in gains and losses for the Group are recorded in the income statement. Purchases of shares in subsidiaries from minority interests may result in goodwill, being the difference between any considerations paid and the relevant share acquired of the carrying value of net assets of the subsidiary. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group s share of its associates post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group s ownership share in the associate. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates were changed where necessary to ensure consistency with the policies adopted by the Group. 2.3 Segment Reporting A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Business segments The Group is organized in four business areas, Floating Production, Drilling, Topside and Process Technology (previously Equipment and Systems ), and Corporate. The activities within the segment Floating Production are related to the design, engineering, construction, and operation of the Sevan platforms. The activities within the Drilling segment are related to the design, engineering and construction of the Sevan Drilling units. The segment Topside and Process Technology consists of the activities of Kanfa AS and subsidiaries which are related to the provision of services and equipment to the processing plants of the Sevan units. The segment also serves external clients. The activities within Corporate are related to general administration and marketing activities including studies made for clients and licensing of the Sevan proprietary technology. Geographical segments The Group s business segments operate in the global offshore market and have common marketing and senior management functions. Currently, the Group does not divide its operations into geographical segments. As further units are completed and start operations, dividing into main geographical areas (segments) will be assessed. 2.4 Foreign Currency Translation Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which each entity operates ( the functional currency ). The consolidated financial statements are presented in USD, which is the Group s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions (realized items) and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies (unrealized items) are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges. Translation differences are recognized in equity. Group companies The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows: Assets and liabilities for each balance sheet presented are translated at the closing rate at balance sheet date. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions). All resulting exchange differences are recognized as a separate component of equity. Upon consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. 2.5 Property, Plant and Equipment Fixed assets are stated at historic cost less accumulated depreciation. The Group has not used, and has no plans of utilizing the revaluation option in IAS 16. Depreciation is calculated using the straight-line method. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated discounted future cash flows, an impairment charge is recognized.

63 Annual report 08 Sevan Marine 63 Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Borrowing costs are capitalized when the cost is directly attributable to the construction of a qualifying asset. Each major component of the Sevan units is depreciated separately when the platforms are available for intended use. A major component is defined as a part with a cost that is significant in relation to the total cost. An estimation of useful lives indicates an average depreciation period of years for the units. Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives, 3-10 years. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement. 2.6 Construction in Progress Construction contracts are capitalized as construction in progress based on installments paid to the yard and other suppliers. Insurance and net financial expenses during the construction period are capitalized as construction in progress. Cost related to man-hours directly attributable to the construction of the Sevan units are also capitalized. Cost related to training, manning and other pre-operational activities are expensed as incurred. 2.7 Construction Contracts Contract costs are recognized when incurred. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent that contract costs incurred are likely to be recoverable. When the outcome of a construction contract can be estimated reliably and it is probable that the contract will be profitable, contract revenue is recognized over the period of the contract. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. The Group uses the percentage of completion method to determine the appropriate amount to recognize in a given period. The stage of completion is estimated, using judgmental assessment, of the progress of completion of subcomponents of identified milestone deliverables in each contract up to the balance sheet date as a percentage of total identified contract milestone deliverables. The Group presents as an asset the gross amount due from customers for contract work for all contracts in progress for which costs incurred plus recognized profits (less recognized losses) exceed progress billings. Progress billings not yet paid by customers and retention are included as trade and other receivables. The Group presents as a liability the gross amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognized profits (less recognized losses). 2.8 Intangible Assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Computer software Acquired computer software are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (3-5 years). Costs associated with developing or maintaining computer software programs are recognized through the income statement as incurred. Customer contracts/production backlog Customer contracts/production backlog acquired in business combinations are recorded in the balance sheet on the basis of their estimated fair values. These intangible assets are amortized over their estimated useful lives/production periods (normally 3-12 months). Research and Development Costs associated with research are expensed as incurred. Qualifying cost associated with development activities are capitalized and depreciated over expected useful life. Cost related to manhours directly attributable to the construction of the Sevan units, are capitalized as construction in progress. 2.9 Impairment of Non-Financial Assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less 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). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date Financial Assets The Group classifies its financial assets as loans and receivables measured at fair value at transaction date, subsequently remeasured at amortized cost. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are included in current assets, except for those with maturities greater than 12 months after the balance sheet date, in which case they are classified as non-current assets.

64 Derivative financial instruments are initially recognized at fair value at the date a derivative contract is entered into and are subsequently re-measured at fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). Hedge accounting has not been applied in 2008 or Inventory Inventory are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes related borrowing costs Trade Receivables Trade receivables are recognized initially at fair value less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The provision is recognized in the income statement as other operating expenses Cash and Cash Equivalents Cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet Share Capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company purchases the Company s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received is net of any directly attributable incremental transaction costs and the related income tax effects, and is included in equity attributable to the Company s equity holders Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred and including the value of embedded call options. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs and embedded value of call options) and the nominal value is recognized in the income statement over the period of the borrowings using the effective interest method. The value of call options embedded in bond borrowings are treated as separate financial assets and are initially recognized at fair value at issue date and subsequently re-measured at fair value each balance date. Related gains and losses are recognized in the income statement immediately. Borrowings are presented net of the separated financial asset and are classified as current liabilities unless the Group has an unconditional right to defer settlement for more than 12 months after the balance sheet date Deferred Income Tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and 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 realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at prevailing market rates at December Employee Benefits Pension obligations The companies in the Group operate both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate juridical entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Cost associated with defined contribution plans are expensed as incurred. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension expenses and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected salaries, the amount of benefits from the National Insurance Scheme, future return on pension assets, and actuarial calculations relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted from the net pension obligation in the balance sheet. Changes in the pension obligation due to changes in the pension plans are amortized over the expected remaining service period. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees expected average remaining working lives. Past-service costs are recognized immediately in income. Share-based compensation The Group operates a share-based compensation plan. In line with IFRS 2, the cost represented by the fair value at award date

65 Annual report 08 Sevan Marine 65 is expensed over the vesting period. The fair value at the time of the award is confirmed by a third party calculation using the Black & Scholes option-pricing model. Cost represented by employer s tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of its stock. Profit-sharing and bonus plans The Group recognizes a provision where contractually obliged or where there is a constructive obligation Provisions A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Mobilization revenue and expenses are recognized using the straight line method over the full fixed term period of the underlying contract. Charter revenues are recognized on a straight-line basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. When assets are leased to clients under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized in accordance with the underlying contract Dividend Distribution Dividend distribution to the Company s shareholders is recognized as a liability in the Group s financial statements in the period in which the dividend is approved by the Company s shareholders. Provisions are measured at the present value of the expected expenditures required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation Revenue Recognition Revenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group. Revenue is recognized as follows: Other operating revenues are recognized in line with the development of projects. Sales of goods are recognized when delivered and accepted by the customer. Sale of services is recognized in accordance with the underlying contracts under the percentage of completion (POC) method. Under the POC method, revenue is generally recognized based on the services performed to date as percentage of the total services to be performed. Note 2.7 describes the treatment of construction contracts in further detail. Interest income is recognized on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognized using the original effective interest rate. Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements. Dividend income is recognized when the right to receive payment is established.

66 Note 3 - Financial risk management 3.1 Financial Risk Factors The Group s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group s financial performance Risk management is carried out by the Finance department under policies approved by the Board of Directors. The Finance department identifies, evaluates and hedges financial risks in close co-operation with the Group s operating units. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity Market Risk Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, USD, EURO and UK pound. Foreign exchange risk arises from future commercial transactions, recognized assets or liabilities, and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity s functional currency. To manage foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities within the Group use forward contracts and similar instruments. External foreign exchange contracts are evaluated at Group level to perform hedges of foreign exchange exposures on a gross basis. The Group s risk management policy is to hedge anticipated transactions in each major currency. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Price risk The Group is exposed to commodity price risk at two main levels; The demand for Sevan units is sensitive to oil price developments, fluctuations in production levels, exploration results and general activity within the oil industry. The cost of construction for future units is sensitive to changes in market prices for the inputs Credit Risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentrations of credit risk towards financial institutions and has policies that limit the amount of credit exposure to any single financial institution. The credit exposures to customers are mainly concentrated around the underlying charter contracts in the Group Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and/or marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in funding by keeping committed credit lines available. As of December 31, 2008, the estimated minimum total capital requirement is USD million, including a Group working capital requirement of USD million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. Over the last year, the Company has evaluated several possibilities of securing necessary funding, and is aiming at financing as much as possible of the capital requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD million directed towards Luxor may be subscribed subject to approval by the extraordinary general meeting on May 4, In addition, the Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group s assets in a strained situation are lower than book values Cash Flow and Fair Value Interest Rate Risk The Group s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group s policy is to maintain part of its borrowings in fixed rate borrowing facilities. During 2007 and 2008, the Group s borrowings were denominated in USD and NOK. The Group simulates various scenarios taking into consideration refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the Group manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts. 3.2 Fair Value Estimation The fair value of forward foreign exchange contracts is determined using valuation techniques. The assumptions in the calculations are based on market conditions existing at each balance sheet date. The fair value of call options embedded in bond loans is determined using valuation techniques. The assumptions in the calculations are based on market conditions existing at each balance sheet date.

67 Annual report 08 Sevan Marine 67 The nominal value less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair values of the bond loans for disclosure purposes are based on the market price for the bonds at each balance sheet date. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate for similar financial instruments. Note 4 - Critical accounting estimates and JUDGMEnts Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under current circumstances. 4.1 Critical Accounting Estimates and Assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimated impairment of units The Group has tested whether the units have suffered any impairment, in accordance with the accounting policy stated in note 2.5. The recoverable amounts of the units have been determined based on value-in-use calculations. These calculations require the use of estimates Estimated impairment of goodwill The Group annually tests whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.8. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Income taxes The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The accounting for deferred income taxes relies upon management s judgment of the Group companies ability to generate future positive taxable income, and of the estimated value-in-use of the balance sheet item. Revenue recognition The Group uses the percentage-of-completion method in accounting for its sales of construction contracts. Use of the percentage-of-completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. This relates to estimates of progress, total costs, and final revenues from each contract. Share based payment The Group uses estimates when calculating the costs of sharebased payment through options. The main assumptions subject to estimates are the duration of the option and the assumed stock volatility. Commitments The Group uses estimates in calculating the remaining commitments concerning work in process. Warranties The Group uses estimates in calculating the provision for warranties to customers. Option periods for bareboat- and charter-contracts Some bareboat- and charter-contracts have embedded options for the customer to extend the contractual period. This is taken into consideration when assessing value-in-use for the relevant asset. Depreciations related to units in operation The Group uses estimates when assessing an assets useful life and its residual value to decide the depreciation plan for units in operation. 4.2 Critical Judgments in Applying the Entity s Policies A 5% increase in the volatility of options awarded during the year would increase the option value cost by 103. A reduction in the volatility of 5% would reduce the option value option cost by 103. The actual option value cost as included in the financial figures for the year, is 2,858. Determination of WACC and estimation of expected future cash flows after contract period are relevant assumptions used in the impairment testing of the units. A decrease in WACC would increase the net present value of the tested units. An increase in WACC would decrease the net present value of the tested units. Increase of expected future cash flows after contract period would increase the net present value of the tested units. A decrease in expected future cash flows after contract period would decrease the net present value of the tested units.

68 Note 5 - Segment information Primary reporting format business segments The Group is organized in four business areas, Floating Production, Drilling, Topside and Process Technology, and Corporate. Revenue in the Floating Production segment first started in 2007 when FPSO Sevan Piranema went on standby rate in March The unit produced first oil in October FPSO Sevan Hummingbird produced first oil in September It is expected that FPSO Sevan Voyageur will start generating revenues during FPSO Sevan 300 no. 4 and FPSO Sevan 300 no. 5 are currently under construction. The Topside and Process Technology segment consists of the activities of Kanfa AS, Kanfa Aragon AS, Mator AS and Kanfa-Tec AS whose primary business activities are related to the provision of services and equipment to the processing plants for the Sevan platforms. In addition, the Kanfa group also serves external clients. The main activities in the Drilling segment during 2008 have related to the construction and preparation for operations of the Sevan Driller, which is expected to start generate revenues in In June 2008, Sevan was awarded another two contracts for new build drilling units. Sevan Driller II was contracted to ONGC for 3 years of operation and delivery end-2010, and Sevan Driller III was contracted to Petrobras S.A. for 6 years of operation and delivery by mid Segment results: Year ended December 31, 2008 Floating Drilling Topside and Corporate Group Production Process Technology Total gross segment sales Sales across segments Total operating income Operating profit/(loss) Net financial profit/(loss) Share of profit/(loss) from associates 824 Profit/(loss) before tax Tax income/(expense) Net profit/(loss) Year ended December 31, 2007 Floating Drilling Topside and Corporate Group Production Process Technology Total gross segment sales Sales across segments Total operating income Operating profit/(loss) Net financial profit/(loss) Share of profit/(loss) from associates Profit/(loss) before tax Tax income/(expense) Net profit/(loss)

69 Annual report 08 Sevan Marine 69 Specification of certain segment items included in the income statement: Year ended December 31, 2008 Floating Drilling Topside and Corporate Group Production Process Technology Depreciation Amortization Impairment charge Total Year ended December 31, 2007 Floating Drilling Topside and Corporate Group Production Process Technology Depreciation Amortization Impairment charge Total The segment assets and liabilities, and yearly capital expenditure are as follows: December 31, 2008 Floating Drilling Topside and Corporate Group Production Process Technology Assets Investment in associates Total assets Liabilities Capital expenditures December 31, 2007 Floating Drilling Topside and Corporate Group Production Process Technology Assets Investment in associates Total assets Liabilities Capital expenditures Segment assets consist primarily of property, plant and equipment, intangible assets (including goodwill and software) and cash and cash equivalents. Intercompany balances are not included. Deferred tax assets are not included in 2007 figures. Segment liabilities comprise operating liabilities and borrowings and exclude intercompany balances. Capital expenditures comprise additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations. Secondary reporting format geographical segments The Group s business segments operate in the global offshore market and have common marketing and senior management functions. Currently, the Group does not divide its operations into geographical segments. The accounting principles applied for segmentation are outlined in note 2.

70 Note 6 - Property, plant and equipment Construction in FPSO Sevan Capital Machinery Total Fixed Progress (CIP) Assets /Fixtures Assets Year ended December 31, 2008 Book value January Asset reclassified from CIP to FPSO Currency translation adjustments Additions Disposals Equipment reclassified to Inventory Impairment charge Depreciation charge Book value December At December 31, 2008: Cost or valuation Accumulated depreciation and impairment Book value December Construction in FPSO Sevan Capital Machinery Total Fixed Progress (CIP) Assets /Fixtures Assets Year ended December 31, 2007 Book value January Asset reclassified from CIP to FPSO Currency translation adjustments Additions Disposals Equipment reclassified to Inventory Impairment charge Depreciation charge Book value December At December 31, 2007: Cost or valuation Accumulated depreciation Book value December The impairment charge of machinery/fixtures of 3,582 in 2008 is related to an asset which is not in use by the Group at balance sheet date. The value of the asset is estimated at fair value less costs of selling the asset. Security arrangements related to construction in progress assets are described in note 26. Capitalized interest is described in note 21, and commitments related to capital expenditures are described in note 27.

71 Annual report 08 Sevan Marine 71 Note 7 - Intangible assets Goodwill Software Contract value Development Total Year ended December 31, 2008 Book value January Currency translation adjustments Additions Impairment charge Amortization charge Book value December At December 31, 2008 Cost or valuation Accumulated amortization and impairment Book value December Goodwill Software Contract value Development Total Year ended December 31, 2007 Book value January Currency translation adjustments Additions Impairment charge Amortization charge Book value December At December 31, 2007 Cost or valuation Accumulated amortization and impairment Book value December Research and development Expensed portion of research and development (R&D) charges amounts to 548 (2007:401). Accounting principles regarding treatment of R&D are described in note 2.8. Impairment tests for goodwill Goodwill is allocated to the Group s cash-generating units (CGUs) identified according to geographical region of operation and business segment. A segment-level summary of goodwill allocations: Year ended December 31, 2008 Floating Drilling Topside and Pro- Corporate Group Production cess Technology Europe South America Asia Total goodwill

72 Year ended December 31, 2007 Floating Drilling Topside and Pro- Corporate Group Production cess Technology Europe South America Asia Total goodwill The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets. Key assumptions used for value-in-use calculations: Europe South America Asia Profit before tax* Growth rate ** 5% 0 0 Discount rate *** 11% 0 0 * Budgeted result before tax for year 1 (2009). ** Weighted average growth rate used for extrapolating cash flows in the five-year budget period. For the purpose of impairment testing, zero growth was assumed beyond the budget period. *** Pre-tax discount rate applied to the cash flow projections. These assumptions were used for the analysis of each CGU within the business segment. The budgeted results are based on past performance and expectations for future market developments. The discount rate applied is pre-tax and reflects specific risks relating to the relevant segments. Note 8 - Investments in associates Book value January 1, Acquisition of associates 0 0 Share of profit/(loss) from associates Currency translation adjustments Dividends paid Book value December 31, The balance at December 31, 2008, relates to investment in Kanfa-Tec AS. The gross balance sheet and income statement numbers for the Group s associates are listed in the table below. The Group s share of ownership is disclosed in the last column. name Country of Assets Liabilities Revenues Profit/(loss) % interest incorporation 100% 100% 100% 100% held Kanfa-Tec AS 2007 Norway % Kanfa-Tec AS 2008 Norway %

73 Annual report 08 Sevan Marine 73 Note 9 - Derivative financial instruments Current portion Assets Liabilities Assets Liabilities Floating-to-fixed interest rate swaps Forward foreign exchange contracts Total current portion Non current portion Floating-to-fixed interest rate swaps Forward foreign exchange contracts Total non current portion Net position Forward foreign exchange contracts There were no outstanding forward foreign exchange contracts at balance sheet date. The notional principal amount of the outstanding forward foreign exchange contracts at December 31, 2007, was USD 59 million. Floating-to-fixed interest rate swaps The notional principal amount of the open interest swap positions contracted into at December 31, 2008, was USD 341 million (2007: USD 362 million). Embedded call options In December 2006, Sevan Drilling AS, a wholly-owned subsidiary of the Company, carried out a bond issue of NOK 1 billion (USD 143 million equivalent), at an interest rate of Nibor +5%. The bond has a term of 6 years with a call option window of 6-12 months following acceptance of Sevan Driller at 104%. The fair value of the option was estimated at USD 6.7 million at balance sheet date (2007: USD 8.5 million). In December 2006, the Company carried out a bond issue of USD 140 million, at a fixed interest of 9.25%. The bond has a term of 5 years, with one call option in December 2009 at 103%, and one call option in December 2010 at 102%. The fair value of these options was estimated at USD 2.3 million at balance sheet date (2007: USD 4.5 million). In May 2007, the Company carried out a bond issue of USD 270 million, at an interest rate of Libor+3%. The bond has a term of 6 years, with two embedded call options at 103.5% and 102.5% which can be exercised in May 2010 and in May 2011 respectively. The fair value of these options was estimated at USD 2.1 million at balance sheet date (2007: USD 8.5 million). In October 2007, the Company carried out a bond issue of NOK 870 million (USD 157 million equivalent), at an interest rate of Nibor+5.5%. The bond has a term of 5 years, with three embedded call options at 105%, 104% and % which can be exercised 6-12 months following completion of FPSO Sevan Voyageur, in October 2010 and in October 2011 respectively. The fair value of these options was estimated at USD 6.4 million at balance sheet date (2007: USD 5.4 million). Effects in the income statement for changes in the estimated fair value of the embedded call option are described in note 21. 9a Financial instruments by category The accounting principles for financial instruments have been applied to the line items below as indicated: Loans and Assets at fair Derivatives Available Total receivables value through used for for sale December 31, 2008 profit and loss hedging Assets Available-for-sale financial assets Derivative financial instruments Trade and other receivables Other financial assets at fair value through profit and loss Cash and cash equivalents Total financial assets

74 Loans and Assets at fair Derivatives Available Total receivables value through used for for sale December 31, 2007 profit and loss hedging Assets Available-for-sale financial assets Derivative financial instruments Trade and other receivables Other financial assets at fair value through profit and loss Cash and cash equivalents Total financial assets Other Liabilities at fair Derivatives Available Total financial value through the used for for sale December 31, 2008 liabilities profit and loss hedging Liabilities Borrowings Account payables and other payables Derivative financial instruments Total financial liabilities Other Liabilities at fair Derivatives Available Total financial value through the used for for sale December 31, 2007 liabilities profit and loss hedging Liabilities Borrowings Account payables and other payables Derivative financial instruments Total financial liabilities b Credit quality of financial assets The credit quality of financial assets that are neither past due nor impaired have been assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates: Trade receivables Counterparty with external credit rating AA A BBB BB Total Trade receivables Counterparty without external credit rating Group Group Group Total Total trade receivables Group 1 - New customers (less than 6 mths) Group 2 - Existing customers (more than 6 mths) with no defaults in the past Group 3 - Existing customers (more than 6 mths) with some defaults in the past

75 Annual report 08 Sevan Marine 75 Cash at bank and short-term bank deposits AA A BBB No rating available Total cash and cash equivalents Derivative financial assets AA 0 0 A 0 0 No rating available Total derivative financial assets Note 10 - Trade and other receivables Trade receivables* Less: provision for impairment of receivables Trade receivables net Prepayments Other receivables Loans to related parties 0 0 Trade and other receivables Less non-current portion: loans to related parties 0 0 Current portion * Trade receivables include receivables from related parties (Kanfa-Tec AS) amounting to 7 (2007: 29) During 2008, the Group has made a provision of 4,300 (2007:0) relating to a receivable from Oilexco North Sea Ltd. The Group has not made any actual losses on receivables during 2007 or The fair values of trade and other receivables are as follows: Fair values Trade receivables Prepayments Other receivables Total trade and other receivables Trade receivables that are less than three months past due are not considered for impairment. As of December 31, 2008, trade receivables of 11,323 (2007: 8,712) were past due but not impaired. These receivables relate to a number of independent customers for whom there is no history of default related to the Group.

76 The ageing of these trade receivables is as follows: Trade receivables Before due date Up to 3 months after due date Between 3 and 6 months after due date 16 0 More than 6 months after due date Total trade receivables - net The carrying amounts of the Group s trade and other receivables are denominated in the following currencies: Currency USD UK pound NOK Other currencies Total trade receivables - net Note 11 - Cash and cash equivalents Cash and cash equivalents include the following: Cash at bank and in hand Restricted employees tax deduction fund Restricted short-term bank deposits Short-term bank deposits Available for sale financial instruments Total cash and cash equivalents At balance sheet date, 15,850 (2007: 14,185) of the cash balance were collateralized in relation to derivative contracts, and 16,904 (2007: 4,386) were collateralized relating to guarantees made towards suppliers and clients. Note 12 - Share capital The total authorized number of ordinary shares was million (2007: million) with a par value of NOK 0.20 per share. All issued shares were fully settled at balance sheet date. number of Shares Share capital Share premium Total January 1, Proceeds from shares issued Cost of share issues, net of tax December 31, number of Shares Share capital Share premium Total January 1, Proceeds from shares issued Reclassified from prior years Cost of share issues, net of tax December 31,

77 Annual report 08 Sevan Marine 77 At December 31, 2008, Sevan Marine ASA had 6,740 shareholders. 63% of the share capital was owned by shareholders residing outside of Norway. 20 largest shareholders as at December 31, 2008: Name number of shares Ownership-share (%) GOLDMAN SACHS & CO - SECURITY CLIENT SEGR % BEAR STEARNS SECURIT A/C CUSTOMER SAFE KE % GOLDMAN SACHS INT. - SECURITY CLIENT SEGR % MORGAN STANLEY & CO. CLIENT EQUITY ACCOUNT % DEUTSCHE BANK AG LONDON % CLEARSTREAM BANKING CID DEPT, FRANKFURT % JP MORGAN CHASE BANK S/A F+C INVEST TRUST % SMEDAL ARNE % PENSJONSKASSEN STATOIL JP MORGAN CHASE BANK % SUPERNOVA AS, JAN ERIK TVETERAAS % HALLINGEN AS, KÅRE SYVERTSEN % AASEN AS, ARNE SMEDAL % JP MORGAN CHASE BANK S/A ESCROW ACCOUNT % BR INVESTERING AS % MP PENSJON % JP MORGAN CHASE BANK BT PENSION SCHEME % CREDIT SUISSE SECURI (EUROPE) LTD./FIRMS % EUROCLEAR BANK S.A./ 25% CLIENTS % GOLDMAN SACHS INT. - SECURITY CLEARANCE % SIX SIS AG 25PCT % 20 largest shareholders % Remaining % Total % Note 13 Share-based payments Share options Share options awarded to employees have an exercise price equal to the market price of the shares at the time of the award. 4.3 million of the remaining options can be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.4 million of the remaining options can be exercised provided fulfillment of certain criteria and expire five years following the award. The Group has no legal or constructive obligation to repurchase or settle the options in cash. Movements in the number of share options remaining and their related weighted average exercise prices are as follows: Average no. of Average no. of exercise price options exercise price options (NOK per share) (NOK per share) January 1, Granted Exercised Lapsed/forfeited December 31, Of the 6.6 million remaining options (2007: 7.5 million), 2.4 million options were exercisable (2007: 2.8 million). Options exercised during 2008 resulted in 0.9 million shares being issued (2007: 2.2 million shares) at an average of NOK (2007: NOK 9.99). The weighted average market price at the time of exercise was NOK per share (2007: NOK 46.80). There was no related transaction cost for the Group.

78 Share options remaining at the end of the year have the following expiration dates and exercise prices: Year of expiration Exercise price in Share options remaining nok per share at end of year Total The average fair value of options awarded during the year, determined using the Black-Scholes option-pricing model, was NOK (2007: NOK 5.68). The significant inputs into the model were share price at the award dates, exercise price shown above, standard deviation of expected share price returns of 30% (2007: 30%), dividend yield of 0% (2007: 0%) estimated option life based on vesting period, and annual risk-free interest rate of 4.5% (2007: %). As of December 31, 2008 none of the outstanding share options are in-the-money. Note 14 - Trade and other payables Trade payables* Accrued expenses Total trade and other payables Interest-bearing loans and borrowings - current portion Income tax payable Social security and other taxes Other payables Provisions Total current liabilities *Trade payables include payables to related parties (Kanfa-Tec AS) amounting to 411 (2007: 4)

79 Annual report 08 Sevan Marine 79 Note 15 - Borrowings Reference is made to note 2.15 for description of the accounting principles applied for borrowings Nominal Amortized Fair Nominal Amortized Fair value value value value value value Bank borrowings Bond Value of embedded call options Non current borrowings Bank borrowings Bond Current borrowings Total borrowings Borrowings are nominated in the following currencies: Bank borrowings, USD nominated Bond, USD nominated Bond, NOK nominated The fair value of the bank loan is estimated by discounting the contractual cash flows at a rate reflecting the underlying risk. The fair values of the bond loans are based on market rates of the bonds at balance sheet date. The Group is exposed to changes in the interest rates for a NOK 870 million bond loan (3-month Nibor + margin) and a NOK 1,000 million bond loan (6-month Nibor + margin) as well as for a USD 270 million bond loan (6-month Libor + margin) and the bank borrowings (3-month Libor + margin). The Group has entered into floating-to-fixed interest rate swaps for a portion of these borrowings. The Group is exposed to fair value interest rate risk for a USD 140 million bond loan at a fixed rate. The maturities of non-current borrowings are as follows: Nominal Amortized Nominal Amortized 1-2 years years More than 5 years Total non-current borrowings The effective interest rates at balance sheet date are as follows: NOK USD nok USD Bank borrowings (FPSO Sevan Voyageur)* 4.60% Bank borrowings (Sevan Driller) 5.29% 7.18% Bond (NOK 1,000 million) 9.75% 10.94% Bond (USD 140 million) 9.68% 8.77% Bond (NOK 870 million) 10.55% 11.15% Bond (USD 270 million) 6.54% 7.74% * Effective from April 17, 2008 Any effect of interest-rate swaps is included in the calculation of the effective interest rates at balance sheet date.

80 The Group has the following un-drawn borrowing facilities: Floating rate Expiring within one year * Expiring beyond one year Fixed rate Expiring within one year 0 0 Expiring beyond one year 0 0 Total un-drawn borrowing facilities The un-drawn borrowing facilities are converted into USD using exchange rates prevailing at balance sheet date. Note 16 - Deferred income tax Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities. The offset amounts are as follows: Deferred tax assets Deferred tax asset to be recovered after more than 12 months Deferred tax asset to be recovered within 12 months Total deferred tax assets Deferred tax liabilities Deferred tax liability to be recovered after more than 12 months Deferred tax liability to be recovered within 12 months Total deferred tax liabilities Net deferred tax assets/(liabilities) Deferred tax asset to be recovered after more than 12 months Deferred tax liability to be recovered within 12 months Net deferred tax assets/liabilities The gross movement on the deferred income tax account: Book value January 1, Exchange differences Income statement charge Gross revenue tax and Withholding tax booked as tax expense Tax payable Tax charged to equity Book value December 31,

81 Annual report 08 Sevan Marine 81 The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Specification of deferred tax assets/deferred tax liabilities Unrealized profit, hedging instrument Unrealized currency gain/(loss) Other short term assets Fixed assets Establishment fee bond loans Total deferred tax liabilities Employer s tax related to options Pension liabilities Accounting provisions Losses carry forward Losses carry forward related to Brazil Valuation allowance Total deferred tax assets The Group did not recognize deferred income tax assets of 5,280 (2007: 4,114) in respect of losses in Sevan Marine do Brasil Ltda. Deferred income tax assets are recognized for tax loss carry-forwards to the extent that the realization of the related tax benefit through the future taxable profits is probable. At balance sheet date, the Group has entered into a total of 6 contracts for chartering of units and one license contract, that will generate taxable profits which the deferred tax assets can be offset towards. Note 17 - Retirement benefit obligations The companies in the Group operate both defined benefit and defined contribution plans. The amounts recognized in the balance sheet are determined as follows: Defined benefit plan Present value of funded obligations Fair value of plan assets Present value of unfunded obligations Unrecognized actuarial losses Social security related to pension liabilities Liability in the balance sheet The movement in the liability recognized in the balance sheet is as follows: January 1, Exchange differences Liabilities acquired in a business combination 0 0 Total expense charged to the income statement Contributions paid December 31,

82 The principal actuarial assumptions used were as follows: Discount rate 4.30% 4.35% Expected return on plan assets 6.30% 5.40% Future salary increase 4.50% 4.50% Expected G-regulation 4.25% 4.25% Future pension increases 2.75% 2.75% Future turnover 10.00% 10.00% Employer contribution tax 14.10% 14.10% Actual return on pension assets for 2008 is not yet known. Actual return on pension assets for 2007 was 5.89%. Average life expectancy for a person retiring at 67 years of age: Male Female The actuarial calculations for the Group s defined benefit plans were carried out by independent actuaries. In 2008 the calculated pension obligation is based on the mortality table K2005 (2007: K1963). Using an updated mortality table gave small negative effect which is included in the actuarial gains/losses. The disability table used for both 2008 and 2007 is K1963 adjusted for observed developments. The Group s pension schemes satisfy the requirements in the Norwegian legislation regarding mandatory occupational pension. The amounts recognized in the income statement are as follows: Defined benefit plan Net present value of current year s pension earned Interest cost on pension liabilities Expected return on pension assets Estimate changes Administration cost Social security related to pension liabilities Pension cost, defined benefit plan No. of employees included Defined contribution plan Pension costs Pension cost, defined contribution plan No. of employees included Total pension cost for the Group Pension cost, defined benefit plan Pension cost, defined contribution plan Total pension cost The expected pension cost for 2009 regarding the defined benefit plan is estimated to 1,145.

83 Annual report 08 Sevan Marine 83 The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: Plan asset mix Equities 6% 20% Property 23% 17% Fixed bonds 48% 34% Liquid bonds 22% 24% Other 1% 5% Totalt 100% 100% Note 18 - Provisions for other liabilities and charges Warranties Profit-sharing & bonuses Total January 1, Arising during the year Used during year December 31, Warranties Profit-sharing & bonuses Total January 1, Arising during the year Used during year December 31, Analysis of total provisions: Non-current 0 0 Current Total provisions Warranties Provisions for warranties are based on historical experience. Note 19 - Construction contracts Contract revenues Contract cost Net profit on construction contracts Recognized, not yet invoiced for ongoing projects Invoiced in advance Incurred cost on ongoing projects included in current liabilities Included in the 2007 figures are contract revenue and contract cost for activities within the Group. In the figures for 2008 are included only contract revenue and contract cost for activtities relating to external projects.

84 Note 20 - Employee benefit expense Wages and salaries Employer s share of social security Expensed portion of value of share options at the time of the award Employer s tax relation to options Pension cost Other employee related expense Total employee expense Employee expense allocated to construction in progress Net employee expense through the income statement No. of man-years Remuneration of senior management, as paid 2008 Salaries Retirement Other benefits benefits Jan Erik Tveteraas CEO Oskar Mykland* CFO Birte Norheim VP Finance Fredrik Major VP Business Development / R&D Helle Hundseid VP Projects Erskine Rozario VP Engineering and Construction Erling Andreas Ronglan VP Operations Hanna Moland VP Human Resources & Administration Reidun Beate Olsen VP QHSE Gerson Peccioli President Sevan Brazil Aslak Hjelde Managing Director Kanfa AS Stein Giljarhus** President Sevan Drilling Total Remuneration of senior management, as paid 2007 Salaries Retirement Other benefits benefits Jan Erik Tveteraas CEO Oskar Mykland* CFO Birte Norheim VP Finance Fredrik Major VP Business Development / R&D Helle Hundseid VP Projects Erskine Rozario VP Engineering and Construction Erling Andreas Ronglan VP Operations Hanna Moland VP Human Resources & Administration Reidun Beate Olsen VP QHSE Gerson Peccioli President Sevan Brazil Aslak Hjelde Managing Director Kanfa AS Stein Giljarhus** President Sevan Drilling Total * First day of employment was January 1, 2009 ** First day of employment was November 1, 2008 Salaries and other benefits included above are based on actual period of employment translated at average exchange rate for this period. Senior management is included in the Group s collective retirement benefit plans. No loans have been granted to senior management or any member of the Board in 2008.

85 Annual report 08 Sevan Marine 85 Remuneration of the Board of Directors, as paid Hilde Drønen Vibeke Strømme, Deputy Chairman Stephan M. Zeppelin* 40 0 Kristin Urdahl, (Employee representative)*/** 20 0 Kjetil Soma (Employee representative)*/** 20 0 Arne Smedal, Chairman** Kåre Syvertsen** Total Remuneration to the Board of Directors is paid the year following board duties rendered. * Stephan M. Zeppelin was elected member of the Board during Kristin Urdahl and Kjetil Soma also entered the Board during 2007 as Employee representatives. ** Salaries and other benefits paid to Kåre Syvertsen, Arne Smedal, Kristin Urdahl and Kjetil Soma as employees of Sevan Marine ASA is included only for the year(s) for which each has been a member of the Board: Salaries and other benefits paid to Board members as employees Salaries Other Salaries Other benefits benefits Kristin Urdahl Kjetil Soma Arne Smedal, Chairman Kåre Syvertsen In addition, senior management has been awarded the following stock options during their tenure: no. of Year of Strike/ Remaining options award NOK no. of options at balance sheet date Jan Erik Tveteraas Jan Erik Tveteraas Birte Norheim Birte Norheim Fredrik Major Fredrik Major * Helle Hundseid Helle Hundseid * Erskine Rozario Erskine Rozario * Erling Andreas Ronglan Erling Andreas Ronglan * Hanna Moland Hanna Moland Reidun Beate Olsen Reidun Beate Olsen Gerson Peccioli Gerson Peccioli * Aslak Hjelde Total options/average strike * Can be exercised provided the fulfillment of certain criteria

86 Shares and options owned or controlled by the Board of Directors and Senior Management As of December 31, 2008, the following Board members and senior management owned or controlled shares in the Company: Board of Directors Arne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 2,804,036 shares through his wholly owned company Aasen AS, and 147,261 shares through Elvheim AS, where he holds a controlling ownership interest. Kåre Syvertsen, Board member and Vice President Technology, owns 428,704 shares directly, and 2,821,296 shares through his wholly owned company Hallingen AS. Vibeke Strømme, Deputy Chairman of the Board, owns 4,000 shares. Hilde Drønen, Board member, owns 1,400 shares directly and 4,600 shares through her wholly owned company Djupedalen AS. Stephan M. Zeppelin, Board member, owns no direct shares. Mr. Zeppelin is an employee of Wexford Capital LLC, which is the manager and investment sub-advisor to Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited, respectively. Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited own an aggregate of 2,383,300 shares. Kristin Urdahl, Employee representative on the Board and Senior Engineer owns 33,300 shares directly, and holds 16,700 options with a strike of NOK and 300,000 options with a strike price of NOK Kjetil Soma, Employee representative on the Board and Controller, owns 10,166 shares directly, and holds 33,334 share options with a strike of NOK Senior Management Jan Erik Tveteraas, CEO, owns 56,556 shares directly and 2,893,444 shares through his wholly owned company Supernova AS. Erling Ronglan, Vice President Operations, owns 23,333 shares and holds 16,667 share options with a strike price of NOK and 300,000 share options with a strike price of Fredrik Major, Vice President Business Development, owns 27,333 shares and holds 16,667 share options with a strike price of NOK and 300,000 share options with a strike price of NOK Erskine Rozario, Vice President Engineering and Construction, owns 27,332 shares and holds 16,668 share options with a strike price of NOK and 300,000 share options with a strike price of NOK Hanna Moland, Vice President Administration & HR, owns 12,667 shares and holds 16,667 share options with a strike price of NOK 15,50 and 50,000 share options with a strike price of NOK Reidun B. Olsen, Vice President HSEQ, owns 16,666 shares and holds 33,334 options with a strike price of NOK and 100,000 share options with a strike price of NOK Birte Norheim, Vice President Finance, owns 5,000 shares and holds 16,668 options with a strike price of NOK and 50,000 share options with a strike price of NOK Helle Hundseid, Vice President Projects, holds 16,667 options with a strike price of NOK and 300,000 share options with a strike price of NOK Stein E. Giljarhus, Managing Director Sevan Drilling, owns 39,600 shares directly and 70,000 shares through his wholly owned company Segal Holding AS. Gerson Peccioli, President Sevan Brazil, holds 50,000 share options with a strike price of NOK and share options with a strike price of NOK Aslak Hjelde, Managing Director Kanfa AS, owns 228,246 shares directly and 68,077 shares through his wholly owned company Fekja Invest AS. A. Hjelde holds 50,000 share options with a strike price of NOK Reference is made to the Statement regarding establishment of salary and other benefits for senior management for further details of remuneration of senior management.

87 Annual report 08 Sevan Marine 87 Note 21 - Financial income and financial expense Currency gains and losses related to operational activities are classified as operational expense and are not included in the table below. Changes in the fair value of embedded call options related to bond borrowings are recognized in the income statement as indicated. Net project specific borrowing costs incurred for the construction of any qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed as incurred. Borrowing costs of 43,410 (2007: 38,908) arising from financing specifically for the construction of the Sevan units were capitalized during the year and are included in Additions in property plant and equipment. The capitalization represents the net borrowing cost for financing of each project during the construction period. Financial income: Interest income Amortization of embedded call options and transaction cost related to borrowings Currency gain Gain on interest swap Other financial income Total financial income Financial expense: Interest expense Currency loss Loss on value of call options embedded in bonds Loss on interest swap Other financial expenses Total financial expense Note 22 - Income tax expense Current tax Deferred tax Net tax income/(expense) The tax on the Group s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies as follows: Profit before tax Tax calculated at domestic tax rates applicable to profits in the respective countries Income not subject to tax Currency transalation adjustment Expenses not deductible for tax purposes Tax losses for which no deferred income tax asset was recognized Net income tax Gross revenue tax Withholding tax Total tax income/(expense) The weighted average applicable tax is 18.9% (2007: 28.5%).

88 Note 23 - Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares Profit attributable to equity holders of the Company (1,000 USD) Weigthed average number of ordinary shares in issue (thousands) Basic earnings per share (USD per share) Diluted earnings per share The dilution effect is caused by awarded options that have not been exercised at balance sheet date. The number of shares calculated assumes exercise of all outstanding share options. The options are weighted according to time of award. As of December 31, 2008, none of the outstanding share options are in-the-money Profit attributable to equity holders of the Company (1,000 USD) Profit used to determine diluted earnings per share (1,000 USD) Weighted average number of ordinary shares in issue (thousands) Total remaining share options at balance date (thousands) Weighted average number of shares for diluted earnings per share (thousands) Diluted earnings per share (USD per share) Due to net losses for the periods reported, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share are calculated as earnings per share for these periods. Note 24 - Dividend per share No dividend was paid in 2008 or No dividend for current year is to be proposed at the Annual General Meeting on May 25, Note 25 - Cash generated from operations Profit/(loss) before tax Adjustments for: Depreciation Amortisation of intangible assets Net movements in provisions for liabilities and charges* Expensed portion of value of options at the time of the award Changes in working capital: Inventory Trade and other receivables Other financial assets at fair value through profit or loss Trade and other payables Cash generated from operations *The net movement in 2008 includes expensing of former capitalized mobilization and installation cost of 57,144.

89 Annual report 08 Sevan Marine 89 Note 26 - Contingencies The Group has contingent liabilities in respect of bank and other guarantees as well as other matters arisen in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. The Group has made a provision for guarantees amounting to 697 (2007: 591) for the year. This guarantee relates to the external operation of Kanfa AS. No additional payments are anticipated at balance sheet date. The Group has entered into the following security arrangements: Security arrangements related to loans: FPSO Sevan Piranema: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 270 million bond loan agreement described in note 15. FPSO Sevan Hummingbird: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 140 million bond loan agreement described in note 15. FPSO Sevan Voyageur: The Company has issued a bond loan, secured by 2nd priority securities pursuant to the terms of the NOK 870 million bond loan agreement and provided certain securities on 1st priority in accordance with terms of a USD 150/300 million bank financing facility to Sevan 300 Pte Ltd. described in note 15. Sevan Driller: The Company has provided certain securities on 1st priority in accordance with terms of a the USD 250/400 million bank financing facility to Sevan Drilling Ptd. Ltd. and provided a guarantee on 2nd priority in accordance with terms of a NOK 1,000 million bond loan agreement to Sevan Drilling AS. Security arrangements related to construction contracts: Sevan Driller: The Company has issued a guarantee related to construction contracts. Security arrangements related to equipment supplies and related services: FPSO Sevan Piranema, FPSO Sevan Hummingbird, FPSO Sevan Voyageur, FPSO Sevan 300 no. 4, Sevan Driller, Sevan Driller II and Sevan Driller III: The Company has issued guarantees for the subsidiaries correct fulfillment of their contractual commitments as purchasers towards vendors. Kanfa AS: The Company has issued a performance guarantee for Kanfa AS delivery of a process plant and compression packages to client. Security arrangements related to operations: FPSO Sevan Piranema: The Company has granted a performance guarantee towards the technical manager. FPSO Sevan Hummingbird: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager. FPSO Sevan Voyageur: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager. FPSO Sevan 300 no. 4: The Company has guaranteed for correct fulfillment of the contract with the end-charterer. Sevan Driller III: The Company has guaranteed for correct fulfillment of the contract with the end-charterer. Note 27 - Commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: Property, plant and equipment Intangible assets 0 0 Total capital commitments Of the total capital commitments of USD 259,400, USD 26,900 fall due in 2010 and USD 53,900 fall due in The remaining capital commitments fall due in 2009.

90 Note 28 - Related-party transactions The Group is widely held (reference is made to note 12). Related-party transactions were made on an arm s length basis, and include the following: Sales of goods and services to associates Kanfa-Tec AS Purchases from associates Kanfa-Tec AS 8 27 Year-end balances arising from sales/purchases of goods/services: Receivable from associate parties Kanfa-Tec AS 7 3 Payable to associate parties Kanfa-Tec AS Note 29 Operating leases Operating leases Group company is lessee The Group has entered into several lease/rental agreements for rental of offices, software, ASP solutions, and cars. The agreements are entered into on ordinary operational terms. The Group s annual lease expenses for rental offices, software, ASP solutions and cars amounted to 7,386 in 2008 (2007: 2,033). For lease/rental contracts entered into at balance sheet date, the Group has lease obligations to rental expenses as follows: Rental expense No later than 1 year Between 1-5 years Later than 5 years Total minimum future rental obligations Operating leases Group company is lessor The Group leases units under various agreements with fixed terms that end at different times during None of the arrangements include any form of option to buy the units following end of contractual period. The future minimum lease payments receivable under non-cancellable charter contracts are: No later than 1 year Between 1-5 years Later than 5 years Total minimum future charter revenues The overview includes charter revenue for the fixed lease periods for the six contracted units. It excludes lease payments for option periods. At balance date, the book value of charter revenue generating assets was USD 1,035 millions (2007: USD 276 millions).

91 Annual report 08 Sevan Marine 91 Order back-log for charter revenue (fixed term only): Unit Client Fixed term (years) Option periods (years) Commencement FPSO Sevan Piranema Petrobras S.A x 1 Q FPSO Sevan Hummingbird Venture Production Plc x x 1 Q FPSO Sevan Voyageur Oilexco North Sea Ltd* 5 5 x 1 EQ Sevan Driller Petrobras S.A. 6 N/A EQ Sevan Driller II Oil and Natural Gas Corporation Ltd (ONGC) 3 N/A EQ Sevan Driller III Petrobras S.A. 6 N/A EQ * Figures are based on the contract with Oilexco North Sea Ltd. Subsequently, Sevan has entered into a Memorandum of Understanding with Premier Oil and Gas Services Ltd in April 2009 (see note 30). Note 30 - Events after balance sheet date In January 2009, the functions of the Board of Directors of Sevan s original client for FPSO Sevan Voyageur, Oilexco North Sea Limited, was taken under administration following difficulties for Oilexco in renewing its financing facilities. A sales process for Oilexco s assets commenced shortly thereafter. In April 2009, Sevan entered into a Memorandum of Understanding (MOU) with Premier Oil and Gas Services Ltd (Premier), for the continued provision and operation of the FPSO Sevan Voyageur by Sevan for the development of the Shelley field. The FPSO Sevan Voyageur will be operated under a production sharing contract whereby Sevan will be compensated for its actual operating cost and will in addition receive a tariff payment based on actual monthly revenue from oil production from the field. In February 2009, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the parties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement. In February 2009, Sevan received an offer from an industry player for one of the Sevan units. The offer, which is subject to documentation and final agreement, represents a purchase price in line with the book value of the unit. A directed convertible bond issue of USD 12 million was completed in April The convertible bond was directed towards Luxor Capital Group, LP and has a term of four years and a fixed coupon of 15 per cent per annum. Interest payments may, at the Company s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD at the day of exercise of the conversion right. The proceeds from the issue will be used for general corporate purposes.

92 Note 31 Other expense Other expense Pre-operational expense Other operational- and administration expense Total other expense Note 32 Inventory Inventory consists of spare parts. The cost of usage of Inventory is classified as operating expense in the income statement. Inventory Materials to be used during operations Note 33 Other non-current assets The Group has other non-currents assets of 13,245 (2007: 67,737). During 2008, a one-off cost of mobilizing and installing the FPSO Sevan Hummingbird on the Chestnut field, amounting to 60,729 was expensed and classified as operating expenses in the income statement. The majority of these mobilization and installation cost (57,144) has previously been capitalized as other non-current assets. Note 34 - Revenues Operational income Sales from Topside and Process Technology segment Operational income Other operational income Total operational income Note 35 - Business Combinations There have not been any business combinations in During January 2007, the Group acquired 50% of the shares in Kanfa Aragon AS. The company provides environmentally sound solutions and systems for recovery, conditioning, conversion and transport of natural gas and oil for FPSOs. Kanfa Aragon AS serves external clients as well as working in close cooperation with other group companies with ongoing projects and is included in the Topside and Process Technology segment Details of net assets acquired and goodwill are as follows: Kanfa Aragon AS 2007 Purchase price: 492 Allocated to goodwill: 238 During June 2007, the Group acquired 100% of the shares in Mator AS. Mator AS provides services to the oil and gas industry world wide within the areas of primary separation, gas handling and water treatment for increased production efficiency and improved equipment regularity. Mator AS is included in the Topside and Process Technology segment. Details of net assets acquired and goodwill are as follows: Mator AS 2007 Purchase price: Allocated to goodwill: For both Kanfa Aragon AS and Mator AS the goodwill is related to the workforce of the acquired business and expected synergies following the acquisition.

93 Annual report 08 Sevan Marine 93

94 SEVAN MARINE ASA Balance sheet as at December 31 Figures in USD 1,000 note ASSETS Non-current assets Intangible assets Intangible assets Deferred tax assets Total intangible assets Tangible assets Equipment, fixtures and fittings Total tangible assets Financial assets Investments in subsidiaries Other receivables Total financial assets Total non-current assets Current assets Inventory Inventory Total inventory Receivables Debtors Other receivables Receivables from companies within the Group Total receivables Investments Derivative financial instruments Total investments Cash, cash equivalents and bank deposits Cash, cash equivalents and bank deposits Total cash, cash equivalents and bank deposits Total current assets Total assets

95 Annual report 08 Sevan Marine 95 Figures in USD 1,000 note EQUITY Share capital 1, Share premium reserve Other equity Total equity LIABILITIES Provisions Retirement benefit obligations Total provisions Other non current liabilities Borrowings Derivative financial instruments Total other non current liabilities Total non current liabilities Current liabilities Borrowings Trade creditors Public duties payable Liabilities to companies within the Group Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Arendal, April 30, 2009 The Board Directors of Sevan Marine ASA Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO

96 SEVAN MARINE ASA INCOME STATEMENT Figures in USD 1,000 Note Operating income Operating expense Employee benefit expense Depreciation and amortization expense Other operating expense Net operational currency gain/(loss) Total operating expense Operating profit Financial income 16, Financial expense 16, Net financial profit/(loss) Profit/(loss) before tax Tax income/(-expense) Annual net profit/(loss) Brought forward: Loss brought forward Profit to other equity 0 0 Net brought forward Basic earnings (USD per share) Diluted earnings (USD per share)

97 Annual report 08 Sevan Marine 97 SEVAN MARINE ASA CASH FLOW STATEMENT Figures in USD 1,000 Note Cash flows from operating activities Income/-loss before tax Taxes paid during the period Depreciation/amorization Current year s expensed portion of value of optins at grant date Change in embedded derivative related to bond loan/interest swap 21, Net change in pension liabilities Change in accounts receivable Change in accounts payable Change in trade related to companies within the group Change in inventory Change in borrowing related to currency Change in other accruals Net cash generated from operating activities Cash flows from investment activities Investment in subsidiaries Investment in intangible fixed assets Investment in tangible fixed assets Change in other long term receivables 33 0 Net cash used for investment activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Proceeds from share issues Funding related to companies within the group Net cash from financing activities Net cash flows for the period Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

98 Sevan Marine asa Notes to the financial statements Accounting Policies Sevan Marine ASA s ( the Company ) annual accounts have been prepared in accordance with the Accounting Act and generally accepted accounting principles in Norway. The Company changed its functional currency from NOK to US dollar (USD) effective January 1, The change was based on an evaluation of the economic environment in which the Company operates and the predominance of USD in expected future cash flows. All numbers are in USD 1,000 unless otherwise stated. Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to use estimates and assumptions, which affect the value of the assets and liabilities, and disclosure notes. Such estimates and assumptions may have significant impact on the reported revenues and costs for a specific reporting period. The actual amounts may deviate from the estimates. Contingent losses, which are likely to occur and quantifiable, are expensed when incurred. Principal Rule for Evaluation and Classification of Assets and Liabilities Assets intended for long term ownership or use, are classified as fixed assets. Assets relating to the operating cycle are classified as current assets. Receivables are classified as current assets if they are to be repaid within one year after the transaction date. Similar criteria apply to liabilities. Current assets are valued at the lower of purchase cost and net realizable value. Short-term liabilities are reflected in the balance sheet at nominal value at the establishment date. Fixed assets are valued at purchase cost. Fixed assets whose value will decline are depreciated on a straight-line basis over the asset s estimated useful life. The fixed assets are written down to net realizable value if a value reduction occurs that is expected to be permanent. Long-term liabilities are reflected in the balance sheet at nominal value on the establishment date. Trade Receivables and other Receivables Trade receivables and other receivables are reflected in the balance sheet at nominal value provision for estimated loss. Estimated loss are provided for on the basis of an individual assessment of each debtor. Tangible Fixed Assets Fixed assets are reflected in the balance sheet and depreciated over the asset s expected useful life on a straight-line basis. Direct maintenance of an asset is expensed under operating expense as incurred. Additions or improvements are added to the asset s cost price and depreciated together with the asset. When changes in circumstances indicate that the carrying value of an asset may not be recoverable, an impairment charge is recognized, and the asset is written down to recoverable amount (the highest of net sales value and value in use). Value in use is the net present value of the expected future cash flows generated from the asset. Intangible Assets - Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Company s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Separately recognized goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. Shares in subsidiaries and associated companies In the parent company accounts, investments in subsidiaries and associated companies are recorded under the cost method. Investments are written down to fair value when a reduction in value is expected to be permanent. Dividends are recognized as income in the year the provision is made in the subsidiary. If the dividends exceed retained earnings, the excess represents repayment of invested capital, and the dividends are deducted from the book value of the investment in the balance sheet. Research and Development Costs associated with research activities are expensed as incurred. Qualifying expense associated with development activities are capitalized and depreciated over expected useful life. Direct and indirect costs of man-hours relating to the construction of the Sevan units are charged to the asset-owning entities where the cost are capitalized as construction-in-progress. Cash and Bank Deposits Cash and bank deposits include cash in hand, bank deposits and other short-term highly liquid investments with original maturities of three months or less. Currency Cash and bank deposits, current assets, and short-term liabilities nominated in foreign currencies are converted to exchange rates that prevail on the balance sheet date. Realized and unrealized exchange gains and losses on assets and liabilities in foreign

99 Annual report 08 Sevan Marine 99 currencies are included as financial or operational items in the income statements depending on the characteristics of the underlying asset or liability, except for deposits designated as cash flow hedges (ref. foreign currency hedge note). Derivative Financial Instruments and Hedging Activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Company designates derivatives as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). The Company 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 hedge transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of derivative instruments used for hedging purposes are disclosed in note 21, and movements on the hedging reserve in shareholders equity are specified. The full fair value of hedging derivatives is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognized in equity. The gain or loss relating to the ineffective portion is recognized immediately in the income statement. Amounts accumulated in equity related to cash flow hedges designated to the purchase of assets are added to the initial cost of the asset. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement. Hedge accounting has not been applied in 2008 and Pension Plans The Company operates both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Cost associated with the defined contribution plans are expensed as incurred. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefits plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The pension expense and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected salaries, the amount of benefits from the National Insurance Scheme, future return on pension assets, and actuarial calculations relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted from the net pension obligation in the balance sheet. Taxes Deferred income taxes provided using the liability method on temporary difference at the balance sheet date between the tax basis of assets and liabilities and their carrying amounts for financial reporting purpose. Tax-reducing temporary differences and losses carried forward are offset against tax-increasing temporary differences that are reversed in the same time intervals. Taxes consist of taxes payable (taxes on current year taxable income), and change in net deferred taxes. Tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD as at December 31. Earnings per Share Earnings per share are calculated by dividing the net income/ loss by the weighted average of the total number of outstanding shares. Shares issued during the year are weighted in relation to the period they have been outstanding. Share Based Incentive Plans The Company operates a share-based compensation plan. In line with generally accepted accounting principles in Norway, the cost represented by the fair value at grant date is expensed over the vesting period. The fair value at grant date is confirmed by a third party calculation using the Black & Scholes option-pricing model. Cost represented by employer s tax of the excess of fair value of the share relative to the strike prices (intrinsic value) is expensed over the vesting period in line with the changing market price of the stock. Cash Flow Statement The cash flow statement is prepared in accordance with the indirect method. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred and including the initially measured value of embedded call options. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs and embedded value of call options) and the nominal value is recognized in the income statement over the period of the borrowings using the effective interest method. The value of call options embedded in bond borrowings are treated as separate financial assets and are initially recognized at fair value at issue date and subsequently re-measured at fair value each balance date. Related gains and losses are recognized in the income statement immediately. Borrowings are presented net of the separated financial asset and are classified as current liabilities unless the Company has an unconditional right to defer settlement for more than 12 months after the balance sheet date. Segment Reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. The accounting figures of the Company are consolidated as part of the Corporate segment of the consolidated group accounts.

100 Revenue Recognition Revenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Company s activities. Revenue is shown net of value-added tax and discounts. The Company recognizes revenue when the amount of revenue can be reliably measured and in accordance with the underlying contracts. a) Royalty income Royalty income is recognized on an accrual basis in accordance with the substance of the relevant agreements. b) Interest income Interest income is recognized on a time-proportion basis using the effective interest method. Leases Leases in which a significant portion of the risk and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. All lease agreements entered into by the Company are considered to be operational leases. Inventory Inventory are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less applicable variable selling expense. Cost is determined using the first-in, first-out (FIFO) method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity). It excludes related borrowing costs. c) Sales of services Sale of services is recognized in accordance with the underlying contracts under the percentage of completion (POC) method. Under the POC method, revenue is generally recognized based on the services performed to date as percentage of the total services to be performed. Note 1 Equity Share Share Other Total capital premium equity equity Equity January 1, Capital Increase - February Capital Increase - May Capital Increase - June Capital Increase - August Share issue cost Tax effect of share issue costs Expensed portion of value of options at the time of the award Net result for the year Equity December 31, Share Share Other Total capital premium equity equity Equity January 1, Capital Increase - February Capital Increase - March Capital Increase - May Capital Increase - August Capital Increase - October Capital Increase - October Capital Increase - November Share issue cost Tax effect of share issue costs Expensed portion of value of options at the time of the award Reclassification from prior years Net result for the year Equity December 31,

101 Annual report 08 Sevan Marine 101 Note 2 Taxes Profit before tax Permanent differences Permanent currency differences Changes in temporary differences Tax basis Loss to be brought forward Basis for taxes payable 0 0 Taxes payable 0 0 Witholding tax payable Change in deferred tax assets from income statement Tax expense/(-income) Temporary differences Unrealized profit hedging instrument Net unrealized currency gain/(loss) Fixed assets Goodwill Inventory Employer s tax related to options Pension liabilities Provisions Value of call options included in bond Fair value of call options at balance date Establishment fee related to borrowings Net temporary differences Losses carry forward related to income statement Basis for deferred tax assets from the income statement Deferred tax assets related to income statement Losses carry forward related to cost directly posted in balance Basis for deferred tax assets Deferred tax assets in balance sheet Deferred tax assets are recognized at nominal value based on expectations of future taxable profits.

102 Reconciliation between expected tax charge based on the nominal Norwegian statutory tax rate of 28% and actual tax charge: Profit before tax Expected tax charge Tax charge in the income statement Difference Tax effect of expensed portion of value of options at grant date Adjustment from prior years Tax effect of other permanent differences Permanent currency difference Withholding tax Explained difference Note 3 Tangible and intangible fixed assets Tangible fixed assets Machinery, fixtures: Cost price January 1, Additions Disposals 0 0 Cost price December 31, Accumulated depreciations December 31, Book value December 31, Depreciations current year Economic life/depreciation rates 3-5 years / 20-30% 3-5 years / 20-30% Intangible assets Goodwill Software Development Total Year ended December 31, 2008 Book value January Additions Disposals Amortization charge Book value December At December 31, 2008 Cost or valuation Accumulated amortization and impairment Book value December Economic life/depreciation rates 5 years / 20% 3 years / 30% 5 years / 20%

103 Annual report 08 Sevan Marine 103 Intangible assets Goodwill Software Development Total Year ended December 31, 2007 Book value January Additions Disposals Amortization charge Book value December At December 31, 2007 Cost or valuation Accumulated amortization and impairment Book value December Capitalization of costs related to development are mainly due to commercialisation of Sevan technology for production, storage and offloading of LNG. Booked value of goodwill as per December 31, is related to acquisition of Kanfa AS. Note 4 Investments in subsidiaries and receivables and liabilities to companies within the group Investments in subsidiaries 2008 Company name Office Cost no of Equity Book Profit/ Ownershiplocation price shares value (loss) share Kanfa AS Asker % Sevan Production AS Arendal % Sevan Marine do Brasil Ltda Brazil % Sevan 300 Pte Ltd Singapore % Sevan Invest AS Arendal % Sevan Drilling AS Arendal % Sevan Drilling ASA Arendal % Sevan Holding I AS Arendal % Sevan Holding II AS Arendal % Sevan Holding III AS Arendal % Sevan Holding IV AS Arendal % Sevan Services AS Arendal % Total book value

104 Investments in subsidiaries 2007 Company name Office Cost No. of Equity Book Profit/ Ownershiplocation price shares value (loss) share Kanfa AS Asker % Sevan Production AS Arendal % Sevan Marine do Brasil Ltda Brazil % Sevan 300 Pte Ltd Singapore % Sevan Invest AS Arendal % Sevan Drilling AS Arendal % Sevan Drilling ASA Arendal % Sevan Holding I AS Arendal % Sevan Holding II AS Arendal % Sevan Holding III AS Arendal % Sevan Holding IV AS Arendal % Total book value (Amounts in the table above have been prepared in local GAAP and are presented in USD 1,000, except number of shares) Current receivables from companies within the Group Receivable from Sevan Production AS Receivable from Sevan Production General Partnership Receivable from Kanfa AS Receivable from Sevan Production Services Limited Receivable from Sevan Drilling AS Receivable from Sevan Drilling Pte Ltd Receivable from Sevan Drilling Rig II Pte Ltd Receivable from Sevan Drilling Rig Pte Ltd Receivable from Sevan Pte Ltd Receivable from Sevan Drilling ASA Receivable from Sevan Invest AS Receivable from Sevan Holding I Pte Ltd Receivable from Sevan Holding II Pte Ltd 0 16 Receivable from Sevan Holding I AS 10 0 Receivable from Sevan 300 Pte Ltd Receivable from Kanfa Aragon AS Receivable from Mator Receivable from Sevan Production UK Limited Receivable from Piranema Servicios de Petroleo Ltd 63 0 Receivable from Sevan Marine do Brasil Ltda 61 0 Receivable from Sevan Services AS 2 0 Receivable from Sevan Production Pte Ltd Total current receivables from companies within the Group

105 Annual report 08 Sevan Marine 105 Short term liabilities to companies within the Group Liabilities to Sevan 300 Pte Ltd Liabilities to Sevan Drilling Pte Ltd Liabilities to Sevan Pte Ltd Liabilities to Sevan Holding I AS 31 0 Liabilities to Sevan Production General Partnership Liabilities to Sevan Production Pte Ltd 72 0 Liabilities to Sevan Drilling AS Liabilities to Kanfa AS Liabilities to Sevan Holding II Pte Ltd Liabilities to Sevan Production AS Liabilities to Sevan Holding I Pte Ltd Liabilities to Sevan Marine do Brasil Ltda 11 0 Liabilities to Kanfa Aragon AS Total short term liabilities to companies within the Group Note 5 Receivables and liabilities Receivables due later than one year Other receivables Total receivables due later than one year Note 6 Cash and bank deposits Included in cash and bank deposits are restricted cash related to taxes withheld from employees of 1,218 (2007: 963). At balance sheet date 14,480 (2007: 6,800) of the cash was collateralized in relation to a derivative contract, 1,000 (2007: 4,386) was collateralized in relation to a guarantee made on behalf of Sevan Drilling Pte Ltd and 16,014 (2007: 0) was collateralized in relation to a guarantee made on behalf of Sevan Drilling Rig Pte Ltd. Note 7 Shares and share options owned or controlled by the Board of directors and senior management As of December 31, 2008, the following Directors and senior management owned or controlled shares in the Company: Arne Smedal, Chairman of the Board, owns 3,698,703 shares directly, 2,804,036 shares through his wholly owned company Aasen AS, and 147,261 shares through Elvheim AS, where he holds a controlling ownership interest. Kåre Syvertsen, Board member and Vice President Technology owns 428,704 shares directly, and 2,821,296 shares through his wholly owned company Hallingen AS. Vibeke Strømme, Deputy Chairman of the Board, owns 4,000 shares. Hilde Drønen, Board member, owns 1,400 shares directly and 4,600 shares through her wholly owned company Djupedalen AS. Stephan M. Zeppelin, Board member, owns no direct shares. Mr. Zeppelin is an employee of Wexford Capital LLC, which is the manager and investment sub-advisor to Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited, respectively. Wexford Catalyst Investors LLC and Wexford Spectrum Trading Limited own an aggregate of 2,383,300 shares. Kristin Urdahl, Employee representative of the Board and Senior Engineer, owns 33,300 shares directly, and holds 16,700 options with a strike of NOK and 300,000 options with a strike price of NOK Kjetil Soma, Employee representative of the Board and Controller, owns 10,166 shares directly, and holds 33,334 share options with a strike of NOK Jan Erik Tveteraas, CEO, owns 56,556 shares directly and 2,893,444 shares through his wholly owned company Supernova AS. Erling Ronglan, Vice President Operations, owns 23,333 shares and holds 16,667 share options with a strike price of NOK and 300,000 share options with a strike price of

106 Fredrik Major, Vice President Business Development/R&D, owns 27,333 shares and holds 16,667 share options with a strike price of NOK and 300,000 share options with a strike price of NOK Erskine Rozario, Vice President Engineering and Construction, owns 27,332 shares and holds 16,668 share options with a strike price of NOK and 300,000 share options with a strike price of Hanna Moland, Vice President HR & Administration, owns 12,667 shares and holds 16,667 share options with a strike price of NOK 15,50 and 50,000 share options with a strike price of NOK Reidun Beate Olsen, Vice President QHSE, owns 16,666 shares and holds 33,334 options with a strike price of NOK and 100,000 share options with a strike price of NOK Birte Norheim, Vice President Finance, owns 5,000 shares and holds 16,668 options with a strike price of NOK and 50,000 share options with a strike price of NOK Helle Hundseid, Vice President Projects, holds 16,667 options with a strike price of NOK and 300,000 share options with a strike price of NOK Note 8 Shareholder information At December 31, 2008, Sevan Marine ASA had 6,740 shareholders. 63% of the share capital was owned by shareholders residing outside of Norway. The 20 largest shareholders as at December 31, 2008, were: Name number of shares Ownership-share (%) GOLDMAN SACHS & CO - SECURITY CLIENT SEGR % BEAR STEARNS SECURIT A/C CUSTOMER SAFE KE % GOLDMAN SACHS INT. - SECURITY CLIENT SEGR % MORGAN STANLEY & CO. CLIENT EQUITY ACCOUNT % DEUTSCHE BANK AG LONDON % CLEARSTREAM BANKING CID DEPT, FRANKFURT % JP MORGAN CHASE BANK S/A F+C INVEST TRUST % SMEDAL ARNE % PENSJONSKASSEN STATOIL JP MORGAN CHASE BANK % SUPERNOVA AS, JAN ERIK TVETERAAS % HALLINGEN AS, KÅRE SYVERTSEN % AASEN AS, ARNE SMEDAL % JP MORGAN CHASE BANK S/A ESCROW ACCOUNT % BR INVESTERING AS % MP PENSJON % JP MORGAN CHASE BANK BT PENSION SCHEME % CREDIT SUISSE SECURI (EUROPE) LTD./FIRMS % EUROCLEAR BANK S.A./ 25% CLIENTS % GOLDMAN SACHS INT. - SECURITY CLEARANCE % SIX SIS AG 25PCT % 20 LARGES SHAREHOLDERS % REMAINING % TOTAL %

107 Annual report 08 Sevan Marine 107 Note 9 Employee benefit expense Salaries and vacation pay Employer s share of social security Employer s tax relating to options Pension costs Expensed portion of value of options at the time of award Other salary related costs Total employee benefit expense Average number of man-years Remuneration of senior management, as paid Salaries Retirement Other Salaries Retirement Other benefits benefits benefits benefits Jan Erik Tveteraas, CEO Oskar Mykland, CFO* Birte Norheim, Vice President Finance Erling Andreas Ronglan, Vice President Operations Fredrik Major, Vice President Business and Development/ R&D Helle Hundseid, Vice President Projects Hanna Moland, Vice President HR & Administration Reidun Beate Olsen, Vice President QHSE Erskine Rozario, Vice President Engineering and Construction Total * First day of employment was January 1, Salaries and other benefits are based on actual period of employment. Remuneration of the Board of Directors, as paid Hilde Drønen Vibeke Strømme, Deputy Chairman Stephan M. Zeppelin * 40 0 Kristin Urdahl, Employee representative */** 20 0 Kjetil Soma, Employee representative */** 20 0 Arne Smedal, Chairman ** Kåre Syvertsen ** Total Remuneration to the Board of Directors is paid the year following board duties rendered. * Stephan M. Zeppelin was elected member of the Board during Kristin Urdahl and Kjetil Soma also entered the Board during 2007 as Employee representatives. ** Salaries and other benefits paid to Kåre Syvertsen, Arne Smedal, Kristin Urdahl and Kjetil Soma as employees of Sevan Marine ASA is included only for the year(s) for which each has been a member of the Board: Salaries Other Salaries Other benefits benefits Kristin Urdahl Kjetil Soma Arne Smedal, Chairman Kåre Syvertsen

108 Reference is made to note 7 for further information about options and shares owned or controlled by the Board of Directors and senior management. CEO has an agreement for post service remuneration of 18 months of salary from the date of resignation. No loans or guarantees have been granted to the senior management or any member of the Board. Reference is made to the Statement regarding establishment of salary and other benefits for senior management for further details of remuneration of senior management. Spesification of auditor s fees Audit fees Other attestation services 2 0 Tax consultancy Other services Fees charged directly to equity -4 0 Total auditor s fees through the income statement Note 10 Pension liabilities The Company operates both defined benefit and defined contribution plans that together include all employees. Defined benefit plan: The defined benefit plan gives the holder right to defined future benefits. These benefits are mainly dependent on the number of years of service, salary level at pension age, and the amount of benefits from the National Insurance Scheme. The commitment is covered through an insurance company. Specification of pension costs: Defined benefit plan Net present value of current year s pension earned Interest cost of the pension liabilities Expected return on pension assets Fees charged Estimate changes charged to the income statement Social security related to pension plans Pension costs including social security, defined benefit plan Net pension liabilities Estimated incurred liabilities Estimated value pension assets Estimated net pension liabilities Effect of changes on estimates not recorded to the income statement Pension liabilities transferred through acquisition Social security related to pension liabilities Net pension liabilities, including employer s tax No. of employees included in the defined benefit plan 30 21

109 Annual report 08 Sevan Marine 109 Financial assumptions at January Discount rate 4.30% 4.35% Expected return on assets 6.30% 5.40% Expected pension increases / G-regulation 4.25% 4.25% Expected salary increases 4.50% 4.50% Future pension increases 2.75% 2.75% Future turnover 10.00% 10.00% Employer contribution tax 14.10% 14.10% Average life expectancy for a person retiring at 67 years of age Male Female For demographic assumptions and turnover rates, commonly used assumptions in the insurance industry have been applied. The actuarial calculation for the Company s defined benefit plan was carried out by an independent actuary. For 2008, the calculated pension obligation was based on the mortality table K2005 (2007: K1963). Using an updated mortality table gave small negative effect which was included in the actuarial gains/losses. The disability table used for both 2008 and 2007 was K1963 adjusted for observed developments. Defined contribution plan: The defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Defined contribution plan Pension costs Pension cost for the defined contribution plan No. of employees included in the defined contribution plan Total pension cost for defined benefit plan and defined contribution plan The movement in the liability recognized in the balance sheet is as follows January 1, Liabilities acquired in a business combination Exchange differences Total expense charged to the income statement Contributions paid December 31,

110 Note 11 Other operating expense Purchase of services and other fees Rental of offices and fixed assets Travel expense Office expense Other operating expense Total operating expense Note 12 Rental and lease agreements The Company has entered into several agreements for rental for offices. Current year s rental expenditure for offices amounted to 1,301 (2007: 834). The Company has entered into obligations relating to a 10 year lease agreement for new build offices in Arendal with associated annual lease expenses of 2,400 from The Company has also entered into rental agreements for various software, ASP solutions and cars. Related annual rental for 2008 amounted to 554 (2007: 521). All lease agreements are operating leases. Note 13 Earnings per share Net profit/(loss) (USD 1,000) Earnings per share (USD) Earnings per share diluted (USD) Average no. of outstanding shares (thousands) Weighted avg. no. of ordinary shares for diluted earnings per share (thousands) The dilution effect is caused by awarded options that have not been exercised at balance sheet date. Exercise price is lower than marked price at balance date. Due to net losses for 2007 and 2008, and according to the principle of no negative dilution (positive effects on earnings per share resulting from an increase in number of shares issued, are not to be included), diluted earnings per share are calculated as earnings per share for these periods. Note 14 Construction contracts Contract revenue Contract cost Net profit/(loss) on construction contracts Recognized, not yet invoiced for ongoing projects 0 0 Invoiced in advance 0 0 Incurred cost on ongoing projects, included in current liabilities The activities defined as construction contract are mainly related to Joint Industry Projects where the Company is able to recover certain expenses relating to further development and testing of the Sevan technology.

111 Annual report 08 Sevan Marine 111 Note 15 Share based incentive plans The Company has various share option plans that are treated in line with IFRS 2 for accounting purposes. The estimated market values of the options at the time of the award are expensed as payroll expense over the vesting periods. The estimated market values are an imputed cost without any cash effect, and the offsetting entry is an increase in equity. The cost relating to the estimated value of options at the time of the award was 2,561 for the year. The comparable amount for 2007 was 2,116. Share options awarded to employees have an exercise price equal to the market price of the shares at the time of the award. 4.3 million of the remaining options can be exercised with 1/3 each year, first time one year following the award and expire five years following the award. 2.4 million of the remaining options can be exercised provided fulfillment of certain criteria and expire five years following the award. The Company has no legal or constructive obligation to repurchase or settle the options in cash Average exercise price No. of Average exercise price No. of (NOK per share) options (NOK per share) options January 1, Granted Exercised Lapsed/forfeited December 31, Movements in the number of share options remaining and their related weighted average exercise prices are as follows: Year of Exercise price in Share options remaining expiration nok per share at end of year Total Of the 6.6 million remaining options (2007: 7.5 million), 2.4 million options were exercisable (2007: 2.8 million). Options exercised during 2008 resulted in 0.9 million shares being issued (2007: 2.2 million shares) at an average of NOK (2007: NOK 9.99). The weighted average market price at the time of exercise was NOK per share (2007: NOK 46.80). There was no related transaction cost for the Company.

112 Note 16 Related-party transactions 2008 Operating income of total 53,327 includes income from Group companies amounted to 38,291. The Company charged companies within the Group 2,200 for design fees during The Company charged companies within the Group 26,891 for hour-based services, and 9,200 for management services, engineering and site supervision fees during the year. The Company charged companies within the Group 39,407 for interest relating to loans during 2008, and was charged 2,866 for interest relating to borrowings from companies within the Group during the year. The Company charged companies within the Group 3,399 relating to guarantees during the year, and was charged 3,182 relating to guarantees from companies within the Group. The Company received group contribution of 3,075 during Operating income of total 33,899 includes income from Group companies amounted to 33,085. The Company charged companies within the Group 4,500 for design fees during The Company charged companies within the Group 17,085 for hour-based services, and 11,500 for management services, engineering and site supervision fees during The Company charged companies within the Group 35,204 for interest relating to loans during 2007, and was charged 4,943 for interest relating to borrowings from companies within the Group during the year. The Company charged companies within the Group for 1,312 relating to guarantees during the year, and was charged 1,158 relating to guarantees from companies within the Group. Note 17 Financial risk The Company s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company s financial performance. The Company uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by the Finance department under policies approved by the Board of Directors. The Finance department identifies, evaluates and hedges financial risks in close co-operation with the its operating units. The Board approves the principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. Market risk Foreign exchange risk The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to NOK, EURO and UK pound. Foreign exchange risk arises from future commercial transactions, recognized assets or liabilities, and net investments in foreign operations. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity s functional currency. To manage foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Company uses forward contracts and similar instruments. External foreign exchange contracts are designated at Group level to perform hedges of foreign exchange exposures on a gross basis. The Group s risk management policy is to hedge anticipated transactions in each major currency. The Company has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. Price risk The Company is exposed to commodity price risk at two main levels: The demand for Sevan units is sensitive to oil price developments, fluctuations in production levels, exploration results and general activity within the oil industry. The construction price of future Sevan units is exposed to potential changes in market price of the inputs. The Company s policy is to maintain liquidity through placement of excess cash as bank-deposits and/or short-term, marketable investments at limited risk. Cash flow and fair value interest rate risk The Company s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. The Company s policy is to maintain part of its borrowings in fixed rate borrowing facilities. During 2007 and 2008 the Company s borrowings were denominated in USD and NOK. The Company simulates various scenarios taking into consideration, refinancing, renewal of current positions, alternative financing and hedging. Based on these scenarios, the Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts. Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers. The Company has no significant concentrations of credit risk towards financial institutions and has policies that limit the amount of credit exposure to any single financial institution. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability

113 Annual report 08 Sevan Marine 113 to close out market positions. The Company aims to maintain flexibility in funding by keeping committed credit lines available. As of December 31, 2008, the estimated minimum total capital requirement is USD million, including a Group working capital requirement of USD million and potential future termination cost of USD 50 million relating to Sevan Driller II and III. Over the last year, the Company has evaluated several possibilities of securing necessary funding, and is aiming at financing as much as possible of the capital requirement by way of asset sales in addition to the convertible bond issue subscribed by Luxor in April 2009, of which an additional amount of USD million directed towards Luxor may be subscribed subject to approval by the extraordinary general meeting on May 4, In addition, the Board estimates that the capital requirement for the two drilling contracts awarded in 2008 is approximately USD billion (including USD 100 million in working capital), of which USD 300 million in equity. Any capital will be raised directly in Sevan Drilling. These contracts will only be pursued if financing can be raised. The valuations forming the basis for the financial statements for 2008 may be at risk should the Company not be successful in its financing initiatives, as it is possible that that realization values for the Group s assets in a strained situation are lower than book values. Note 18 Contingencies The Company has entered into the following security arrangements: Security arrangements related to loans: FPSO Sevan Piranema: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 270 million bond loan agreement described in note 20. FPSO Sevan Hummingbird: The Company has issued a bond loan, secured by 1st priority securities pursuant to the terms of the USD 140 million bond loan agreement described in note 20. FPSO Sevan Voyageur: The Company has issued a bond loan, secured by 2nd priority securities pursuant to the terms of the NOK 870 million bond loan agreement described in note 20, and provided certain securities on 1st priority in accordance with terms of a USD 150/300 million bank financing facility to Sevan 300 Pte Ltd. Sevan Driller: The Company has provided certain securities on 1st priority in accordance with terms of a the USD 250/400 million bank financing facility to Sevan Drilling Ptd Ltd and provided a guarantee on 2nd priority in accordance with terms of a NOK 1,000 million bond loan agreement to Sevan Drilling AS. Security arrangements related to construction contracts: Sevan Driller: The Company has issued a guarantee related to construction contracts regarding Sevan Driller. Security arrangements related to equipment supplies and related services: FPSO Sevan Piranema, FPSO Sevan Hummingbird, FPSO Sevan Voyageur, FPSO Sevan 300 no. 4, Sevan Driller, Sevan Driller II and Sevan Driller III: The Company has issued guarantees for the subsidiaries correct fulfillment of their contractual commitments as purchasers towards vendors. Kanfa AS: The Company has issued a performance guarantee for Kanfa AS delivery of a process plant and compression packages to client. Security arrangements related to operations: FPSO Sevan Piranema: The Company has granted a performance guarantee towards the technical manager. FPSO Sevan Hummingbird: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager. FPSO Sevan Voyageur: The Company has guaranteed for correct fulfillment of the contract with the end-charterer and granted a performance guarantee towards the technical manager. FPSO Sevan 300 no. 4: The Company has guaranteed for correct fulfillment of the contract with the end-charterer. Sevan Driller III: The Company has guaranteed for correct fulfillment of the contract with the end-charterer. Note 19 Events after balance sheet date In February 2009, Eni Norge selected the Sevan 1000 FPSO as the preferred concept for the floating production platform to be installed on the Goliat field in the Barents Sea. In March the parties signed a firm contract for the Post Feed Engineering phase and in April the parties signed a Technology License agreement. In February 2009, Sevan received an offer from an industry player for one of the Sevan units. The offer, which is subject to documentation and final agreement, represents a purchase price reflecting the book value of the unit. A directed convertible bond issue of USD 12 million was completed in April. The convertible bond was directed towards Luxor Capital Group, LP and has a term of four years and a fixed coupon of 15 per cent per annum. Interest payments may, at the Company s election, be paid by way of issuing additional bonds or in cash. The conversion price is the NOK equivalent of USD at the day of exercise of the conversion right. The proceeds from the issue will be used for general corporate purposes.

114 Note 20 Borrowings Norminal Amortized Fair Nominal Amortized Fair value value value value value Value Bond loan 140 MUSD Bond loan 270 MUSD Bond loan 870 MNOK Value of embedded call options Non current borrowings First year payable Total borrowings The debt is nominated in the following currencies (nominal values): NOK USD The maturity of non-current borrowings is (as follows): Nominal Amortized Nominal Amortized 1-2 years years More than 5 years Total non current borrowings The effective interest rates at balance sheet date are (as follows): NOK USD nok USD Bond (USD 140 millions) 9.68% 8.77% Bond (USD 870 millions) 10.55% 11.15% Bond (USD 270 millions) 6.54% 7.74% Any effect of interest-rate swaps is included in the calculation of the effective interest rates at balance sheet date. In December 2006, the Company carried out a bond issue of USD 140 million, at a fixed interest rate of 9.25%. The bond has a term of 5 years, with one call option in December 2009 at 103%, and one call option in December 2010 at 102%. The fair value of these options was estimated at USD 2.3 million (2007: USD 4,5 million) at balance sheet date. In May 2007, the Company carried out a bond issue of USD 270 million, at an interest rate of Libor+3%. The bond has a term of 6 years, with two embedded call options at 103.5% and 102.5% which can be exercised in May 2010 and in May 2011 respectively. The fair value of these options was estimated at USD 2.1 million (2007: USD 8,5 million) at balance sheet date. In October 2007, the Company carried out a bond issue of NOK 870 million (USD 157 million equivalent), at an interest rate of Nibor+5.5%. The bond has a term of 5 years, with three embedded call options at 105%, 104% and % which can be exercised 6-12 months following completion of FPSO Sevan Voyageur, in October 2010 and in October 2011 respectively. The fair value of these options was estimated at USD 6.4 million (2007: USD 5,4 million) at balance sheet date. Customary covenants and information requirements are tied to the loans. Securities and guarantees related to the bond loans are described in note 18.

115 Annual report 08 Sevan Marine 115 Note 21 Derivative financial instruments Current Assets Liabilities Assets Liabilities Forward foreign exchange contracts Total current portion Non-current Floating-to-fixed interest rate swaps Total non-current position Net position of derivative financial instruments Forward foreign exchange contracts There were no outstanding forward foreign exchange contracts at balance sheet date. The notional principal amount of the outstanding forward foreign exchange contracts at December 31, 2007, was USD 59 million. Floating-to-fixed interest rate swaps The notional principal amount of the outstanding interest swap agreements at December 31, 2008, was USD 270 million (2007: USD 270 million). All positions in foreign currency are valued at market rates at balance date. Note 22 Financial income and financial expense Financial income: Interest income from companies within the Group Other financial income from companies within the Group Other interest income Received group contribution Currency gain Amortization of embedded call options and transaction cost related to borrowings Total financial income Financial expense: Interest cost from companies within the Group Other interest expense Other financial expense from companies within the Group Loss on financial investments Loss of interest swap Loss on value of call options embedded in bonds Currency loss Other finance cost Total financial expense Note 23 Inventory Inventory: Materials to be used during operations Inventory consists of spare parts. The cost of usage of inventory is classified operating cost in the income statement.

116 auditor s report PricewaterhouseCoopers AS Forus Atrium Postboks 8017 NO-4068 Stavanger Telephone Telefax To the Annual Shareholders' Meeting of Sevan Marine ASA Auditor s report for 2008 We have audited the annual financial statements of Sevan Marine ASA as of December 31, 2008, showing a loss of USD for the parent company and a loss of USD for the group. We have also audited the information in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss. The annual financial statements comprise the financial statements of the parent company and the group. The financial statements of the parent company comprise the balance sheet, the statements of income and cash flows and the accompanying notes. The financial statements of the group comprise the balance sheet, the statements of income and cash flows, the statement of changes in equity and the accompanying notes. The regulations of the Norwegian accounting act and accounting standards, principles and practices generally accepted in Norway have been applied in the preparation of the financial statements of the parent company. International Financial Reporting Standards as adopted by the EU have been applied in the preparation of the financial statements of the group. These financial statements are the responsibility of the Company s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors. We conducted our audit in accordance with laws, regulations and auditing standards and practices generally accepted in Norway, including standards on auditing adopted by The Norwegian Institute of Public Accountants. These auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and auditing standards an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements of the parent company have been prepared in accordance with the law and regulations and give a true and fair view of the financial position of the company as of December 31,2008 and the results of its operations and its cash flows for the year then ended, in accordance with accounting standards, principles and practices generally accepted in Norway the financial statements of the group have been prepared in accordance with the law and regulations and give a true and fair view of the financial position of the group as of December 31, 2008, and the results of its operations and its cash flows and the changes in equity for the year then ended, in accordance with International Financial Reporting Standards as adopted by the EU the company's management has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information in accordance with the law and good bookkeeping practice in Norway the information in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss are consistent with the financial statements and comply with the law and regulations. Without qualifying our opinion, we draw attention to the fact that material uncertainties exists which may cast significant doubt about the Company s ability to continue as a going concern. If a sale of the company s assets is forced, a significant risk exists that assets are sold at prices lower than book value. The above-mentioned uncertainties are further described in the board of director s annual report and in the financial statements. Stavanger, April 30, 2009 PricewaterhouseCoopers AS Torbjørn Larsen State Authorised Public Accountant (Norway) Note: This translation from Norwegian has been prepared for information purposes only. Alta Arendal Bergen Bodø Drammen Egersund Florø Fredrikstad Førde Gardermoen Gol Hamar Hammerfest Hardanger Harstad Haugesund Kongsberg Kongsvinger Kristiansand Lyngseidet Mandal Mo i Rana Molde Mosjøen Måløy Namsos Oslo Sandefjord Sogndal Stavanger Stryn Tromsø Trondheim Tønsberg Ulsteinvik Ålesund PricewaterhouseCoopers navnet refererer til individuelle medlemsfirmaer tilknyttet den verdensomspennende PricewaterhouseCoopers organisasjonen Medlemmer av Den norske Revisorforening Foretaksregisteret: NO

117 Annual report 08 Sevan Marine 117 Responsibility Statement We confirm, to the best of our knowledge, that the financial statements for the period January 1 to December 31, 2008, have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit and loss of Sevan Marine ASA as well as the consolidated group. We also confirm that the Board of Directors Report includes a true and fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncer tainties facing the Company and the Group. Arendal, April 30, 2009 The Board Directors of Sevan Marine ASA Arne Smedal Vibeke Strømme Kåre Syvertsen Hilde Drønen Chairman Deputy Chairman Board member Board member Stephan M. Zeppelin Kjetil Soma Kristin Urdahl Jan Erik Tveteraas Board member Employee representative Employee representative CEO

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119 Annual report 08 Sevan Marine 119 Norway Sevan Marine - Arendal Kittelsbuktveien Arendal Norway Phone: Fax: Sevan Marine - Tananger Hammaren Tananger Norway Phone: Fax: Sevan Marine - Trondheim Postboks 1218 Pirsenteret 7462 Trondheim Norway Phone: Fax: Sevan Marine Oslo / Kanfa AS Nye Vakås vei Hvalstad Norway Phone: Fax: Mator AS Herøya Næringspark 3936 Porsgrunn Norway Phone: Fax: Kanfa Aragon Fantoftvegen Bergen Norway Phone: Brazil Singapore Site Offices Sevan Marine Rio de Janeiro Palácio Austregésilo de Athayde building Avenida presidente Wilson 231/1003, CEP Rio de Janeiro RJ, Brasil. Phone: Fax: Sevan Marine - Piranema Operations Av. Pedro Paes de Azevedo,34, Salgado Filho - Aracaju - Sergipe (SE) Brazil Phone: Sevan Marine - Singapore 72 Anson Road Anson House #13-03 Singapore Phone: Fax: United kingdom Sevan Marine - UK Wood Group Engineering (North Sea) Ltd, New Telecom House, College Street, Aberdeen AB116FD Scotland, UK China Hantong China Hantong Shipyard and Heavy Industries Co.Ltd Buyu Harbor Sluicegate, Wujie Town, Tongzhou City Jiangsu Province Peoples Republic of China Cosco Nantong No.1 Zhongunan Road Nantong Peoples Republic of China