Home. About I.M. Skaugen SE. Reflections from the CEO. Petrochemical Supercycle. LNG - Fuelling our future. IMS Technology and Innovation.

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1 I.M Skaugen SE - Annual Report :08:37 PM]

2 ABOUT I.M. SKAUGEN SE I.M. Skaugen SE (IMS) is a marine transportation service company engaged in the transportation of petrochemical gases, chemicals, LPG and LNG, marine transfer of crude oil and LNG, as well as design and construction of smaller, specialised high quality vessels. We are listed on the Oslo Stock Exchange under the ticker code, IMSK. IMS employs approximately people around the world and currently operates about 41 vessels worldwide. comprises petrochemical gas, LPG and LNG carriers, Aframax tankers and lightering support vessels, barges and tugs. 3:08:43 PM]

3 CEO's review CEO'S REVIEW Reflections from the CEO Dear fellow shareholders, business partners and colleagues 2010 did not go down in history as a good year for us, but a year of immense challenges. Many unforeseen and some forewarned challenges and obstacles. We have navigated through most of these challenges and circumvented a few; however we made it through the storms and navigated the uncharted waters! I have quite some reflections on how to improve in order to manage through the challenges next time and I am confident that if we aim to do things in a better way, learn from our mistakes and never be afraid of changes, we will pull it through in spite of any critical circumstances. The winds are again changing. The aftermath of the Financial crisis has started to ease. We now know that 2011 will be a better year the stars are aligned on the horizon and we need to benefit from this. This will require that we all chip in - and all hands on deck as they say. There are no new business segments for IMS on the scene and we will continue to make what is good even better and get back to Steady as she goes. We have plenty of challenges and opportunities within our current field of operations and focus areas and see no need to depart from the course. On the contrary, we will continue to narrow down the scope of our activities and reduce the non-core activities and we have defined core activities even more narrowly to the go East young man or East of Suez focus. Nevertheless, we will continue to hold on to our strategy of being a cost and service leader to our customers worldwide. For a company that has existed for almost 100 years we are confident that with our competence, correct attitude and a mind constantly adopting changes, we will surge along the waves and forge full speed ahead in uncharted water. 3:08:48 PM]

4 CEO's review Our views of the performance of the company in 2010 and the outlook for Steady as she goes, but with an even more narrow focus on the opportunities East of Suez presents. We have in 2009 and 2010 been experiencing the follow on, or aftershocks, of the Great Recession that started in the fall of The effects of this drop was also witnessed during 2009 and into the early part of The demand dropped at the same time as supply of ships increased due to capacity expansion and decisions made several years before. This created the Output Gap that many industries; not only international shipping suffered from. This overcapacity called the Output gap created difficulties in getting paid sufficiently for our services to render due return on capital employed; also for our key business areas at I.M. Skaugen Group. Throughout 2010, the I.M. Skaugen Group thus experienced signs of improving trading conditions for our core business; the gas activities. This was especially noteworthy from 3Q10 and onwards. The main reason is probably the decoupling of growth in the world; with OECD countries or old economy growing slowly and new economies or countries (that now often are called BRIC, CIVETS or N-11 ) are growing at high levels. The rapid development of these large populated countries is driven by structural changes through urbanization and the successive rise of the BRIC consumers in an emerging middle class. We view the possibility that the growth in consumption in the emerging markets will outweigh the lack of growth in the OECD countries (primarily USA and Euro land) and thus the world trade and GDP will still grow at a reasonable pace. A study released by Goldman Sachs shows that if China succeeds in raising its consumption to GDP ratio over the next few years, the Chinese consumer alone could challenge the US in size and importance in the first half of This is why we will continue to focus on clients benefiting from these trends and these markets, and will build even more on our East of Suez strategy in the years to come. We have undertaken establishment in the GCC region and other efforts have been made to gain more experience in China to enable us to exploit the growth in both of these regions. In 2010 we also started a process to reduce our involvement in certain investments now considered non-core and in the Nordic region to focus even more on our activities in Asia and other relevant emerging markets. We established a new joint venture. Skaugen Gulf Petchem Carriers B.S.C in Bahrain. The company will aim to participate in the growing energy needs for LNG in the region as well as the growing exports of petrochemical gases. A part of this strategy is also to attract capital - risk capital and debt - for further expansions both in the GCC-region and in China. I.M. Skaugen has for many years invested substantial amounts of resources and money into R&D and business development and it is now time to gain on many of the initiatives we have undertaken. The associated expenses have been charged to the P&L of the company and have for the most not been capitalized. With proper execution we should be able to generate better returns due to some of these initiatives and this should come to directly benefit of our shareholders. These developments cover amongst others technology and business solutions for Small scale LNG transportation, development of combination ships for LNG and petrochemical gases (MG ships) and for chemicals and petrochemical gases (WG ships) as well as ship building in China. 3:08:48 PM]

5 CEO's review LNG As a company we believe that crude oil in the future will be too much of a valuable commodity to be used for transportation, power generation and heating. Crude oil should be used for life sciences and petrochemicals. Today we see heavy fuel, diesel and coal being used for power generation and transportation. We envision that natural gas will be used in the future to cover marginal demands and substitute where possible. We tend to view business opportunities arising from this vision. Hence, our desire to be in the petrochemical fields and in the distribution of LNG. With a sustained wide price ratio between crude oil and natural gas, this surge in oil demand for power generation provide ample opportunities for the substitution of gas for oil in the near future, with important market implications in 2011 and beyond. Over the past two years we have seen a dramatic divergence between natural gas and crude oil prices, driven by the shale gas expansions in the U.S and increased demand of natural gas. There has already been a rapid substitution of gas for oil in the petrochemical sector in the US. Where the large price divergence is prompting a switch to ethane-based petrochemical output during 2010, and thus improving the competitiveness of the US producers. This will impact global petrochemical trade flows, and development of new projects in the years to come. On the other hand the ramp up of LNG production in Qatar and other similar projects, potentially leading to the substitution of LNG for oil in the transportation and power sector. These developments should make our own initiatives to make an entry into small scale LNG rather more promising and we see many relevant and interesting projects on the horizon for our company in We will in 2011 have 6 LNG capable gas carriers in our fleet and a company-wide expertise and know how within LNG logistics covering most of our business units. Our plan is to complete the construction of a total of 10 LNG capable carriers and we are currently working on finding a suitable financial solution to order 4 more vessels to complete our program. Morits Skaugen Chief Executive Officer 3:08:48 PM]

6 PETROCHEMICAL SUPERCYCLE Crude oil has to be changed before it can be used for anything. This happens in an oil refinery. A refinery takes a raw material (crude oil) and transforms it into petrol and hundreds of other useful products. A typical large refinery costs billions of dollars to build and millions more to run and upgrade. It runs around the clock, 365 days a year, employs hundreds of people and occupies as much land as several hundred football fields. s are chemicals made from petroleum and natural gas. Liquids occupy several hundred times less space than gases and make transportation feasible. We believe petrochemicals are entering a positive trend in our core business segments going into The market balance in the gas carrier business is perhaps better than expected with the peak of newbuilding deliveries behind us. On the demand side the emerging countries with the BRICs on top are petrochemical products. This is the most important reason for us to continue the come. Among all the BRIC countries, China is forecasted to be the second powering ahead, adding up the majority of growth in demand for the focus on these markets and intensify our East of Suez strategy in the years to largest world Gross Domestic Product (GDP) contributor by the International Monetary Fund (IMF) and will get fairly close to the US within the next five years. The main drivers of the economy as changing demographics, urbanization and industrial upgrading will support China s growth going forward. The consumption of petrochemical products such as polyethylene (plastics) is expected to experience rapid growth in China. Nevertheless the Chinese petrochemical industry is unable to meet the growing demand. Based on the fact that China is only able to reach 50% self-sufficiency on products such as ethylene (raw material for polyethylene), the country will still rely on imports typically from the Middle East. 3:08:52 PM]

7 LNG - FUELLING OUR FUTURE World primary energy demand LNG - Fuelling our future has been growing, despite the global economic crisis in 2008 and 2009, and is expected to continue its growth for decades to come. Emerging economies, led by China and India, will drive global demand higher. These two countries according to the International Energy Agency s projections will account for over 50% of the total growth in global energy demand to The importance of China in global energy markets continues to grow. In 2000, China s energy demand was half that of the United States, but preliminary data indicate it is now the world s biggest energy consumer. Growth prospects remain strong, given China s per-capita energy use is still only one-third of the OECD average and it is the most populous nation. It is hard to overstate the growing importance of China in global energy markets. The country s growing need to import fossil fuels to meet its rising domestic demand will have an increasingly large impact on international markets. Natural gas is certainly set to play a central role in meeting the world s energy needs for at least the next two-and-a-half decades. Overall, both for economic and environmental reasons, natural gas remains fundamental in order to achieve the optimum global energy solution. Long-term commitments in the LNG value chain are expected to continue. Gulf LNG imports highlight regional gas shortages. In the decades to come, it is foreseen that increased domestic demand in the Gulf states will force most of these countries to import gas; either via pipeline or as LNG. Marine LNG Marine LNG could become the largest market for small scale LNG solutions. With tightening rules for both SOx and NOx emissions, LNG is becoming a very viable alternative to marine diesel as well as low sulphur bunker fuels combined with 3:08:57 PM]

8 different post-combustion cleaning processes. Using LNG as the fuel will solve the emissions problems at source; LNG will generate no SOx emissions and will lower the NOx emissions with 80-90% compared with traditional bunker fuels. Our fleet of Multigas carriers (MG) can play a vital role as bulk breakers when LNG needs to be moved in smaller parcels from large LNG import terminals to smaller strategically located bunker hubs in busy port areas. In addition, when VLCCs and other large ocean going ship will convert to LNG, bunker parcels of cbm will be needed and our Multigas vessels will be the perfect bunker vessels to perform this service. Small scale LNG concept and our LNG vessels increase LNG availability Natural gas is globally in great demand globally as a clean fuel and as a feedstock for petrochemicals, agricultural chemicals, plastics and power generation. Traditionally, transport has been limited to pipelines, whose economical and physical limitations have typically restricted distribution. However, when converted to Liquefied Natural Gas (LNG), it takes about 600 times less space, making it conveniently transported by ship to various markets worldwide well beyond the reach of pipeline systems, thereby greatly increasing the availability of this highly desirable energy resource with a flexibility of supply. In addition to LNG, our innovative and unique Multigas vessels are able to carry a wide range of petrochemical gases. Our first three Multigas vessels, Norgas, Norgas Creation and Norgas Invention are delivered during and are performing very well. We have already started the process of designing the next generation of gas carriers. 3:08:57 PM]

9 IMS TECHNOLOGY AND INNOVATION Efficient insulation and cooling We see that due to the low heat ingress the vessels can sail without the cargo plant running for long periods of time without getting anywhere close to the maximum pressure (MARVS). Furthermore, the consequence of the efficient cooling is that we can wait until just a couple of days prior to discharge before start-up the reliquefa-ction plant and cool down of cargo to the desired temperature. During a typical ethylene export voyage from the GCC region to South East Asia, the cargo reliquefaction plant can remain shut-down most of the voyage. This gives considerable reduced running hours on the system and consequently reduces both fuel consumption, lubrication oil consumption and spare part consumption. The estimated saving for such a voyage is about 2 ton fuel, which means 63 ton less CO2 emissions, 1,3 ton less NOx and 1,8 ton less SOx all in just one voyage! On top of that, a cost saving of about USD just on direct fuel cost for the same voyage. In addition there will be considerable savings over time on lubrication oil and spare parts. 3:09:02 PM]

10 3:09:02 PM]

11 KEY FIGURES USD million EBITDA 19, EBIT (3,8) Pre-tax result (14,3) (10.1) Liquid assets 39, Equity at book value 78, Net interest bearing debt 145, Equity ratio 1) 28,5% 28.1% 30,8% 36 % 40 % Interest coverage ratio 2) 1, per share Market value NOK 36, Dividend NOK 3) EBITDA USD 0, ,28 EBIT USD (0,14) Equity as book value USD 2, No. of shares (excl. treasury shares) End of period Average number of shares ) Book equity divided by total assets 2) EBITDA divided by net interest expenses 3) Dividend for 2006 was paid in Dec :09:06 PM]

12 Board of directors' report 2010 BOARD OF DIRECTORS' REPORT 2010 Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board I.M. Skaugen SE (IMS) is a Marine Transportation Service Company engaged in the transportation of petrochemical gases, chemicals, LPG and LNG, the marine transfer of crude oil and LNG, as well as design and construction of smaller, specialized high quality vessels. We are listed on the Oslo Stock Exchanges under the ticker code, IMSK. I.M Skaugen employs approximately 2,000 people around the world and currently operates 41 vessels worldwide. We manage and operate our activities from our offices in Singapore, China, Bahrain, USA, Russia and Norway. For the year, IMS reported a net loss of USD14.9 million (loss of USD10.1 million in 2009). The EBITDA was USD 19.4 million (USD24.2 million in 2009). The Group s gross revenues totalled USD117 million (USD108 million in 2009). Net cash flow from operations in 2010 is negative USD 31 million (positive USD 26.6 million in 2009). The Skaugen Marine Construction Co Ltd. SMC newbuilding activities combining the Wintergas (WG) and Multigas (MG) vessels (classified as projects under construction) were the main reasons of the negative cash flow from operations in The vessels will all be delivered in 2011, thus they will improve the cash flow from operations in As of 31 December 2010, the group has USD 49 million tied up in working capital for the WG and MG vessels (2009 USD 52 million). Total assets were USD275.8 million. Shareholders equity amounted USD 78.7 million or USD 2.90/NOK 17 per share. The net debt at the end of 2010 was USD 84.6 million and the net interest-bearing debt totalled USD million. The ratio between current assets and current liabilities was 137 percent. Total liquidity as of the end of 2010 was USD 40 million, which is considered sufficient for the company s ongoing business activities. The interest coverage ratio (EBITDA / Net interest cost) was 1.1 for the year The equity ratio at year end was 28.5 per cent up from 28.1 per cent at year end This is as a result of reduction in 3:09:10 PM]

13 Board of directors' report 2010 working capital tied up in the SMC newbuilding projects. In the last quarter of this year reduction in short-term liabilities reduced the working capital and thus the overall leverage of the company and increased the equity ratio. The policy of the company is to be at all times above 30 per cent. The process of improving some of the key balance sheet ratios through optimization of debt and working capital will continue through 2011, with the completion of the current newbuilding program in In September 2010 part of the outstanding bonds, due in 2011, were refinanced in order to reduce the refinancing risk. Part of the remaining balance will be extended through refinancing in 2011, while some of it will be repaid by proceeds from sale and leaseback arrangements we have committed to. Total outstanding bond debt per 31 December 2010 is USD158.7 million of which USD59.1 million is in Figures in the segment presentations below are taken from the management report, which provide a more detailed segment summary of the IMS Group s underlying operations other than the official published accounts. The former utilizes proportional consolidation for group activities pursued through joint ventures reflects IMSs share of these partnerships. Hence, it provides more detailed information on the total financial results achieved by the group through its various joint ventures. However, IMS joint venture activities are reported on the official accounts using the equity method complying with the International Financial Reporting Standards (IFRS). 3:09:10 PM]

14 Performance in 2010 and outlook for 2011 PERFORMANCE IN 2010 AND OUTLOOK FOR 2011 Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Our views of the performance of the company in 2010 and the outlook for 2011 Steady as she goes, but with an even more narrow focus on the opportunities East of Suez We have in 2009 and 2010 experienced the follow on, or aftershocks, of the Great Recession that started in the fall of For many it is also called the Financial Crisis. Just after the Lehman bankruptcy, and in most segments of the international shipping business, we could see international trade be reduced and demand for seaborne transportation drop dramatically and perhaps more as a result of the sentiment of the finance crisis rather than the Great Recession. The effect of this drop was also apparent during 2009 and into the early part of The demand dropped at the same time as supply of ships increased due to capacity expansion and decisions made several years before. This created the Output Gap that many industries; not only international shipping suffered from. This overcapacity that we call the Output gap created difficulties in getting paid sufficiently for our services to render due return on capital employed; also for our key business areas at IMS Group of Companies. Throughout 2010, the IMS Group thus experienced signs of improving trading conditions for our core business; the gas carrier activity. This was especially noteworthy from 3Q10 and onwards. The main reason is probably the decoupling of growth in the world; with OECD countries or old economy growing slowly and new economies or countries (that now often are called BRIC, CIVETS or N-11 ) are growing at higher levels. Appreciation by board 3:09:58 PM]

15 Performance in 2010 and outlook for 2011 Most of the Asian economies and the BRIC countries are powering ahead, adding up the majority of growth in demand for the products that we transport. The rapid development of these large populated countries is driven by structural changes through urbanization and the successive rise of the BRIC consumers in an emerging middle class. We view the possibility that the growth in consumption in the emerging markets will outweigh the lack of growth in the OECD countries (primarily USA and Euroland) and thus the world trade and GDP will still grow at a reasonable pace. If China succeeds in raising its consumption to GDP ratio over the next few years, the Chinese consumer alone could challenge the US in size and importance in the first half of 2020 shows a study released by Goldman Sachs. This is why we will continue to focus on clients benefiting from these trends and these markets, and will build even more on our East of Suez strategy in the years to come. A part of this strategy is also to attract capital risk capital and debt - for further expansions both in the GCC-region and in China. The establishment of our new joint venture in Bahrain (ref below) is only one such move, but also our ability to attract debt finance in China is another. We as a company have for many years invested substantial amounts of resources and money into R&D and business development and it is now time to gain on many of the initiatives we have undertaken. The associated expenses with these development projects has been charged to the Income the company and expensed for the most and not been capitalized; as these projects have been in an early stage development and subject to continuous developments. With proper execution now we should be able to generate better returns due to some of these initiatives and this again should then come to the direct benefit our shareholders. These developments cover amongst others technology and business solutions for Small scale LNG transportation, development of combination ships for LNG and petrochemical gases (MG ships) and for chemicals and petrochemical gases (WG ships) as well as ship building in China. We have also undertaken establishment in the GCC region and other efforts have been made to gain more experience in China to enable us to exploit the growth in both of these regions. These undertakings have in sum been quite demanding for our resources, but considered needed at the time in order to lead the business and technological innovation within our core field of interest. We will not, however be able to continue to consume as much R&D and business development and expense these to our Income statement in the years to come until our recent developments avail us properly. In 2010 we also started a process to reduce our involvement in certain investments now considered non-core and in the Nordic region to focus even more on our activities in Asia and other relevant emerging markets. We are confident that we are able to benefit from the business opportunities between the GCC region and China and to participate in business areas that benefit from the developments in this area of the world. Entry into the distribution of LNG As a company we do believe that crude oil in the future is going to be too much of a valuable commodity to be used for transportation, power generation and heating. Crude oil should be used for end users benefit within life sciences and petrochemicals. For power generation and transportation as of today we see heavy fuel, diesel and coal being used. We envision that natural gas instead will be used in the future to cover marginal demands and substitute where possible. We tend to view business opportunities arising from this thinking. From this you can see another reason for our desire to be in the petrochemical fields and in the distribution of LNG. 3:09:58 PM]

16 Performance in 2010 and outlook for 2011 With a sustained wide price ratio between crude oil and natural gas, this surge in oil demand for power generation provide ample opportunities for the substitution of gas for oil in the near future, with important market implications in 2011 and beyond. Over the past two years we have seen a dramatic divergence between natural gas and crude oil prices, driven by the shale gas expansions in the U.S and increased demand of Natural gas. There has already been a rapid substitution of gas for oil in the petrochemical sector in the US. Where the large price divergence is prompting a switch to ethane-based petrochemical output during 2010, and thus improving the competitiveness of the US producers. This will impact global petrochemical trade flows, and development of new projects in the years to come. On the other hand the ramp up of LNG production in Qatar and other similar projects, potentially leading to the substitution of LNG for oil in the transportation and power sector. The latter factor is particularly important as 2010 has seen a mini-repeat of the 2004/5 and 2007/8 oil markets where surging emerging market economic growth constrained the power sector, causing increased demand for fuel oil and diesel. These developments should make our own initiatives to make an entry into small scale LNG rather more promising and we see many relevant and interesting projects on the horizon for our company in We will in 2011 have 6 LNG capable gas carriers in our fleet and a company-wide expertise and know how re LNG logistics covering most of our business units. We have a plan to complete the construction of a total of 10 such LNG capable carriers and we are working on the financial solution to order 4 more such ships to complete our program. Further establishment in the GCC region In 2010 we established a new joint venture. Skaugen Gulf Petchem Carriers B.S.C in Bahrain and we have in 4Q10 successfully increased the share capital of the company in favour of Nogaholding a subsidiary of the National Oil and Gas Authority - NOGA (35 per cent) ( and Capital Management House ( with 30 per cent. After this initial call for new capital we at IMS retain 35 per cent. The company will aim to participate in the growing energy needs for LNG in the region as well as the growing exports of petrochemical gases. The IMSK share Throughout 2010 the IMSK share has performed more or less on par with its peers, including petrochemical and chemical shipping companies as benchmarks. The share price has performed below the OSEBX index and the transport index where we and similar shipping companies have suffered from the output gap between supply and demand perhaps more than others. In November the market maker agreement with Argo Securities expired, and the share traded without any liquidity provider in December. We are currently evaluating our options regarding these arrangements, and this in order to select the solution which is of best interest for our many shareholders and it is the intention of the board to enter into a new such agreement in :09:58 PM]

17 Performance in 2010 and outlook for 2011 Risks The IMS Group is, at all times, exposed to a number of different uncertainties arising from our normal business activities. These are financial, operational and market related risks. To successfully manage these risks collectively is one of the key skills that we require for the management of the company. The answer is not to seek hedging to mitigate all risks, but to actively pursue a sum of activities that enables us to navigate through the opportunities and challenges that will dictate the returns we may generate in the shorter term. The asset utilization or keeping our ships gainfully employed with the most efficient scheduling is the key driver to profitability for the company. We have achieved historical high contract coverage for the petrochemical gas carriers of Norgas for the year of 2011 and the balance of the days are subject to spot market returns. The contract coverage also has the flexibility between agreed high and low volumes and the difference will affect the levels of utilization. These fluctuations will dictate how we utilize the capacity. We have, for most of our other business units, achieved lower contract coverage ratios for the assets than within the Norgas Gas carriers. This is where we subject to various degrees of market related risks that will influence the returns we can generate form the services we offer. The change in price levels of the commodities we transport may affect the volumes offered for transport thus the demand for our services. The most relevant of the commodities we transport are crude oil and petrochemical gases as well as LNG. The four key petrochemical gases - especially ethylene, propylene, vcm and butadiene as well as LPG and the naphtha prices, they all need to be monitored. On an operational level we are subject to changing 3:09:58 PM]

18 Performance in 2010 and outlook for 2011 costs for the services we require related to the operation of the vessels and for the shipbuilding activities, including the sourcing of raw materials and labour as well as procurement of components. Again, a significant part is related to the oil and bunker prices, of which the fluctuations in prices will affect our operating costs. For some contracts we have achieved a contractual coverage against such changes. Fluctuations in steel and metal prices also affect the newbuilding programs. We carry insurances that will protect us from losses or damage to our ships or for other ships if we damage them, as well as damages to the environment and accidents causing harm to human beings. We carry insurances to cover for the potential losses related to the pirate activities in the Gulf of Aden and similar places. In all cases, we carry a higher deductible than many others to ensure lower costs due to the well functioning management of the company. This has paid off historically. From a financial market risk point of view, the main risk areas are the USD interest rates related to our mortgage debt and bond portfolio, the currency risks associated with USD/RMB, USD/Euro as well as USD/NOK fluctuations mostly related to our newbuilding program and, to some extent operational cost. Most of our revenues are in USD or in currencies effectively tied to the USD. In addition, we are closely monitoring covenants in our debt portfolio and our cash management activities at all levels, as a normal part of our business. Risk management includes maintaining both sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The group is also exposed to counter party risks regarding financial matters. However, it trades only with recognized and creditworthy third parties. We have had very few disputes with our clients regarding payment and performance that have caused a loss to the company. In connection with the Group s shipbuilding projects the Group has entered into sales and leaseback agreements to sell three of the newbuilding vessels to Teekay LNG Partner L.P, upon delivery in We have also entered an agreement with a banking syndicate to fund four of the newbuildings of the MG series. Both types of agreements depend on certain conditions being met, which are customary of the trade. These also rely on the counterparties being willing and able to fund their obligations. We are quite confident that we have chosen the correct counterparties for these transactions. The key risks we focus on today are the possibility of delays of these newbuildings beyond the cancellation date of the leases, the availability of bank financing, as well as the possible reduction in value of those ships subject to bank finance. Such reduction is expected and may require the Group to pledge additional capital in the future for those ships. As a global business, we are also subject to political risks associated with disruptions in certain geographical areas of the world where we operate. The current pirate activities in the Indian Ocean, off Somalia and in the Gulf of Aden is a risk that we must take countermeasures against. Complex risk management is employed for handling security risks. High Risk Area is currently defined from Indian Ocean to Gulf of Aden basis statistical data and trends of pirate attacks. The defined area is subject to regular re-assessment. For ships entering High Risk Area individual routing, monitoring and information support is provided as well as training and making sure the vessels are equipped with state of the art surveillance systems. Gulf of Aden and its transit corridor is navigated under navy protection and we use these naval escorts when possible. The navigations through piracy prone areas and hot spots is arranged with proper care and planning and in medium term perspective via routing advice to vessels. We make substantial efforts to prepare the vessels and to defer any attack. The Ships are following Best Management Practice to Avoid and Deter Piracy and keep to recommendations provided by the guideline of the company. External resources are employed for providing credible information and forecasts. Contacts are established with EU NAVFOR, UKMTO and MARLO, and ship movement reports are regularly sent to navy forces in the area. Ships Security Alert Systems of ships in transit was connected to EU NAVFOR headquarters in order to automate notification process in case of attack. This allows us to shorten time of military response in case of emergency Company develops and implements number of Self Protection Measures (SPM) on board. Elements of SPM are under continuous revision. New projects on early detection and boarding prevention and/or protection are in progress. 3:09:58 PM]

19 Gas transportation activities. GAS TRANSPORTATION ACTIVITIES. Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals Norgas Carriers is a market leader within the narrow field of petrochemical gas transportation business and with its dedication to the transport of ethylene. Ethylene is the chief building block in the field of petrochemicals and is used in the production of plastics. For Norgas, 2010 was mainly driven by increased imports into Asia and inter Asian trade due to the quite buoyant demand for petrochemicals in this region. In addition new trading opportunities opened up from diverging regional cost of production for ethylene. In the second half of the year we observed a general increase in the capacity utilization of ethylene crackers and this is a good sign of more trade especially if it is coupled with rising product prices. The volumes exported and subject to seaborne transportation were lifted by the efficient low cost producers in the Middle East and for overseas markets following maintenance downtime earlier in the year. All of the above helped to tighten the supply/demand balance, and the last half of 2010 was the best for Norgas in This will enable us to profit more on our services in When going into 2011 we are thus in a positive trend in most of our core business segments. The market balance in the gas carrier business of Norgas and TNGC is perhaps even better than expected with the peak of newbuildings deliveries behind us. Norgas have a clear focus on the growing markets within the geographic areas we have named East of Suez. The Middle East is the low cost producer, and Asia and even more so China; the major source of demand growth. Together they make up a dominant trade lanes for the commodities that occupy our type of gas carriers. The Chinese economy is expected to continue to grow and its appetite for petrochemical products is increasing. Despite the fact that China is expanding its own capacity in order to gain on self-sufficiency, the country is still relying on much of the import from especially the Middle East area. As the main feedstock for Chinese ethylene production, the naphtha price has a substantial influence on the cost of production which is then again determined by the development in crude oil price. According to not only the IEA, the era of low oil may be over and the future crude oil price is on an upward trend. Meanwhile the Middle East as the world s lowest cost producer has a clear advantage compared to higher cost countries in Europe and Asia due to their access to low cost feedstock. SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board With an increased production capacity we will see more long haul trades from the Middle East to Asia, especially China in the years to come. Overall the seaborne petrochemical gas trade is forecasted to be back on 2008 level in 2011, with steady and improved volumes going forward. The ton mile effects of the changing trade patterns are evident and these could probably enable us to enjoy a double digit growth in demand the next several years. 3:10:02 PM]

20 Gas transportation activities. The completion of our current newbuilding program, through SMC, will provide Norgas with one of the youngest and most advanced fleets in the petrochemical gas carrier market. This will ensure that we can maintain and increase our market share and also build up our new niche within small scale regional LNG distribution. Chemicals Our specially designed WG type vessels are planned for a growing intra-asian trade, with an innovative ship design combining both petrochemical and chemical capacity. The concept is unique and thus new, and we experience that implementation in current markets has been a slower process than previously anticipated as both of these freight markets (gas and chemicals) in this specific region have suffered from over capacity and/or lack of products to be shipped. The overall improvement of the markets in the second half of the year affected our WG vessels carrying gases in north Asia positively, but the chemical markets are yet to see the same development. Waiting time for these vessels was reduced as they were fixed on more consecutive voyages and reduce the idle time. Our third ship of this type is expected to be delivered in 1Q11, and we are now allocating additional commercial resources on implementation of this project. We view the WG ships as promising based on growing increased inter Asian trade (short haul) stemming from strong economic growth in the region and we are counting on improved profitability in this field in :10:02 PM]

21 Gas transportation activities. Small scale LNG The demand from Asia especially China is also showing strength within the areas of energy. With an increasing crude oil price and decoupling with natural gas price, it will speed up the shift within power generation, heating and transportation from traditional diesel or heavy fuel to natural gas in form of LNG. The environmental and economic benefit is significant and it will facilitate to ease the energy shortage many emerging countries are facing as the bottle-neck of the overall economic growth. Our small-scale LNG concept is an efficient solution for making natural gas available to the stranded customers that are not connected to the pipeline networks. Additional effects with our concept compared to large scale projects are less CAPEX, fast track solution, and a unique scalability and flexibility. We see potentials within many of our core geographic focus areas such as South-East Asia, alongside the Yangtze River in China, South East Asia, the Indian sub-continent and the GCC region in the Middle East. The orderbook for gas carriers and the recycling of ships There are 15 Semi Refrigerated newbuildings of 4.000cbm and above (both short and long haul vessels) delivered during 2010, with 8 of these having ethylene capacity. The existing world fleet (4.000cbm and above) of 289 Semi Refrigerated vessels ( cbm) has now an order book of 40 vessels ( cbm capacity) to be delivered before end of Norgas has now 5 new ships or (49.800) cbm capacity to be delivered in this period and that is about 17% of the ethylene capacity to come in this period. 3:10:02 PM]

22 Gas transportation activities. The growth in the supply or the fleet will be somewhat mitigated by ship recycling in the period with 15% of the capacity ( cbm) that are now 25 years or more and thus eligible for recycling or alternative uses in the coming years. During 2010 there were 16 Semi Refrigerated ships scrapped. The normal age for scrapping of such vessels has been in the period between 27 and 30 years of age. However at about 25 years of age it is quite normal for such ships to cease carrying ethylene and concentrate on other less demanding products to trade. 3:10:02 PM]

23 Skaugen China activities SKAUGEN CHINA ACTIVITIES Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q In the Skaugen China Activities we took successful delivery of three gas carriers in 2010, all made by Skaugen Marine Construction (SMC) in Shanghai on an EPCS conceptual basis. In 2011 SMC will deliver four combined LPG, Ethylene and LNG carriers, and one combined Ethylene / LPG / Chemical carrier. We were not able to resolve the export license and VAT refund issues related to the delivery of Norgas Camilla 2010, but do expect this to be sorted out within first quarter of 2011 and this will enable SMC to deliver this ship in This is a serious delay caused by the trading company involved and this event has absorbed about USD 35 mill in additional working capital without proper returns and for many months in A delivery will improve our profitability in Our other activities in China continued on a trend of acceptable progress throughout the year. In the 4Q10 Shenghui (50 per dent) retrieved some of the grounds lost re the expected growth in revenues in the third quarter. The company recorded 28 per cent growth in revenue from last year. Financial result - Parent company Corporate governance Shareholder statement Appreciation by board The SMC managed shipbuilding activities in China has been restructured with the activity level, this as the Norgas related newbuildings projects are about to be completed. New ship orders in the future will be placed with a more traditional setup based on the increased yard capacity and capability in China in general. This will enable us to mitigate the risks and reduce the working capital required and that we have experienced from our current EPCS setup at SMC. We will put a lot of emphasis on utilizing properly the knowledge and skills within SMC in the developments of activities that are properly tied into our core business. We will also focus on visualizing and/or realizing values created in Shenghui through an IPO process. We are satisfied with the improved performance of TNGC (49 per cent) in 2010 due to increasing demand of petrochemical 3:10:06 PM]

24 Skaugen China activities gases in China. Our revenue increased 92 per cent compared to the previous year with more profitable margins on petrochemical gases and 31 per cent of the total revenue was from LPG. This is a complete change from prior periods with a significant improved business driven by strong petrochemical gas. We have gained a new partner at TNGC and we expect to experience further growth in seaborne transportation of not only LPG, but more so petrochemical gases and LNG in the Chinese domestic market. 3:10:06 PM]

25 SPT - Marine transfer activities Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities The SPT (50 per cent) ship to ship transfer activities suffered from very weak crude tanker markets over the whole of 2010 and more so in the 4Q2010, and with the second half of the year being more difficult than the first. In the last quarter of the year we were not able to offset the losses in the tanker segment with revenues from our promising global support service. However, we are growing our revenues from emerging markets inclusive of East of Suez where we experienced increased demand for these types of services. For the SPT tanker business we will continue to focus and growth in the global support segment in order to reduce our exposure to the very volatile tanker markets, a market that continues to look challenging ahead, as the massive delivery of crude oil newbuildings still seems to be the case in It seems not very likely at this point that the output gap will be closed for crude tankers in Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board 3:10:12 PM]

26 Our team of professionals - Our Most valuable asset OUR TEAM OF PROFESSIONALS - OUR MOST VALUABLE ASSET Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board We believe that in the global market place, the winning companies are those that can put together a team of people with the best knowledge and highest enthusiasm anywhere in the world. I.M. Skaugen has a longstanding record of recruiting internationally and developing a multicultural mix of talents to enhance a business that is truly global in nature.we have clear policies in place to enhance the recruitment and development of all our people, regardless of gender, religion, ethnic background or nationality. As a company that operates on a global basis, we strive to identify and promote talents wherever we can find it - aided by our non-discrimination policies. For a company of our size, we have a truly global representation with a multicultural mix of talents that very often is a competitive advantage as well. The key challenge is to manage our cultural diversities to further enhance our competitive advantage. We have been able to successfully manage complexities of our global presence and operations by the use of IT solutions and by being competitively sized. The board believes that the implementation of these policies is well monitored and that the daily activities of the management fully support these policies. By year-end 2010, the total number of personnel employed by the Group (measured on a gross basis without adjusting for percentage ownership in joint ventures) was approximately 2,000, where 782 are personnel engaged onboard our vessels and about 981 are engaged in Chinese manufacturing. About 37 percent of our sailing staff is now of Chinese nationality. Shore-side staff is mainly divided between our operations in China (90 percent), Houston (2 percent), Oslo (3 percent), Singapore (2.5 percent) and Bahrain (1 percent). At the end of 2010, 28 percent of the total numbers of shore based personnel are female. The Norway based parent company itself, employs an almost equal percentage of men and women. In the top management (Executive Committee) 33 percent is female. The proportion of women in senior positions in the group continues to rise. We also comply with the Norwegian rules regarding the required percentage of males and females on the Board of Directors. 3:10:16 PM]

27 SHE&Q SHE&Q Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board I.M. Skaugen recognises that, as a business, everything we do has an impact on people both within and outside the company. Our strategic objectives on corporate responsibility are to guide our operations and involve social, environmental and ethical considerations. Our aim is to make all our employees proud to work for I.M. Skaugen and to demonstrate the highest levels of integrity and responsible business management. We always strive to achieve continuous improvement in our operations in all areas that affect our customers, the physical environment and society as a whole through measurement, monitoring and review of our performance and by committing ourselves to excellence. Nowhere is this more evident than in the work of our Safety, Health, Environment and Quality management team. They have a proactive approach to the safety, health and environmental requirements laid down by regulators and our own company policies. Without adherence to these standards commercial and operational success is not possible. We have highlighted below just a few examples of how our corporate social responsibilities are influencing the way we operate. SAFETY The transportation of oil, gas and chemical products can be a risky business. But, we pride ourselves on carrying out this business in the safest manner possible. We recognise that the safety of our personnel, equipment, cargo and the environment shall always be the predominant factor, overriding any commercial interests. No deviation or short cuts in any safety measures are ever tolerated. We ensure that safety and quality improvements are an integral part of the way we conduct our operations, with a view to continuously improving the company s competitive position. Safety is the cornerstone of our business. Our guiding principle is that all accidents and environmental harm can be prevented. That is why continuous improvement and prevention of personnel injury, material damage, spill or pollution is an inherent part of all areas of our activities. In 2010, one fatality occurred in Skaugen China related activities. The incident was thoroughly investigated and followed to closure. The LTIF for Skaugen China related activities ended on 3.4, slightly up compared to 2009 (2.57). For the SPT activity they celebrated 500 days without a LTI case, and the LTIF for 2010 ended on 0, a major improvement from 2009 (12.57). For the Norgas business the LTIF ended on 1.7, slightly better compared to 2009 (3.0). All figures per million worked hours. There is a common standard within the Group that all lost workday cases (LTI cases) are reported to the SHE&Q teams and investigated. 3:10:21 PM]

28 SHE&Q HEALTH A healthy workplace and a close follow up on our employees wellbeing is another factor in the I.M. Skaugen Group values. The working environment throughout the Group's companies is considered satisfactory. The Group is measuring the absence due to illness and has a sick leave statistic by year end on 2,6 %, slightly up compared to 2009 (2,5%). ENVIRONMENTAL I.M. Skaugen recognizes the responsibility we have to treat the environment in which we operate with the utmost respect. To this end, reducing environmental impact is an imperative of our operations. Our guiding principle is that all accidents resulting in environmental harm can be prevented. That is why continuous improvement and prevention of pollution is an inherent part of all areas of our activities. We will continuously evaluate the environmental risk factor of our operations. As a major participant in the transportation sector we are actively working to minimise the environmental impact of our activities and reduce the use of energy and natural resources. We are aiming to reduce the waste from our activities through efficient recycling and continuous improvement of the management of our resources. While our environmental goals are ambitious, they are also realistically attainable. Our goals are measurable as much as possible so we can track our environmental performance and identify areas for future improvements. We are committed to complying with both national and international environmental legislation, regulations and other requirements and in many cases we go beyond regulations and industry standards. We support and conduct research helping us to improve our environmental performance to ensure we always act in a responsible manner. Over 30 years of operation, SPT has safely lightered more than 7 billion barrels of crude oil, with less than 0, % lost to the environment. One minor cargo spill overboard was reported from one of the vessels in the gas activities. This was thoroughly investigated and followed to closure. ISO 14001:2004 certificate has been issued to the entire Norgas fleet and shore locations. The certification process for the rest of the group is in progress. A group initiative is in progress with respect to energy management and optimization, as well as further development and analysis of the emissions from the vessel operations. Our new buildings have several pioneering features to reduce environmental impact of the ships and the cargo operations. Our goal is to reduce the waste from our activities through efficiency recycling and continuous improvement of the management of our resources. and R&D Saving the environment and reducing cost We have over the last few years developed more and more efficient cargo reliquefaction plants. In addition, we have used more and better insulations systems on the cargo tanks. These investments results in low heat leakage and high cooling capacity, and is now paying off in practice. We see that due to the low heat ingress, the vessels can sail without the cargo plant running for long periods of time without getting anywhere close to the maximum pressure (MARVS). Furthermore, the consequence of the efficient cooling is that we can wait until just a couple of days prior to discharge before we need to start up the reliquefaction plant and cool down the cargo to the desired temperature-. During a typical ethylene export voyage from the GCC region to South East Asia, the cargo reliquefaction plant can remain shut-down most of the voyage. This gives considerable reduced running hours on the system and consequently reduces both fuel consumption, lubrication consumption and spare part consumption. The estimated saving for such a voyage is about 20 ton fuel, which means 63 tons less CO2 emissions, 1,3 ton less NOx and 1,8 ton less Sox all in just one voyage! On top of that, a cost saving of about USD just on direct fuel cost for the same voyage. In addition, there will be considerable savings over time on lubrication oil and spare parts. TRAINING Having a knowledgeable and highly skilled workforce is imperative for a global company to meet the exacting needs of its customers. At I.M. Skaugen, we believe this can only happen through carefully managed training, which has resulted in the creation of our training centres in Wuhan, China and in St. Petersburg, Russia. The Wuhan University of Technology Skaugen Training Centre (WSTC) is our most significant commitment to industry training. A joint venture company established by the former Wuhan Transportation University and I.M. Skaugen, WSTC trains seafarers both from Skaugen and the industry as a whole in the handling and transportation of dangerous cargoes including chemicals, LPG and oil products. WSTC also offers vessel maintenance and various ship owner courses. Coordinated in conjunction with local maritime academies, our centers focus on all aspects of the training of seafarers to ensure all attendees are competent enough to undertake the business of transportation of dangerous cargoes by sea in a safely and timely manner. All of our training programmes are accredited through national maritime authorities, as well as by the relevant flag authorities. 3:10:21 PM]

29 SHE&Q QUALITY The worldwide gas transportation activity is ISO 9001:2008 certified. Several ISM/ISO 9001:2000 audits have been conducted last year. The results were analyzed and presented to top management on an annual basis. The marine transfer operations in the US are also ISO 9001:2008 certified, and the commitment to work for continuous improvement is anchored in the organization. In the Skaugen China related activities, several initiatives are under development in order to raise the overall SHE&Q performance among the contractors. We continuously evaluate the safety, health and environmental risk factors of our operations. 3:10:21 PM]

30 Financial result - parent company FINANCIAL RESULT - PARENT COMPANY Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals The parent company, I.M. Skaugen SE, showed a loss of NOK 97 million. The Board proposes the following allocations (NOK million): - transfers from other equity NOK 97 million. The total equity for the company, after allocations, is NOK 476 million, of which NOK 47 million is free equity available for dividend payment. The Board finds that the assumptions for future and continued operations have not been changed, as the basis for approving the 2010 accounts, and as a consequence these annual accounts are based on the going-concern assumptions in accordance with 3-3 of the Norwegian Accounting Act. SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board 3:10:25 PM]

31 Corporate governance CORPORATE GOVERNANCE Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Good corporate governance is characterized by responsible interaction between the owners, the Board of Directors and its management to develop long-term value. All stakeholders should be able to trust that a business is run properly and the governing bodies are sufficiently independent to perform their functions. Confidence in I.M. Skaugen and in its business activities is the most important factor to ensure its competitiveness. The directors, officers and employees must demonstrate that they aim to continually preserve the confidence of the Group. To support this work, the company has formalised a process to develop a code of conduct that applies for all of the employees in the group. The code of conduct will allow us to formalize the corporate values and ethical guidelines we have in place. The code covers areas that are important to secure acceptable, Group-wide business ethics. They contain specific and practical rules - and set the standards - for how anyone working for, or on behalf of, the company should proceed to meet our business objectives in today s competitive environment. The Board of Directors acknowledges the considerable responsibility the company has in relation to safety, security, environment and society in general, together with our responsibility towards our stakeholders. The Corporate Governance statement, posted on our website at outlines key principles and guidelines for the governance of I.M. Skaugen. The statement, approved by the Board of Directors, is reviewed annually or more often if deemed necessary. Appreciation by board 3:10:29 PM]

32 Shareholder statement SHAREHOLDER STATEMENT Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance I.M. Skaugen aims to keep shareholders, analysts and investors updated to the company s operations in a timely fashion, both by releasing information regularly and holding presentations. The financial calendar showing publication dates for the company s quarterly interim reporting is available on our website at I.M. Skaugen focuses on achieving and maintaining a transparent and accountable financial reporting system. Accurate and thorough information is vital for securing reasonable pricing for the company, based on underlying values and earnings. It is our policy to report promptly, within two weeks of the end of each quarter. Open investor presentations are arranged on a regular basis. These presentations are available at the Group s website. Beyond this, the Group maintains a regular dialogue with and conducts presentations to analysts and investors. We publish a Business Review on an annual basis. This is published and circulated to all shareholders. The Annual Report is only available on the website From 2010 all documents concerning matters to be dealt with at the general meeting are made available to shareholders at the company s website. This also applies to documents which shall be included in or attached to the notice of the general meeting. A shareholder may still request to receive documents concerning matters to be dealt with at the meeting. Shareholder statement Appreciation by board 3:10:40 PM]

33 Appreciation is Deserved APPRECIATION IS DESERVED Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals The Board of I.M. Skaugen would like to thank everybody involved with the company during 2010 for the efforts they have made in continuing to improve operational excellence across the Group. It is a credit to every person that the company is both able to successfully manage its core business while pursuing new initiatives that we hope will bring further long-term benefits to all our stakeholders. Let us keep this momentum through the coming year. Oslo, 16 February 2011 Board of Directors, I.M. Skaugen SE SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board 3:10:44 PM]

34 Income Statements - I.M. Skaugen SE Group INCOME STATEMENTS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity USD '000 Notes Gross freight revenue Operating revenue construction services Revenue Share of investments in strategic joint ventures/ associates Voyage related expenses incl. marketing 6 (17 310) (13 004) Time-charter hire (6 781) (3 599) Cost of goods sold - construction services 12 (70 015) (62 692) Salaries and social expenses 6 (14 880) (13 081) Depreciation and amortisation 11 (7 224) (7 972) Gains from sale of fixed assets Other operating expenses - vessels 6 (11 785) (10 502) Other operating expenses/administration costs (4 618) (4 943) Operating profit (3 790) Share of investments in non-strategic joint ventures/ associates (7 165) Financial revenue Financial expenses 6 (13 657) (13 171) Exchange gain/(losses) (100) Net result before taxes (14 327) (10 029) Income taxes 19 (640) (116) Net result for the year (14 967) (10 145) Attributable to: Minority interests (37) (41) Equity holders of the company (14 930) (10 104) Earnings per share for net result attributable to the equity holder of the company: Earnings per share - basic and diluted 20 (0,55) (0.37) The notes 1-23 are an integral part of these consolidated financial statements Consolidated notes 3:09:14 PM]

35 comprehensive Income - I.M. Skaugen SE Group STATEMENTS OF COMPREHENSIVE INCOME - I.M. SKAUGEN SE GROUP income USD'000 Notes Net result for the year (14 967) (10 145) Other comprehensive income: Currency translation differences Hedging Reserve Fair value adjustments - Joint ventures 3 (182) 821 Available for sale investments 3 (924) Other comprehensive income, net of tax (709) Total comprehensive income for the period (15 676) (7 258). Attributable to: Minority interests (37) (41) Equity holders of the company (15 639) (7 217) The notes 1-23 are an integral part of these consolidated financial statements Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:11:23 PM]

36 Balance sheets - I.M. Skaugen SE Group BALANCE SHEETS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes USD '000 Notes ASSETS Non-current Assets Deferred tax assets Tangible fixed assets Vessels and assets under construction Other fixed assets Total tangible fixed assets Financial assets Investments in associates Investments in joint ventures Non-current financial assets Total financial assets Total non-current assets Current Assets Projects under construction Trade debtors Other debtors Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Share capital Other paid-in capital Treasury shares (53) (194) Retained earnings (16 127) (1 197) Other reserves Equity attributable to equity holders Minority interests Total equity Liabilities Long term liabilities Bonds Liabilities to financial institutions Total long-term liabilities Current liabilities Current interest-bearing liabilities Derivative financial instruments 15 (3 289) (3 720) Trade creditors Other short-term liabilities Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES The notes 1-23 are an integral part of these consolidated financial statements. Oslo, 16 February :11:28 PM]

37 cashflows - I.M. Skaugen SE Group STATEMENTS OF CASHFLOWS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes USD '000 Note Cash Flow from Operations: Received payments of gross revenues Payments of operating expenses ( ) ( ) Received payments of interest Payment of interest (13 757) (7 066) Payment of taxes (640) (116) Net Cash Flow from Operations 1) (31 365) Cash Flow from Investments: Payments of purchase of fixed assets - (4 756) Receipts from sale of fixed assets Capital injections 129 (801) Receipts from sale of shares and loan to associates (716) (2 908) Net Cash Flow from Investments (6 525) Cash Flow from Financing: Receipts from raising new long-term debt Repayment of long-term debt (77 112) ( ) Payment of purchase of treasury shares (53) (320) Payment of dividend Net Cash Flow from Financing (26 773) Net change in cash and cash equivalents (56 182) Cash and cash equivalents 1. January Cash and cash equivalents 31. December ) Reconciliation: Net result before taxes (14 327) (10 029) Gains from sale of fixed assets (280) - Ordinary depreciation and amortisation Writedown of shares - - Changes in market value of financial instruments - - Change in short term receivables Change in short term liabilities (19 028) (5 906) Share of results from joint ventures and associates (11 940) (4 441) Net Cash Flow from Operations (31 365) The notes 1-23 are an integral part of these consolidated financial statements 3:11:32 PM]

38 changes in equity - I.M. Skaugen SE Group STATEMENTS OF CHANGES IN EQUITY - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes USD '000 Share capital Other paid-in capital Treasury shares Retained earnings Other reserves Total Minority interest Total equity Shareholders' equity at Comprehensive income: Profit or loss (10 104) - (10 104) (41) (10 145) Other comprehensive income: Currency translation differences (490) (490) (490) Hedging reserve Fair value adjustments-joint ventures Available for sale investments Total other comprehensive income Total comprehensive income (10 104) (7 217) (41) (7 258) Transactions with owners: Dividens Aquisition of treasury shares - - (194) - (126) (320) (320) Cancellation of treasury shares Total transactions with owners: - - (194) - (126) (320) - (320) Shareholders' equity at (194) (1197) Comprehensive income: Profit or loss (14 930) - (14 930) (37) (14 967) Other comprehensive income: Currency translation differences (156) (156) - (156) - Joint ventures Currency translation differences Hedging reserve Fair value adjustments - Joint (182) (182) - (182) ventures Available for sale investments (924) (924) - (924) Total other comprehensive income (709) (709) - (709) Total comprehensive income (14 930) (709) (15 639) (37) (15 676) Transactions with owners: Dividends Acquisition of treasury shares - - (53) (53) (53) Cancellation of treasury shares: (194) Total transactions with owners: (194) (53) - (53) Shareholders' equity at (53) (16 127) The notes 1-23 are an integral part of these consolidated financial statements 3:11:37 PM]

39 Consolidated accounts income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Consolidated accounts 1 Note 1: General information - I.M. Skaugen SE Group 2 Note 2. Summary of significant accounting policies 3 Note 3: Other Reserves - I.M. Skaugen SE Group 4 Note 4: Segment information - I.M. Skaugen SE Group 5 Note 5: Remunerations - I.M. Skaugen SE Group 6 Note 6: Specifications - I.M. Skaugen SE Group 7 Note 7: Inv. in JV and Associates - I.M. Skaugen SE Group 8 Note 8: Cash and Cash Equivalents - I.M. Skaugen SE Group 9 Note 9: Investments and other fin. instruments - I.M. Skaugen SE Group 10 Note 10: Trade and Other Debtors - I.M. Skaugen SE Group 11 Note 11: Tangible Fixed Assets - I.M. Skaugen SE Group 12 Note 12: Construction Contracts - I.M. Skaugen SE Group 13 Note 13: Other short-term liabilities- I.M. Skaugen SE Group 14 Note 14: Interest Bearing Loans - I.M. Skaugen SE Group 15 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group 16 Note 16: Pensions - I.M. Skaugen SE Group 17 Note 17: Commitments - I.M. Skaugen SE Group 18 Note 18: Guarantees - I.M. Skaugen SE Group 19 Note 19: Income taxes - I.M. Skaugen SE Group 20 Note 20: Earnings - I.M. Skaugen SE Group 21 Note 21: Dividends - I.M. Skaugen SE Group 22 Note 22: Equity - I.M. Skaugen SE Group 23 Note 23: Related Parties - I.M. Skaugen SE Group 3:11:40 PM]

40 Note 1: General information - I.M. Skaugen SE Group NOTE 1: GENERAL INFORMATION - I.M. SKAUGEN SE GROUP Listed on the Oslo Stock Exchange, I.M. Skaugen SE ("IMS" or "the Company") is a Marine Transportation Service Company engaged in the hassle-free transportation of petrochemical gases LPG and LNG, marine transfer of crude oil and LNG, and the design and construction of smaller and specialized high quality vessels, served through our global presence with a multicultural team of professionals. IMS is a fully integrated shipping company that designs, builds, owns, and manages our own ships. The Company also undertakes investments in China to develop its Cost and Service leadership strategy and to develop its core competence in carrying out business in China. The I.M. Skaugen Group undertakes industry-leading recruitment and training programs for seafarers through our training centers in China. These centers are crucial in order to secure a long-term supply base of well-trained officers and crew for our fleet. The company is incorporated and domiciled in Norway. The address of its registered office is Karenslyst Allè 8B, 0278 Oslo, Norway. These consolidated financial statements have been approved by the Board of Directors on 16 February 2011, and will be presented for approval at the Annual General Meeting on 18 March, income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:14:12 PM]

41 Note 2. Summary of significant accounting policies income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The consolidated financial statements of I.M. Skaugen SE (the Parent Company ), and all its subsidiaries (the Group ), have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements have been prepared on a historical cost basis, except for pensions, financial instruments at fair value through profit and loss, available-for-sale investments and other liabilities at amortised cost. The consolidated financial statements are presented in USD and all tabular and note amounts are rounded to the nearest thousands, except when otherwise indicated. As permitted by IAS 1, the Income Statements are presented on a mixed basis (a blend of expenses by nature and function), as this is the most relevant and reliable presentation for the Group. Disclosures by nature are provided in the notes to the financial statements. Changes in Accounting Policies The accounting policies described below are consistent with those of the previous financial year except as follows: New and amended standards and interpretations adopted by the Group The following new standards and amendments to standards and IFRIC interpretations are mandatory for the first time for the financial year beginning 1 January IFRS 3(revised), Business combinations, and IAS 27, Consolidated and separate financial statements (amended) were effective 1 July IFRS 3(revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. IAS 27(amended) requires that a change in the ownership interest of a subsidiary (without a loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3(revised) and IAS 27(amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January The group has applied the new policy prospectively to transactions occurring on or after 1 January As a consequence, no adjustments were necessary to any of the amounts previously recognized in the financial statements. IFRS 5 Non-current Assets Held-for-sale and Discontinued Operations (Amendment). The amendment became effective 1 July It clarifies that all assets and liabilities of a subsidiary are classified as held for sale if a partial disposal sale plan results in a loss of control. The amendment is applied prospectively and has no impact on the financial position or financial performance of the Group. The Group has also adopted the following new interpretations during the year. However, adoption of these revised standards and interpretations did not have any effect on the financial statements of the Group. IFRS 2 - Share-based Payment (Amendment). The amendment clarifies the scope and the accounting for group cashsettled share-based payment transactions. IAS 1(amendment), Presentation of financial statements. The amendment is effective from 1 January It provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-current. IAS 36 (Amendment) Impairment of assets, effective 1 January IFRIC 9 Reassessment of embedded derivatives and IAS 39 Financial instruments: Recognition and measurement, effective 1 July :14:16 PM]

42 Note 2. Summary of significant accounting policies IFRIC 16 Hedges of a Net Investment in a Foreign Operation. The interpretation became effective 1 October It clarifies the accounting treatment in respect of net investment hedging. This includes the fact that net investment hedging relates to differences in functional currency and not presentation currency, and hedging instruments may be held anywhere in the Group. IFRIC 17 Distribution of non-cash assets to owners. The interpretation became effective on 1 July It provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRIC 18 Transfers of assets from customers, effective for transfer of assets received on or after 1 July Standards issued but not yet effective The following standards and amendments to existing standards have been published and are mandatory for the group s accounting periods beginning on or after 1 January 2011 or later periods, but have not been early adopted by the group. IFRS 9 Financial instruments. This standard is the first step in the process to replace IAS 39 Financial instruments: recognition and measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets. It is not applicable until 1 January In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early The adoptions of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IAS 24 (Revised) Related party disclosure. The revised standard is effective for periods beginning on or after 1 January The revised standard clarifies and simplifies the definition of a related party. When the revised standard is applied, the group and parent will need to disclose any transactions between subsidiaries and its associates. It is not expected to have a material impact on the Group s financial statement. Classification of rights issues amendment to IAS 32. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. It is effective for annual periods beginning on or after 1 February It is not expected to have a material impact on the Group s financial statement. IFRIC 19 Extinguishing financial liabilities with equity instruments. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It is effective from 1 July 2010 and is not expected to have a material impact on the Group s financial statement. Critical accounting judgments, estimates and assumptions The preparation of financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The key sources of estimation of uncertainty at the balance sheet date, that have a significant risk for causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Judgments Operating lease commitments Group as lessee. The Group has entered into an agreement, in principle, to sell three of its ships under construction. IMS will subsequently lease back these ships. The Group has determined that it will not retain the significant risks and rewards of ownership of these ships, and will account for them as operating leases. Onerous Contracts. IAS 37 defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The Group has, at year end, a construction contract for one vessel (Wintergas). Management must make estimates and use judgment in determining the unavoidable costs of meeting the obligations of these contracts. It was determined that this Wintergas contract is onerous, and as such a provision for the loss was made in The provision was USD2 million as of 31 December 2010 and 2009, respectively. See Note 12 for additional details Estimates and assumptions 3:14:16 PM]

43 Note 2. Summary of significant accounting policies Revenue Recognition. In September 2006, I.M. Skaugen SE established Skaugen Marine Construction Co. Ltd. (SMC) in Shanghai, China. As IMS is now constructing vessels, the Group uses the percentage of completion method for long term projects in progress (vessels and gas plants for construction sold to customers). The use of the percentage of completion method requires the Group to estimate the stage of completion of contract activity at the balance sheet date and also to estimate the outcome of contracts. Revenue recognition depends of variables such as the development of steel price, costs of other components and labor, ability to meet time schedule and agreed performance guarantees. During 2010 and 2009, the Group has recognized revenue of USD 70 million and USD 62.2million related to these construction contracts, respectively. See note 12 for additional details. Events or changes in assumptions and the management s judgment will affect the recognition of revenue in the current period. Depreciation of vessels. Depreciation is based on management estimates of the useful lives of the vessels and their residual values. Estimates may change due to changes in scrap value, technological development, competition and environmental and legal requirements. Management reviews the future useful lives of each component and the residual values of the vessels annually, taking into consideration the above mentioned factors. Any changes in estimated useful lives and/or residual values impact the depreciation of the vessels prospectively. As of 31 December 2010 and 2009, the vessels had a carrying value of USD 37 million and USD 45.3 million, respectively. Impairment of non-financial assets. Management assesses whether there are any indicators of impairment for all nonfinancial assets at each reporting date. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When value in use calculations are performed, management must estimate the expected future cash flows from the assets or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows. This will be based on management s evaluations, including estimates of future performance, revenue generating capacity of the assets, and assumptions of the future market conditions and appropriate discount rates. Changes in circumstances and in management s evaluations and assumptions may give rise to impairment losses in the relevant periods. The carrying value of tangible assets was USD 41 million and USD 50.5 million as of 31 December 2010 and 2009, respectively. See Note 11 for additional details. Deferred Tax Assets. Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and the temporary differences can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying value of recognized tax losses were USD 2.5 million and USD 2.5 million and the unrecognized tax losses were USD 21.6 million and USD 13.8 million as of 31 December 2010 and 2009, respectively. Further details are contained in Note 19. Where the final taxable profits are different from the amounts that were initially recorded, such differences will impact current and deferred tax amounts in the period in which such determination is made. Fair Value of Unquoted Equity Instruments. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm s length transactions and by reference to other instruments that are substantially the same. This valuation requires the Group to make assumptions that are mainly based on market conditions existing, and hence they are subject to uncertainty. The fair value of the unquoted equity instruments, which are also its carrying value, were USD 1.6 million and USD 2.4 million as of 31 December 2010 and 2009, respectively. Accounting Policies/Consolidation Principles Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half 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 on which control ceases. The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the group recognizes any noncontrolling interest in the acquiree either at fair value or at the non-controlling interest s proportionate share of the acquirer s net assets. Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments. Cost also includes direct attributable costs of investment. 3:14:16 PM]

44 Note 2. Summary of significant accounting policies The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisitiondate fair value of any previous equity interest in the acquiree over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statement of comprehensive income. Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Transactions and non-controlling interests The group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. When the group ceases to have control or significant influence, any retained interest in the entity is re-measured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate. Associates and Joint Ventures Associates are entities where the Group has significant influence, but not control, generally accompanying a shareholding of between 20 per cent and 50 per cent of the voting rights. Joint ventures are entities over which the Group has contractually agreed to share the power to govern the financial and operating policies of that entity with another venturer or venturers. Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognized at cost. The Group s share of its associates and joint ventures post-acquisition profits and losses is presented net as a separate caption on the income statement. Its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. 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. The Group's share of profits from associated companies and joint ventures that are seen as strategic to the Group's operations, are presented in a separate line item between Revenues and Operating Costs in the income statement. Share of profits from associated companies that are non-core to the strategic operations of the Group, but are more financially oriented, are presented in a separate line between operating profits and financial items in the income statement. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to ensure consistency in accounting policies with those adopted by the Group. Refer to Note 7 for further details. Participation in Pools The MNGC/ENGC Pool, Norgas Revenue Sharing Pool and the EBITDA Pool are considered to be jointly controlled operations according to IAS 31. As a result the Group s share of gross freight revenues, voyage expenses as well as assets and liabilities in these pools are included in the consolidated financial statements, based on the participation interest in the pools. Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- 3:14:16 PM]

45 Note 2. Summary of significant accounting policies maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. Foreign Currency Transactions Functional and presentation currency The consolidated financial statements are presented in USD. Items included in the financial statements of each of the Group s entities are measured using the functional currency (the currency of the primary economic environment in which the entity operates). Transactions and balances Foreign currency transactions are recorded at 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 and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or cost. All other foreign exchange gains and losses are presented in the income statement within other (losses)/gains net.changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analyzed between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income. Group companies on consolidation The results and financial position of all the group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: 1. Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; 2. Income and expenses for each income statement are translated at average exchange rates; and 3. All resulting exchange differences are recognized in other comprehensive income. On 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 other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised 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. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received. The following specific recognition criteria must also be met before revenue is recognized: Gross freight revenues and expenses related to voyages charters and contracts of affreightment are recorded based on percentage of completion (the number of days the voyage lasted in the period). A voyage is defined as starting after unloading at the end of the previous voyage, as long as a signed contract is in place (discharge to discharge basis). Under IAS 18, revenues are not allocated to ballast days, unless a signed contract is in place. In such circumstances the earning process starts when the goods are loaded on to the vessel and the voyage starts. The earnings process is completed upon discharge. Voyage related expenses for vessels without an agreed charter contract in place (idle time or freight seeking days), are expensed in the period incurred. Demurrage revenue is recognized if it is considered probable that the group will receive payment. Freight revenues from time charters are accounted for as operating leases under IAS 17 and are recognized on a straightline basis over the rental periods of such charters, as service is performed. 3:14:16 PM]

46 Note 2. Summary of significant accounting policies Losses from time charters or voyage charters are provided for in full when they become probable in according with the provisions for onerous contracts in IAS 37. For the Group s vessels operating in chartering pools, freight revenues and voyage expenses are recognized as described above and are pooled and allocated to each pool participant in accordance with an agreed upon formula. Revenues, construction contracts/services are recognized using the percentage of completion method, measured by reference to the percentage of physical completion of the vessels. The percentage of completion of a contract is closely related to the activity performed and risks assumed by the management. Contract revenue and profit margin are recognized by applying the percentage of completion factor (POC) to the total forecasted profit margin. The total profit margin represents the excess of total forecast revenue over total forecast costs. Contract costs incurred relating to future activity on the contract are recognized as an asset, as contract work in progress, provided it is probable that they will be recovered. For contracts that cannot be estimated reliably, contract revenue is recognized only to the extent of costs incurred that are expected to be recoverable. Losses on contracts are recognized in full when identified, and the requirements of IAS 37 Provisions, contingent liabilities and contingent assets are met. Recognized contract profit includes profit derived from variation orders and disputed amounts when, in management s assessment, realization is probable and reasonable estimates can be made. Project costs include costs directly related to the specific contract and indirect costs attributable to the contract. Costs that relate to directly to a specific contract includes site labor costs, cost of materials used, cost of design and technical assistance that is directly related to the contract, and financial expensed related to the projects netted against financial income on projects. The project costs includes also direct overhead costs as project management, maintenance, insurance, purchases to the project, invoicing on the project and depreciation. All project costs are presented as cost of goods sold. The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is recognized in the income statement in the period in which the change is made. Project revenue is classified as revenue in the profit and loss account. Work in process is classified as short-term receivables in the balance sheet. Advances from customers are deducted from the value of work in progress of the contract involved or, to the extent they exceed this value, recorded as customer advances. Customer advances that exceed recognized revenue are classified as short term liabilities. Fixed Assets - Vessels and equipment Fixed assets are stated at historical cost, less subsequent depreciation and impairment. For the construction of new buildings, these costs include all pre-delivery costs incurred during the development and construction process, including interest costs, supervision and technical costs. For vessels purchased, these costs include expenditures that are directly attributable to the acquisition of the vessels. Depreciation is calculated on a straight-line basis over the useful life of the assets, taking residual values into consideration, and adjusted for impairment charges, if any. In accordance with IFRS, each component of the vessels, with a cost significant to the total cost, is separately identified and depreciated, on a straight-line basis, over that component s useful life. Vessels and related equipment have expected useful lives of 3 30 years. Refer to Note 11 for other fixed assets. Future depreciations are based on depreciation schedules including residual values. Expected useful lives of long-lived assets, and residual values, are reviewed at each balance sheet date and, where they differ significantly from previous estimates, depreciation calculations are changed accordingly. Ordinary repairs and maintenance expenses are charged to the income statement during the financial period in which they are incurred. Costs related to major inspections/classification (dry-docking) are recognized in the carrying amount of the vessels if certain recognition criteria are satisfied. The recognition is made when the dry-docking has been performed and is depreciated based on estimated time to the next inspection. Any remaining carrying amount of the cost of the previous inspection is de-recognized. The remaining costs that do not meet the recognition criteria are expensed as repairs and maintenance. 3:14:16 PM]

47 Note 2. Summary of significant accounting policies Tangible assets assets/vessels under construction Investments in tangible assets and vessels under constructions contracts are capitalized. The capitalized value is reclassified from asset under construction to vessels/facilities when the asset is considered available for its intended use and depreciation commences. The amount of interest to be capitalized during the asset acquisition period is determined by applying an interest rate to the average amount of accumulated expenditures during the shipbuilding period, limited to the interest expense incurred during the reporting period. The interest rate used is the average cost of borrowing for the Group. Impairments 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 depreciation or amortization are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognized by the amount by which the asset s carrying amount exceeds the recoverable amount, and recognized in the income statement in those expense categories consistent with the function of the impaired asset. The recoverable amount is the higher of the asset s net selling price and its value in use. The value in use is determined by reference to the discounted future net cash flows expected to be generated by the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable, mainly independent, cash inflows. The Norgas vessels that are expected to continue to operate in the Norgas pool are considered to be one cash generating unit. Vessels that are to be recycled or sold in the near future are evaluated separately. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount, however not to an extent higher than the carrying amount that would have had, if no impairment loss had been recognized in prior years. Such reversals are recognized in the profit and loss account. Leased Operating Equipment/vessels For operating leases, the lease payments (i.e. a time charter hire or bareboat hire) are recorded as ordinary operating expenses or income, and charged to profit and loss on a straight-line basis over the term of the relevant lease. Contingent rents are recognized as revenue in the period in which they are earned or as expense in the period in which they are incurred. Under the bareboat contracts the Group has an obligation to pay periodic maintenance. The estimated costs for such maintenance are recorded as an expense over the period to the next docking takes place. Leases that are entered into following the sale of assets by the Group (i.e. sale and leaseback transactions ) are classified according to the risks and rewards of the lease. When such transactions meet the criteria for an operating lease, and is sold at fair value, any profit on the sale is recognized immediately. If the price the asset is sold for is not considered to be fair value any profit/loss is deferred and amortized over the lease term of the asset, on a straight-line basis. Whether a lease should be classified as a financial or an operational lease depends upon the substance of the transactions rather than the form of the contract, and the determination is made when the leasing agreement is entered into. Balance Sheet Classification Current assets and short-term liabilities include items due less than one year from the balance sheet date. The current portion of long-term debt is included as current liabilities. Financially motivated investments in shares are classified as current assets, while strategic investments are classified as non-current assets. Other assets are classified as non-current assets. Non-current assets held for sale Non-current assets are classified as held for sale according to IFRS 5 if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable within 12 months, and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets classified as held for sale are measured at the lower of the assets previous carrying amount and fair value less costs to sell. Depreciation of the assets ceases once this classification has been made. 3:14:16 PM]

48 Note 2. Summary of significant accounting policies Cash and cash equivalents Cash and cash equivalents includes deposits with banks with original maturities of three months or less and bank overdrafts. Cash and cash equivalents are recorded at their nominal values on the balance sheet. Restricted cash is included as cash and cash equivalents. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. Receivables Short-term trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. The carrying value is a reasonable approximation of their fair value. The Group regularly reviews its accounts receivables and estimates the amount of uncollectible receivables each period and establishes an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts, information about the current financial strength of customers, and other relevant information. Related parties Parties are related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also related if they are subject to common control or common significant influence. All transactions between the related parties are recorded at arm s length (estimated market value). Inventories Inventories, which comprise principally of bunker fuel, are stated at the lower of cost and net realizable value. Cost is determined on a first-in, first-out (FIFO) basis. Inventories related to the construction activities are recognized at the lower of cost or net realizable value. Cost is determined by the FIFO method. The cost of finished goods and work in progress comprises raw materials, borrowing costs, direct labor and other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. Inventories related to construction in progress are reported as vessels and assets under construction in the balance sheet, see Revenue Recognition Construction Contracts above. See also Note 12 for additional details. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the effect of time is insignificant, the provisions will be equal to the size of the expense necessary to be free of the liability. When the effect of time is significant, the provisions will be the present value of future payments to cover the liability. Any increase in the provisions due to time is presented as interest costs. Borrowing Costs Borrowing costs that are directly attributable to the acquisition, construction or production of an asset, or to specific contracts are capitalized and included in the cost of that asset or contract when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. Other borrowing costs are recognized as an expense, using the effective interest method. Treasury Shares I.M. Skaugen SE s shareholding of treasury shares is recorded using the par value method, where the aggregate par value of the shares acquired are charged to the treasury stock account, and any differences between the purchase price and par value are included in other equity. Where such shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects is included in other equity. When such shares are subsequently cancelled, the amount recorded as treasury shares is removed from share capital. 3:14:16 PM]

49 Note 2. Summary of significant accounting policies Investments and Other Financial Assets Classification The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financial assets at initial recognition. 1. Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purposes of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as noncurrent 2. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. 3. Available-for-sale financial assets: Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognized at fair value, and transaction costs are expensed in the income statement. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within other (losses)/gains net in the period in which they arise. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in other comprehensive income. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the income statement as gains and losses from investment securities. Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortized cost The group first assesses whether objective evidence of impairment exists. For the loans and receivables category, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated income statement. If a loan or held to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor s credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated income statement. Available-for-sale financial investments The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For debt securities, the group uses the criteria referred to above. In the case of equity 3:14:16 PM]

50 Note 2. Summary of significant accounting policies investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss is removed from equity and recognized in the separate consolidated income statement. Impairment losses recognized in the separate consolidated income statement on equity instruments are not reversed through the separate consolidated income statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the separate consolidated income statement. Impairment testing of trade receivables is described in the notes above. Financial liabilities Classification Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognized initially at fair value and in the case of loans and borrowing, plus directly attributable transaction costs. The Group s financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments. Recognition and measurement Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit and loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships. Gains or losses on liabilities held for trading are recognized as at fair value through profit or loss. Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through the effective interest rate method amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in the income statement. Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer priced quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm s length market transactions: reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 15. Derivative financial instruments and hedging Derivative financial instruments are initially recognized at fair value, and are subsequently remeasured at their fair value. The method of recognizing the resulting gain or loss is depends on whether the derivative is designated as a hedging 3:14:16 PM]

51 Note 2. Summary of significant accounting policies instrument, and if so, on the nature of the item being hedged. On the date on which a derivative contract is entered into, the Group designates certain derivatives as either a hedge of the fair value of a recognized asset or liability (fair value hedge), or a hedge of a forecasted transaction or of a firm commitment (cash flow hedge). Changes in the fair value of derivative that are designated and qualify as fair value hedges and that are highly effective both prospectively and retrospectively are recorded on the income statement, along with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective both prospectively and retrospectively are recognized in other comprehensive income. Amounts deferred in other comprehensive income are transferred to the income statement and classified as revenue or an expense in the same period during which the hedged firm commitment or forecasted transaction affects the income statement. Changes in fair value of derivatives that do not qualify for hedge accounting are recorded in the income statement. Gains/losses resulting from cross currency swaps of debt are presented together with the underlying transaction irrespective of whether or not they qualify for hedging under IAS 39. Derecognition of financial assets and liabilities A financial asset is derecognized where: The rights to receive cash flows from the asset have expired; The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. Dividends Dividends proposed by the Board of Directors are not recorded in the financial statements until they have been approved by the shareholders at the Shareholder s General Meeting. Pension The Group has defined benefit plans for its employees in Norway. A defined benefit plan is a pension plan that defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of related plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually, by independent actuaries, using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash out flows using the market yield on government bonds, at the balance sheet date, as there is no deep market for similar, high-quality corporate bonds in Norway that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10 per cent of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the employees expected average remaining working lives. Past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately. The Group has defined contribution plans for some of its employees, both in and outside of Norway, as well as for the CEO of the Group. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plan. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. 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. 3:14:16 PM]

52 Note 2. Summary of significant accounting policies Earnings Per Share Basic earnings per share ( EPS ) are computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Treasury shares are not included in the calculation. Buy-backs of ordinary shares in this period are weighted based on the period outstanding. The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares that would have an anti-dilutive effect on earnings per share. Taxes Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except: where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority, and are the basis for deferred tax assets for the Group. The Group s total deferred tax assets and liabilities are measured at the tax rates that are expected to apply at the time when the asset is realized or the liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets made probable through prospective earnings, and which can be utilized against the tax reducing temporary differences are recognized as intangible assets. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Tax positions in NOK are translated to USD applying the rate of exchange at year-end. Income tax relating to items recognized directly in equity is recognized in equity and not in the income statement. 3:14:16 PM]

53 Note 3: Other Reserves - I.M. Skaugen SE Group NOTE 3: OTHER RESERVES - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets Hedging Available for sale Currency Total Reserve investment Translation At 1 January 2009 (883) (3 116) - (3 999) Fair value adjustments - available for sale financial assets Fair value adjustments - available for sale financial assets Fair value adjustments - Joint ventures Fair value adjustments - interest rate swap Currency translation differences - JV's Currency translation differences - - (490) (490) At 31 December 2009 (699) (994) 581 (1 112) Fair value adjustments - available for sale - (924) - (924) financial assets - Fair value adjustments - Joint ventures (182) - (182) Fair value adjustments - interest rate swap Currency translation differences - JV's - - (156) (156) Currency translation differences At 31 December 2010 (515) (2 100) 794 (1 821) cashflows changes in equity Consolidated notes 3:14:21 PM]

54 Note 4: Segment information - I.M. Skaugen SE Group NOTE 4: SEGMENT INFORMATION - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes For management purposes, the Group is organized into business units based on their products and services, and has three reportable operating segments: Gas Transportation Activities, Skaugen China Activities, and Marine Transfer Activities. The Gas Transportation Activities includes, in addition to the Norgas vessels and vessels under construction by I.M. Skaugen Marine Services Pte. Ltd., the joint ventures Somargas Limited and Singco Gas Pte Ltd. The Skaugen China Activities is responsible for all aspects of the SMC construction projects, including managing our Chinese joint venture partnerships and alliances as well as all the various non-smc activities in China, including the Group's gas transportation activities in China such as the LPG-transportation (TNGC), fleet management services and training activities. SMC manages all our Marine Construction Activities in China, for the building of new gas carriers. SMC is responsible for all aspects of these projects, including managing our Chinese joint venture partnerships and alliances. SMC has responsibility for not only the ship design and construction, cost and quality control, but also for the sourcing of steel, major components and, more importantly, building the key cargo handling systems and related components. The Skaugen China segment information includes third party construction activities (see Note 12) and construction of the Group's vessels for I.M. Skaugen Marine Services Pte. Ltd. and Singco Gas Pte Ltd. The assets in SMC include the construction facilities, construction in progress and prepayments, inventories and debtors relating to our own and third party construction. Marine Transfer Activities consists of the Group's investment in SPT's marine transfer of crude oil and LNG activities. The segmentation is in line with the Group's internal management and reporting structure. Management monitors the operating results of its business units separately, for the purpose of making decisions about resource allocation and performance assessments. The basis of measurement and accounting policies of the reportable segments are the same as those described in Note 2, except for joint ventures, which are accounted for using the proportionate consolidation method for segment reporting purposes. All transactions between segments have been carried out as a part of the ordinary operations and are eliminated at the Group level. The sales of management services are negotiated with related parties on a cost-plus basis, allowing a margin ranging from 5 to 7 per cent. Transfer prices between segments are set on an arm's length basis in a manner similar to transactions with third parties. For the vessels SMC is building for the Group, sales price is set at cost. Unallocated assets include deferred tax, available-for-sale financial assets, other financial assets, derivatives designated as hedges of borrowings and excess cash. 3:11:47 PM]

55 Note 4: Segment information - I.M. Skaugen SE Group Business Segments Year ended Gas Skaugen Marine 31 December 2010 Transportation China Transfer Total IMS USD'000 Activities Activities Activities Group Total revenue Inter-segment - (6 475) - (6 475) Revenue from external customers Results Segment profit (EBITDA) (368) Depreciation and amortization (11 039) (2 612) (2 109) (15 760) (2 477) Unallocated costs (4 761) Depreciation (90) Share of profit/(loss) of strategic associates Share of profit/(loss) of non-strategic associates Net financial items (17 938) Other (254) Net result before taxes (14 327) Segment asset for reportable assets Unallocated: Deferred tax assets Investment in associates Non-current financial assets Financial current assets - Cash and cash equivalents Total assets per the balance sheet Capital expenditure: - Fixed Assets Business Segments Year ended Gas Marine Marine 31 December 2009 Transportation Construction Transfer Total IMS USD'000 Activities Activities Activities Group Total revenue Inter-segment - (12 639) - (12 639) Revenue from external customers Results Segment profit (EBITDA) Depreciation and amortization (10 488) (2 275) (2 124) (14 887) (1 348) Unallocated costs (4 870) Depreciation (115) Share of profit/(loss) of strategic associates (1 125) Share of profit/(loss) of non-strategic associates (7 165) Net financial items (9 603) Other - - (1 283) Net result before taxes (10 029) Segment assets for reportable assets Unallocated: Deferred tax assets Investments associaties Non-current financial assets Financial current assets Cash and cash equivalents Total assets per the balance sheet Capital expenditure: - Fixed Assets The Group recognizes its interests in joint ventures under the equity method, as set out in IAS 31 "Interests in Joint Ventures". The share of the profits in joint ventures is presented in a separate line between operating revenues and operating costs. However, for segment reporting purposes, the proportionate consolidation method is used. Below, is the reconciliation of the detailed segment information shown above, to the balances in the financial statements. 3:11:47 PM]

56 Note 4: Segment information - I.M. Skaugen SE Group Unadjusted Unadjusted USD ' Adj Adj ASSETS Non-current Assets Tangible fixed assets Financial assets ( ) ( ) Non-current assets Current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Long-term liabilities Current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES Unadjusted Unadjusted USD ' Adj Adj 2009 Gross freight revenue Operating revenue - construction services Revenue Share of investments in strategic joint (11 590) (11 606) - ventures and associates Voyage related expenses incl. marketing (17 310) (37 667) (54 977) (13 004) (27 855) (40 859) Time-charter hire (6 781) (29 637) (36 418) (3 599) (34 807) (38 406) Cost of goods sold - construction services (70 015) (16 216) (86 231) (62 692) (31 483) (94 175) Depreciation and amortisation (7 224) (8 913) (16 137) (7 972) (7 030) (15 002) Gains from sale of fixed assets Other operating expenses - vessels (26 665) (24 966) (51 631) (23 583) (24 412) (47 995) Other operating expenses/administration (4 618) - (4 618) (4 943) (4 943) costs Operating profit (3 790) Share of investments in non-strategic (7 165) (1 125) (8 290) joint ventures/ associates Net financial items (10 887) (7 032) (17 919) (6 712) (2 963) (9 675) Net result before taxes (14 327) (10 029) (8 746) Taxes (640) (234) (874) (116) (1 283) (1 399) Net result for the year (14 967) 20 (14 947) (10 145) - (10 145) 3:11:47 PM]

57 Note 5: Remunerations - I.M. Skaugen SE Group NOTE 5: REMUNERATIONS - I.M. SKAUGEN SE GROUP income Comprehensive Income Expensed remuneration Chief Executive Officer Remuneration Pension Bonuses - - Key Management: Short-term employee benefits Pension Bonuses Total compensation paid to CEO and Key Management personnel The Board of Directors Total remuneration Auditors (statutory audit) Auditors (other assurance services) 9 - Auditors (tax services) Auditors (non-audit services) - 70 Total auditor's fees For guidelines for determining salaries and other compensation for employees in leading positions in I.M. Skaugen SE please refer to Note 4, in the Parent Company Accounts. Balance sheets cashflows changes in equity Consolidated notes 3:14:25 PM]

58 Note 6: Specifications - I.M. Skaugen SE Group NOTE 6: SPECIFICATIONS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Voyage related expenses incl marketing Port expenses Bunker expenses Other voyage related expenses Total Salaries and social expenses Wages, crew Wages, administrative personnel Total number of man-years Total in the group Other operating expenses vessels Marine consumable stores Spare parts, repair and maintenance Insurance Technical fees and other operating expenses Total other operating expenses vessels Financial expenses Interest expenses Interest expense on debts and borrowings Other financial expenses Loss from financial assets Impairment loss on quoted available for sale equity investments - - Fair value losses on financial instruments - - Interest rate swaps - - Other - - Loss from investment in associates - - Total financial expenses Financial revenue Interest income Interest income on loans to related parties Interest income on short-term bank deposits Interest income from other loans and receivables Income from investments in associates Total financial revenue Exchange gains / (losses) Exchange gains (100) Exchange losses - - Total exchange gains/ (losses) (100) :14:28 PM]

59 Note 7: Inv. in JV and Associates - I.M. Skaugen SE Group NOTE 7: INV. IN JV AND ASSOCIATES - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Share of profit/(loss) from strategic joint ventures Share of profit/(loss) from strategic associates 837 (1 125) Share of profit/(loss) from strategic joint ventures and associates Share of profit/(loss) from non-strategic joint ventures and associates 350 (7 126) The Group's share of profits from associated companies that are seen as strategic to the Group's operations, are included in the same line as share of profits from joint ventures in the income statement. Share of profits from associated companies that are non-core to the strategic operations of the Group, but are more financially oriented, are presented in a separate line between operating profits and financial items in the income statement. Joint Ventures Companies Business Time of Voting Ownership officeestablishment share Hubei TianEn Petroleum Gas Transportation Co. Ltd (JV TNGC) Hubei, China Dec % 49% Somargas Limited Hong Kong March % 50% Wuhan University of Technology - Wuhan, China November 50% 50% Skaugen Training & Consulting Company Limited (WSTC) 2003 PetroTrans Holding Limited Bermuda May % 50% Skaugen PetroTrans Limited Bermuda October % 50% SPT Inc** USA March % 50% Oyster Bay Steamship LLC** USA October % 50% SPT Offshore LLC** USA October % 50% Freeport Landholdings LLC** USA March % 50% SPT Marine Services Ltd** UK June % 50% Shenghui Gas & Chemical Systems Co.Ltd Zhangjiagang, May % 50% China Singco Gas Pte Ltd Singapore Sept % 50% Somargas II Pte Ltd Singapore Dec % 50% *Companies owned directly by I.M. Skaugen SE **Companies controlled 100 per cent by PetroTrans Holdings Limited. The Group's share of the results of its joint ventures, and its aggregated assets and liabilities, are as follows: Summarised financial information Share of operating income Share of operating expenses ( ) ( ) Share of net financial items (4 221) (3 452) Share of tax (235) (1 283) Share of profit/(loss) for the period Share of long term assets Share of current assets Total assets Share of long-term liabilities Share of current liabilities Total liabilities Roll forward of carrying value Carrying value Share of profit/(loss) for the period Capital injection Dividend received - (6 513) Fair value adjustments interest rate swap (184) 821 Curency translation differences (156) Carrying value :14:33 PM]

60 Note 7: Inv. in JV and Associates - I.M. Skaugen SE Group TNGC is a joint venture engaged in the domestic transportation in China, and of LPG and other petrochemicals on the Yangtze river. Somargas Limited is a joint venture engaged in the gas carrier markets, owning six LPG/Ethylene vessels. When dividends distributed from Somargas exceed certain return on equity thresholds on the shareholder level, future dividends will be distributed with 65% to the IMS Group and 35% to the other shareholders. The threshold for the 65% allocation of dividends to the IMS Group was reached in Somargas has leased its vessels to our joint venture, Singco Gas Pte Ltd, on a 10 year bareboat charter. IMS has issued a contingent guarantee to that GATX shall received from Somargas Limited, in conncetion with sale of the vessels, a premium calculated based on salesprice less a threshold. The guarantee amount is not quantifiable. WSTC is the pre-eminent training center in China, for the training of Chinese seafarers, in the handling and transportation of dangerous cargoes at sea and vessel maintenance. PetroTrans Holdings Limited is a holding company, that holds Skaugen Petro Trans Inc., which provides marine transfers of crude oil and LNG. FiveStar Marine Ltd, Shanghai a joint venture that manufactures plastic components and boats for sale. IMS' investment in this joint venture was sold in Shenghui Gas & Chemical Systems (Zhangjiagang) Co.,Ltd. (Shenghui) is an Equity Joint Venture in China. Shenghui is a maker of steel vessels and structures for refinery and petrochemical production facilities. Shenghui is one of the few manufacturers in China that can produce the marine related equipment/components needed for the cargo plants on our new vessels. Singco Gas Pte Ltd (Singco) was established in September The company is a joint venture owned 50% by GATX Third Aircraft Corporation and 50% by I.M. Skaugen Marine Services Pte Ltd, a 100% owned subsidiary of I.M. Skaugen SE. This joint venture has assumed ownership of the first four 10,000 cbm sized "Multigas" carriers construction at Skaugen Marine Construction (SMC) in China. As per year end two of these vessels are delivered and the third vessel was delivered in early January These Multigas carriers have the unique design capability to carry LNG, in addition to Ethylene and LPG. The Multigas vessels will join the Norgas pool of gas carriers upon their completion. Singco charters the six Somargas vessels on a 10 year bareboat charter. The vessels are in the EBITDA pool. Guarantees - Please refer to note 18 Associates Carrying value at 1 January Acquisition of associate Disposals - - Share of (loss)/profit from strategic associates 843 (1 125) Share of (loss)/profit 350 (7 162) Carrying value at 31 December Skaugen Gulf CSAM Nordic Changhang - Skaugen Wuhan Marine and Chemical Ltd. Health AS LNG AS Ship Management Co,.Ltd Equipment Industrial Park Co,.Ltd Time of September Mar 30 Aug 19 Apr Jul 2006 purchase/establishment Business office Bahrain Oslo Oslo Wuhan Wuhan Owership/voting share 35% 25% 40% 25% 25% Purchase/establishment price Equity at the time of purchase/est :14:33 PM]

61 Note 7: Inv. in JV and Associates - I.M. Skaugen SE Group Skaugen Gulf CSAM Nordic Changhang - Wuhan Total Health AS LNG AS Skaugen Marine and Chemical Ltd. ShipEquipment Management Industrial Co. Ltd. Park Co. Ltd Share of associates' balance sheet: 31 December Current assets Non-current assets Current liabilities (31) (31) Non-current liabilities Net Assets Share of associates' revenue and profit profit/(loss) (5) Carry vallue of investment at December Uncalled capital/guarantees Paid in capital in 2010/Loans CSAM Health AS Nordic LNG Changhang - Skaugen Ship Wuhan Marine Equipment Total AS Management Industrial Park Co. Co. Ltd. Share of associates' balance sheet: December Current assets Non-current assets - (683) - (31) (714) Non-current liabilities Net Assets (683) Share of associates' revenue and profit Profit/(loss) (7 162) (1 125) - - (8 287) - Carrying value of investment at 31 December (683) Uncalled capital/guarantees Paid in capital in 2009/Loans :14:33 PM]

62 Note 8: Cash and Cash Equivalents - I.M. Skaugen SE Group NOTE 8: CASH AND CASH EQUIVALENTS - I.M. SKAUGEN SE GROUP Cash and cash equivalents Bank deposits Total bank deposits Specification of restricted deposits Bank deposit Assignment of bank accounts Assignment of bank accounts The assignment of bank accounts relate to a minimum cash covenant required for the I.M. Skaugen Marine Services Pte Ltd credit facility, see note 14. income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:14:37 PM]

63 Note 9: Investments and other fin. instruments - I.M. Skaugen SE Group income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes NOTE 9: INVESTMENTS AND OTHER FIN. INSTRUMENTS - I.M. SKAUGEN SE GROUP Other Non-current Financial AssetsFinancial current assets held for trading Pension assets (note 16) Other long term loan Total Available-for-sale financial assets At 1 January Exchange differences 188 Disposals - (1 291) Impairment (Profit and loss) - - Net gains/(losses) transfer from equity (Note 3) - - Net gains/(losses) transfer to equity (Note 3) (924) At 31 December Less: non-current portion Current portion - - Total Financial Current Assets - - Total Non-current Financial Assets Availale-for-sale financial assets include the following: Listed securities: Telio Unlisted securities: Other Available-for-sale financial assets are denominated in the following currencies: USD NOK Total The maximum exposure to credit risk at the reporting date is the carrying value of the debt securities classified as available for sale. None of these financial assets is either past due or impaired. 3:14:42 PM]

64 Note 10: Trade and Other Debtors - I.M. Skaugen SE Group NOTE 10: TRADE AND OTHER DEBTORS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Other debtors. In connection with the Group's new building programs, prepayments have been made to the shipyard and vendors supplying equipment to the vessels. As of 31 December 2010, total prepayments to shipyard and vendors for own vessels under construction amounted to about USD0.4 million (2009: USD2.3 million). These prepayments have been classified in the balance sheet under other debtors. In addition, there is a USD9.8 million (2009: USD7.7million) prepayment for engines that are planned to be used in the Multigas newbuilding projects. So far, only six of the vessels have been ordered and are under construction. The engines for which the prepayment relates to, will be used in the completion of the remaining four Multigas vessels at a later date, or used in other external projects. Other debtors Prepayment to shipyard Prepayment - Engines Other prepayments Other receivable Other receivable - Joint ventures /related parties Inventories Trade debtors The provision for impairments of receiveables and the movements in the provision, were insignificant for the years ended 31 December 2010 and As of 31 December, the ageing analysis of trade receivable is as follows: Past due but not impaired Neither past due nor Total impaired <30 days days days days >120 days Trade receivables are non-interest bearing and are generally on days terms. The carrying amounts of the Group's trade ond other receivables are denominated in the following currencies: USD Euro NOK - - RMB SGD :13:44 PM]

65 Note 11: Tangible Fixed Assets - I.M. Skaugen SE Group NOTE 11: TANGIBLE FIXED ASSETS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 2010 Vessels/ facilities Equipment, under Sub- Land/ Fixture Sub- Vessels construction total propertyand fittings total Balance as at 1 January, net of accum depr. and impairment Reclassification Additions Disposals, cost (2 170) - (2 170) - (392) (392) Depreciation for the year (6 516) - (6 516) - (708) (708) Disposals accumulated depreciation At 31 December, net of accum. depr and impairment At 1 January Cost Accumulated depreciation and impairment ( ) - ( ) - (7 130) (7 130) Net carrying amount At 31 December Cost Accumulated depreciation and impairment ( ) - ( ) - (7 838) (7 838) Net carrying amount Useful lives 30 years N/A years - Average remaining useful lives 15 years N/A years Vessels/ facilities Equipment, under Sub- Land/ Fixture Sub- Vessels construction total propertyand fittings total Balance as at 1 January, net of accum depr. and impairment Reclassification Additions (3 768) Disposals, cost (2 900) - (2 900) Impairment Depreciation for the year (7 117) - (7 117) - (855) (855) Disposals accumulated depreciation At 31 December, net of accum. depr and impairment. At 1 January Cost Accumulated depreciation and impairment ( ) - ( ) - (6 275) (6 275) Net carrying amount At 31 December Cost Accumulated depreciation and impairment ( ) - ( ) - (7 130) (7 130) Net carrying amount Useful lives 30 years N/A years - Average remaining useful lives 15 years N/A years - Pledged assets Some of the vessels and assets have been pledged as security for loans. See Note 14 for additional details. 3:11:10 PM]

66 Note 11: Tangible Fixed Assets - I.M. Skaugen SE Group Impairment of fixed assets The Group annually evaluates for indications of impairment of fixed assets. In the fourth quarter of 2010, such an indicator was found, where broker values obtained as of were below the total book value of vessels. This called for an estimate of value in use (VIU) to be calculated. The basis for the VIU calculations are the Norgas EBITDA pool model and financial plan assumptions for Beyond 2011, a flat development according to our contract coverage and estimated operating expenses, was assumed. A range of discount rates, between 8 and 12 per cent were used, in order to show sensitivities in the VIU values. IMS' calculated WACC per 2010 was 8.7 per cent. Based on these rates, the VIU estimates are well above book value. As such, there were no impairments as per 31 December :11:10 PM]

67 Note 12: Construction Contracts - I.M. Skaugen SE Group NOTE 12: CONSTRUCTION CONTRACTS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Wintergas In December 2006, IMS entered into an agreement to construct and sell three vessels (Wintergas vessels) to Teekay LNG Partners L.P. for about USD33.5 million per vessel, as part of a sales and leaseback agreement. The sales and leaseback will be accounted for as an operational lease, in accordance with IFRS. The construction contract, is a fixed price contract, and is accounted for as a construction contract under IAS 11. The three vessels are a type of combination gas carrier, and are being built in China. Detailed cost estimates are updated and reviewed semi-annually based on previous experience, events and management's best judgment. The cost estimates may fluctuate due to changes in the cost of raw materials, price development of special equipment and currency fluctuations in USD/RMB and EURO/USD. Revenues from the three vessels are recognized using the percentage of completion method as described in the accounting principles. As of 31 December 2010 revenues recorded equals recoverable costs incurred and no additional loss has been recorded. Due to previous year cost escalations, USD2 million has been recorded as a potential loss related to the contract of the third vessel. Two of the vessels was delivered during 2009 and the final vessel is expected to be delivered in early The final outcome of the third contract may be subject to change in subsequent periods and thus the eventual outcome may be better or worse than the assessment made at the time when these financial statements were approved by the board of directors. Multigas In May 2008, I.M. Skaugen Group (IMS) entered into an agreement to sell two of its Multigas Carriers of 12,000 cbm size to Teekay LNG Partners L.P. (Teekay) for about USD 45 million per vessel. The ships are currently under construction with Skaugen Marine Construction (SMC) in China and are expected to be delivered in the first half of Teekay has agreed to take over the existing shipbuilding contracts for these vessels from subsidiaries of IM Skaugen SE (IMS), as well as to provide the funding needed for the construction phase. Teekay has agreed to acquire the vessels upon their delivery. The order backlog represents an obligation to deliver goods not yet produced, and gives IMS contractual rights for future deliveries. The scope of contract work in progress, total completed production, and estimated earnings are presented below. Order back-log vessel building Estimated Delivery Order Vessel # Date Intake Vessel WG#1 1Q2009 Dec 2006 Vessel WG#2 3Q2009 Dec 2006 Vessel WG#3 1Q2011 Dec 2006 Vessel MG12,000 #1 2Q2011 Dec 2008 Vessel MG12,000 #2 3Q2011 Dec 2006 Contract revenue recognized as revenue in the period: Vessel building activity Total operating revenue construction services Contract costs incurred and recognized profits (less recognized losses) to date: Vessel building activity (70 015) Other - 27 Total costs of goods sold (70 015) Gross profit Vessel building activity - - Other - (27) Total - (524) Carrying value of projects under construction as of 31 December: Project under construction (Wintergas, Multigas) Project under construction (Wintergas - provision) (2 000) (2 000) Advances received (72 000) (54 000) Prepayments Inventory Total carrying value projects under construction :13:40 PM]

68 Note 13: Other short-term liabilities- I.M. Skaugen SE Group NOTE 13: OTHER SHORT-TERM LIABILITIES- I.M. SKAUGEN SE GROUP Employee tax withholdings Accrued operating expenses Interest payable Other short term liabilities Intercompany related parties Total other payables income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:14:07 PM]

69 Note 14: Interest Bearing Loans - I.M. Skaugen SE Group NOTE 14: INTEREST BEARING LOANS - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Interest Maturity Non-current FRN USD Bond- IMSK 04 LIBOR % Jun FRN NOK Bond- IMSK 05 8,1% Sept FRN NOK Bond- IMSK 08 NIBOR +6% Jul FRN NOK Bond- IMSK 09 NIBOR +8% Bank Loan: Skaugen (Shanghai) Trading May Co.Ltd Current Maturity FRN USD Bond- IMSK 02 LIBOR % Dec FRN USD Bond- IMSK % Sept FRN USD Bond- IMSK 06 LIBOR % Dec FRN USD Bond- IMSK 08 NIBOR +6% July Bank loans: Skaugen China Holding Co.Ltd Mar Skaugen China Holding Co.Ltd May Skaugen China Holding Co.Ltd Aug Skaugen (Shanghai) Trading Mar Co.Ltd Effective interest rate IMSK bond portofolio 4.14% 6.51% Bank Loan 5.13% 4.07% Maturity schedule Thereafter Bonds Bank loans Bonds Bonds All bonds have been issued at par and are listed on the Oslo Stock Exchange as: IMSK 02 - I.M. Skaugen SE placed a USD bond of USD100 million into the Norwegian market in December This bond was repurchased in December IMSK 04 - I.M. Skaugen SE placed a NOK bond of NOK600 million into the Norwegian market in June I.M Skaugen SE holds NOK306.5 million of the bond as of 31 December, The average interest rate in 2010 and 2009 was 4.87 and 3.78 per cent respectively. At the same time, a USD cross currency swap was entered into, to hedge 100% of the NOK bond (principle and interest). IMSK 05 - I.M. Skaugen SE placed a NOK bond of NOK500 million into the Norwegian market in September I.M. Skaugen SE holds NOK300 million of the bond as of 31 December, The interest rate is fixed at 10.5%. At the same time, a USD cross currency swap was entered into, to hedge 100% of the NOK bond (principle and interest). 3:14:53 PM]

70 Note 14: Interest Bearing Loans - I.M. Skaugen SE Group was repurchased in February IMSK 08 - I.M. Skaugen SE placed a NOK bond of NOK 500 million into the Norwegian market in August I.M. Skaugen SE holds NOK349 million of the bond as of 31 December The average interest rate in 2010 and 2009 was 8.46 and 8.21 per cent, respectively. At the same time, USD cross currency swaps was entered into, to hedge 100% of the NOK bond (principle and interest). IMSK 09 - I.M. Skaugen SE placed a NOK bond of NOK 300 million into the Norwegian market in September The average interest rate in 2010 was per cent. At the same time, USD cross currency swaps was entered into, to hedge 100% of the NOK bond (principle and interest). The main covenants for the bonds are associated with minimum levels of book equity for the I.M. Skaugen SE Group and "relevant assets" - assets that are not encumbered with any mortgage, pledge or other collateral. Relevant assets are required to be, at a minimum, equal to the outstanding loan balance. I.M. Skaugen SE was in compliance with the loan covenants at year-end. The Company has used the proceeds from the issuance for general refinancing purposes and to strengthen our balance sheet and financial resources as we move forward. Bank loans Skaugen China Holding Co. Ltd. entered into a credit facility in May The facility amount is RMB100 million. The facility is used as funding of construction of newbuildings. The loan is secured by bank deposit in the amount of RMB50 million and corporate guarantees from Skaugen (Shanghai) Trading Co. Ltd. and Shenghui Gas & Chemical Systems Co Ltd. Skaugen (Shanghai) Trading Co. Ltd. entered into another credit facility in May The facility amount is RMB103 million. The facility is used as funding of construction of newbuildings. The loan is secured by bank deposit in the amount of RMB34.25 million and corporate guarantee from Skaugen China Holding Co. Ltd. Skaugen (Shanghai) Trading Co. Ltd., has in December 2009, entered into a working capital loan. The facility amount is RMB20 million (USD3 million) and was drawn down in March Skaugen (Shanghai) Trading Co. Ltd., has in October 2010, entered into a working capital loan. The facility amount is USD4.6 million and was drawn down in November Credit facilities I.M. Skaugen Marine Services Pte Ltd entered into a revolving credit facility in September The Facility Amount is USD15 million, which is undrawn as per 31 December, The long-term debt is secured by the pledge of vessels. The loan agreement includes a number of financial and non-financial covenants. The main covenants are associated with minimum book equity for I.M. Skaugen Marine Services Pte Ltd, minimum liquidity, minimum market values of vessels and minimum EBITDA/Debt ratios. I.M. Skaugen Marine Services Pte Ltd was in compliance with the loan covenants at year-end. The facility is to be used as funding of construction of newbuildings. Book value of mortgaged vessels are, at year-end 2010, USD24 million. Effective rate calculation Due to the fact that the Company periodically enters into forward exchange contracts and USD/NOK positions to hedge against foreign currency exchange risks associated with certain firm commitments and forecasted exposures, the effective interest rate calculation reflects the net interest and fees paid related to the bonds and swaps during a spesific time period. As the swaps hegde the outstanding bond portfolio as a whole, the company has decided that the effective rate should cover the entire bond portfolio as well. Accordently, effective rate for 2009 has been recalculated into an average of the effective rates that were calculated seperately earlier. The same occurs the bank loan. 3:14:53 PM]

71 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group NOTE 15: FINANCIAL INSTRUMENTS AND RISK MANAGEMENT - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Risk Management Overview The Group is exposed to a number of different financial risks arising from our normal business activities. We consider managing risks as one of our core activities. Financial market risk is the possibility that fluctuations in, e.g. currency exchange rates, interest rates, freight rates, fuel oil and commodity prices will affect the value of our assets, liabilities or future cash flows. To reduce and manage these risks, management periodically reviews and assesses its primary financial market risks. Once the potential impacts of the new and updated effects of the risks are properly analyzed and identified we will consider if it is appropriate to take actions to mitigate the effects of these risks. Appropriate action is then taken to mitigate the specific risk. The primary strategy used to reduce our financial and commodity market risks is the use of derivatives, where appropriate. Derivatives are used periodically in order to hedge the Group's various net exposures, as well as hedges of specific exposures. When the use of derivatives is deemed appropriate, only well-understood, conventional derivative instruments are used. These may include futures and options traded on regulated exchanges, and OTC swaps, options and forward contracts. Our policy, in general, has been to only hedge interest and currency risks. Historically, the Group has done very limited hedging. The Group uses derivatives only for the purposes of managing risks associated with interest rates, currency, fuel oil price exposure and freight rate exposure for the lightering activity. The Group does not trade or use instruments with the objective of earning financial gains in interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. It is management's policy to enter into derivative financial instruments we clearly understand and with only highly rated financial institutions. Credit risks related to derivative commodity instruments are significantly limited because most instruments are settled through commodity exchanges. Currency Risks The U.S. dollar is the Group's reporting currency, as well as the currency for most of the Group's revenues. Our currency exposures related to cash flow and the net result, arise mainly from administration and operating expenses, as well as the costs from our newbuilding program in China, which are denominated in non-usd currencies, consisting mostly of RMB and EUR, with a smaller portion in NOK and SGD. The impact of the newbuildings is more significant. Approximately 25 percent (2009: 25 percent) of the company's operating expenses (excluding depreciation) are incurred in non-usd currencies, primarily EUR. Changes in the value of the U.S. Dollar relative to these currencies could expose the Group to currency fluctuations. To minimize the impact of foreign exchange rate movement on the Group's results, the Group periodically enters into forward contracts for USD/NOK and USD/EUR to hedge the currency risks associated with certain firm commitments and/or forecasted exposures. For our exposure in RMB, however, no such hedging has been undertaken as true hedging instruments are not available for the time being. At year end, the Group has signed contracts to build five vessels. About 58 percent (2009: 42 percent) of the total estimated investment of these vessels is in RMB, 25 percent(2009: 32 percent) is in USD, and 15 percent (2009: 26 percent) is in EUR. Based on the Groups forecasted investment in newbuildings in 2011, an immediate depreciation of the USD/RMB and USD/Euro exchange rate of 10 percent would translate into a cost increase of about USD 1.8 million (2009: 3.7 million) At year end, the Group has loans drawn in RMB, an immediate depreciation of the USD/RMB exchange rate of 10 percent would translate into a unrealized currency loss of about USD 2.4 million in 2010 (2009: USD 1.9 million). The Group constantly monitors its FX exposure and undertakes measures to mitigate currency related risk when considered necessary. The following table shows the sensitivity to a reasonably possible change in the USD exchange rate, after taking into account the effect of cross-currency swaps, with all other variables held constant, of the Group's profit before tax, as of :14:58 PM]

72 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group December. The effect is mainly due to changes in the fair value on the outstanding balances at year end, of monetary assets and liabilities, and on the Group's fixed assets. Increase/ Effect on decrease profit in USD rate before tax % / -10% % / -10% As of 31 December 2010, the Group has six cross currency interest rate swaps, entered into in April 2010, September 2009, March 2009 and September 2008, respectively. See "Hedging Activities" below, for additional details of the swap. Interest Rate Risk The Group's exposure to the risk of changes in market interest rates, relate primarily to the Group's long-term debt obligations with floating interest rates. Our risk management objective for interest rate risk is to minimize the exposure to variability of cash flows arising from changes in interest rates. Depending on the development of, and on internal analysis of the interest rate market, we enter into various types of interest rate contracts to alter the ratio of fixed-rate to variable-rate debt. As of 31 December 2010 and 2009, after taking into account the effect of interest swaps, approximately 21 and 16 percent of the interest bearing debt was fixed, respectively. Interest rate risk table The following table demonstrates the sensitivity to a reasonably possible change in interest rates, after taking into account the effect of interest swaps, with all other variables held constant, of the Group's profit before tax, as of 31 December. The effect is mainly due to higher/lower interest expense on floating rate borrowings. Increase/ decrease in Effect on profit basis points before tax (USD 000) /-200 +/ /-200 +/ Bunker Oil Price The Group has entered into long term Contract of Affreightments and Time Charter contracts of up to 3 years. The fuel cost in the Time Charter (TC) contracts is a voyage cost and thus paid by definition by the charterer. In the Contract of Affreightments (COA), "bunker escalation clauses" protects both the Charterer and the Group in case of large changes in the bunker oil prices. The clauses imply that if the bunker oil price exceeds certain thresholds, the Charterer will compensate the Group. If the bunker oil price falls below a certain floor, the Group will compensate the Charterer for the lower cost. For the year of 2009, COAs and TCs covered more than 62 percent (2009: 67 percent) of the Norgas's capacity. Increases in bunker oil cost in these contracts are compensated by the Charterer. Bunker oil prices for Spot voyages are taken into account when setting the Spot charter rate. The bunker oil price may, however, differ from the time of contract signing to the time bunker oil is purchased and taken onboard. Based on the above, the Group's exposure to fluctuations in bunker oil price is thus somewhat limited. Credit Risk The Group trades only with recognized, creditworthy third parties. We have had very few disputes, if any, with our clients regarding payment and performance. Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 10. There are no other, except for those mentioned below, significant concentrations of credit risk within the Group. As such, there are no further credit risk provisions required in excess of the normal provision. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, available-for-sale financial investments, loan notes and certain derivative instruments, the Group's exposure to credit risk arises from default of the counterparty, with the maximum exposure equal to the carrying amount of these instrument. However, the Group does not anticipate material non-performance by any of the counter parties, as such transactions are entered only with recognized, creditworthy third parties. In connection with the Group's ship building projects, it has made prepayments to suppliers and the shipyard, and the Group has a small concentration of prepayments to its vendors. Total prepayments as of 31 December 2010 and 2009 amounted to about USD 0.5 million and USD 2.3 million, respectively. The exposure is consistently monitored and assessed. As the Group works with highly reputable vendors, the risk for a significant default situation is considered small. 3:14:58 PM]

73 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group Also in connection with the Group's ship building projects, the Group has entered into sales and leaseback agreements to sell three of the newbuilding vessels to Teekay LNG Partner L.P, upon delivery in We have also entered into an agreement with a banking syndicate to fund four of the newbuildings of the "MG series" when completed. Both types of agreements depend on certain conditions being met, that are customary of the trade. They also depend on the counterparties being willing and able to fund their obligations. The counterparties in these transactions are accessed to be credit worthy. The key risks we focus on today, are the possibility of delays of these newbuildings beyond the "cancellation date" of the leases, the availability of bank financing, as well as the possible reduction in value of those ships subject to bank finance. Such reductions from what is expected may require the Group to pledge additional capital in the future for those ships. Credit Quality of financial assets The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates: Trade receivables Counterparties without external credit rating Group Group 2 3,089 4,963 Group Total unimpaired trade receivables 3,089 4,963 Cash at bank and short-term deposits (Standard & Poor's - LT Foreign Issuer Credit) AA-A 17,347 77,239 BBB 22,641 18,931 39,988 96,170 Loans to related parties Group 2 1,586 - Group3-1,826 1,586 1,826 Group 1 - new customers/related parties (less than 6 months) Group 2 - existing customers/related parties (more than 6 months) with no defaults in the past. Group 3 - existing customers/related parties (more than 6 months) with some defaults in the past. All defaults were fully recovered. None of the financial assets that are fully performing has been renegotiated in the last year. None of the loans to related parties is past due but not impaired. Liquidity risk The Group monitors its risk to a shortage of funds by closely monitoring the maturity of both its financial investments and financial assets, and projected cash flows from operations. Risk management includes maintaining sufficient cash, and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying business, the Group maintains sufficient cash for its daily operations via short term cash deposits at banks and unutilized portions of revolving credit facilities offered by financial institutions. See Note 17 for more details on the revolving credit facility. The table below analyses the contractual undiscounted cash flows of the Group's financial liabilities, including interest payments on debt, into relevant maturity groupings based on the remaining period from the balance sheet date at the earliest date the Group can be required to pay. Except for long-term bank loans and derivative financial liabilities, other balances due within 12 months equate their carrying balances as the impact of discounting is not significant. See also Note 17 for additional details of future commitments. 3:14:58 PM]

74 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group Less than 3 to12 1 to 5 Over 5 At 31 December 2010 Bonds 3 months - months years years Total Long-term bank loans Derivative financial liabilities (1 375) (1 914) (3 289) Trade and other payables Shipbuilding committments Less than 3 to12 1 to 5 Over 5 3 months months years years Total At 31 December 2009 Bonds Long-term bank loans Derivative financial liabilities (3 720) - (3 720) Trade and other payables Shipbuilding committments Capital Risk Management. The primary objective of the Group's management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of its book equity to total equity ratio. This ratio is calculated as book equity divided by total equity. It is the Group's policy that this ratio be 30 per cent or higher. A ratio lower than 30 per cent needs to be approved by the Board of Directors. As of 31 December 2010, the book equity ratio was 28.5 per cent (2009: 28.1 per cent). The book equity ratio is calculated as total equity divided by total assets as follows: 31 December Total equity Total assets % 28.1% Financial Instruments by Category 31 December 2010 Financial assets Note Loans and Assets at fair Derivatives used Available for Non- Total Receivables value through the for hedging salefinancial profit and loss investements assets Bank deposits current investments in shares 9 - Non curent investments in shares Other financial assets (non-current) Trade and other receivables, excluding prepayments Total

75 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group Financial liabilities: Liabilities at fair Derivatives used Other financialnon-financial Total value through the profit and loss for hedging liabilities at amortized cost liabilities current interest bearing liabilities Interest-bearing loans and borrowings: Floating rate borrowings Fixed rate borrowings Derivative financial instruments 15 (3 289) (3 289) Trade and other payables Total (3 289) December 2009 Financial assets Note Loans and Assets at fair Derivatives Available for sale Non- Total Receivables value through the profit and loss used for hedging assets investementsfinancial Bank deposits current investments in shares 9 - Non curent investments in shares Other financial assets (non-current) Trade and other receivables, excluding prepayments Total Financial liabilities: Liabilities at fair Derivatives used Other financial Non-financial Total value through the profit and loss for hedging liabilities at amortized cost liabilities current interest bearing liabilities Interest-bearing loans - and borrowings: Floating rate borrowings Fixed rate borrowings Derivative financial instruments 15 (3 720) (3 720) Trade and other payables Total (3720) :14:58 PM]

76 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group Fair Value of Financial Instruments Set out below is a comparison by category for carrying amounts and fair values of all of the Group's financial instruments that are carried in the financial statements. December December Carrying Fair Carrying Fair Financial assets Note amount Value amount Value Bank deposits Current investments in shares Non current investments in shares Other financial assets (noncurrent) Trade and other receivables, excluding prepayments Financial liabilities: Current interest bearing liabilities Interest-bearing loans and borrowings: Floating rate borrowings Fixed rate borrowings Derivative financial instruments 17 (3 289) (3 289) (3 720) (3 720) Trade and other payables The fair value of the financial assets and liabilities are included at the amount at which the instrument could have exchanged in a current transaction between willing parties, other than in a force or liquidation sale. The following methods and assumptions were used to estimate fair values: Cash and short-term deposits, trade receivables, trade payables, and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments. Long -term fixed rate and variable rate receivables/borrowings are evaluated by the Group based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As of 31 December 2010 and 2009, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values. Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities. Fair value of available-for-sale financial assets are derived from quoted market prices in active markets, if available. Fair value of unquoted available-for-sale financial assets is estimated using appropriate valuation techniques. The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and forward rate curves of the underlying commodity. Fair value hierarchy Effective 1 January 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurements by level of the following fair value measurement hierarchy:

77 Note 15: Financial Instruments and Risk Management - I.M. Skaugen SE Group Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The following table presents the Group's assets and liabilities that are measured at fair value at 31 December Total Level 1 Level 2 Level 3 Balance Assets measured at fair value Available-for-sale financial assets: - Debt investments Liabilities measured at fair value Derivatives used for hedging (3 289) (3 289) - (3 289) - (3 289) Hedging Activities Assets Liabilities Assets Liabilities Cross currency interest rate swaps (3 289) (3 720) Total (3 289) (3 720) Less non-current portion: Cross currency interest rate swaps (3 289) (3 720) Current portion - - The full fair value of a hedging derivative 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 maturity of the hedged item is less than 12 months. Cross currency interest rate swaps In June 2007, the Group entered into a cross currency interest rate swap, where the Group will receive NOK 400 million with a variable interest rate of 3Month NIBOR per cent, and pay USD66.2 million with a variable rate of 3 Month LIBOR per cent. The swap matures in June All the critical terms of the swap match that of the bond it is hedging, and the swap is expected to be highly effective. In September 2008, the Group entered into a cross currency interest rate swap, where the Group will receive NOK 200 million with a fixed interest rate of 10.5 per cent, and pay USD34.6 million with a fixed interest rate of 8.1 per cent. The swap matures in September All the critical terms of the swap match that of the bond it is hedging, and the swap is expected to be highly effective. In March 2009, the Group entered into a cross currency interest rate swap, where the Group will receive NOK110.5 million with a floating interest rate of 3Month NIBOR + 6 per cent, and pay USD16 million with a fixed interest rate of 3Month LIBOR per cent. The swap matured in April In September 2009, the Group entered into three cross currency interest rate swaps, where the Group will receive NOK312 million with a floating interest rate of NIBOR + 6 per cent, and pay USD52 million with a floating interest rate of LIBOR per cent. The swap matures in July All the critical terms of the swap match that of the bond it is hedging, and the swap is expected to be highly effective. In April 2010, the Group entered into a cross currency swap, where the Group will receive NOK88 million with a floating interest rate of 3Months Nibor + 6 per cent and pay USD14.9 million with a fixed interest rate of 3Month LIBOR per cent. The swap matures in July The Group hedges its floating rate bonds, as described above, on a portfolio basis. However, hedge accounting has not been used so that any changes in the fair value of the swaps will be recognized into profit and loss. As the majority of the gain/loss from changes in the fair value of the swap scomes from the foreign currency portion of the swaps, the change in fair value of the swaps have been reclassified into "foreign currency gain or loss" on the income statement. As of 31 December 2010 a total loss of USD3.3million has been netted against the foreign currency gain/loss araising from the fair value of the bonds, giving a net loss of USD100,000. As of 31 December 2009 a total gain of USD26.2million was netted against the foreign currency gain/loss araising from the fair value of the bonds, giving a net gain of USD4.3 million. 3:14:58 PM]

78 Note 16: Pensions - I.M. Skaugen SE Group NOTE 16: PENSIONS - I.M. SKAUGEN SE GROUP The Group has retirement plans (defined benefit plans) for some employees in Norway, operated through independent funds and life insurance companies. For these employees, the plans provide for a retirement pension of 70 per cent of pensionable pay up to 12G, from the age of 67 as well as benefits for surviving spouses/dependents and a disability pension. As of December 31, 2010, the benefit plans included 33 active and 8 retired employees. In addition to the funded retirement plan, the Group has unsecured pension obligations for some retired employees. The values of plan assets and obligations are based on assumptions, which are adjusted each year in line with information on the market value of plan assets and actuarial calculations of obligations. Projected turnover in the plans is taken into account. The Group has defined contribution plans for its some of its employees outside of Norway. In addition, the Group has a defined contribution plan for the CEO, as well as a defined contribution paln for some of its employees in Norway. The contributions are recognized as employee benefit expense when they are due and were USD83,000 and USD79,000 for 2010 and 2009, respectively. The following tables summarize the components of net benefit expense recognized in the consolidated income statement and the funded status and amounts recognized in the consolidated balance sheet for the respective plans. income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes The amounts recognized in the profit and loss account are as follows: Net benefit expense: Current service cost Contribution plan Interest cost on benefit obligation Expected return on plan assets (241) (251) Administrative costs Actuarial (gain)/loss, net Past service costs - - Payroll tax - employer contribution Unfunded benefit obligation 3 4 Net benefit expense December Benefit asset/ (liability): Defined benefit obligation - funded Fair value of plan assets (924) (281) Unrecognized net actuarial (gains)/losses Unrecognized past service cost - - Payroll tax - employer contribution (137) (61) Benefit asset/(liability) - funded - non-current Defined benefit obligation - unfunded (91) (95) Unrecognized net actuarial (gains)/losses Payroll tax - employer contribution (13) (13) Benefit asset/(liability) - unfunded - non-current (72) (84) Total benefit asset/(liability) - non-current Changes in the present value of the defined benefit obligation are as follows: At 1 January Interest cost Current service cost Benefits paid (123) (78) Actuarial (gains)/losses on obligation Currency adjustment (61) 700 At 31 December :15:03 PM]

79 Note 16: Pensions - I.M. Skaugen SE Group Changes in the fair value of plan assets are as follows: At 1 January Expected return Contributions by employer Benefits paid (107) (63) Actuarial (gains)/losses (186) (530) Administrative costs (24) (27) Currency adjustment (78) 754 At 31 December The Group expects to contribute USD 412 to its defined benefit pension plans in Major categories of plan assets as a percentage of the fair value of total plan assets: Equity securities 13.6% 7.00% Debt securities 65.80% 71.00% Real estate 19.00% 21.00% Other 1.6% 1.00% % % The principal assumptions used in determining pension and post-employment benefit obligations for the Group's plans are shown below: Discount rate: 4.00% 4.40% Expected rate of return on assets 5.40% 5.60% Future salary increases 4.00% 3.50% Future pension increases 3.75% 3.00% Voluntary terminations 15.00% 15.00% Payroll tax - employer contribution 14.10% 14.10% The expected return on plan assets is determined by considering the expected return available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected return on equity and property investments reflect long-term real rates of return experienced in the respective markets At 31 December Present value of defined benefit obligation Fair vallue of plan assets Deficit/ (surplus) in the plan (654) Experience adjustments on plan liabilities (1 051) (764) 263 Experience adjustments on plan assets (219) (481) (308) 3:15:03 PM]

80 Note 17: Commitments - I.M. Skaugen SE Group NOTE 17: COMMITMENTS - I.M. SKAUGEN SE GROUP income Comprehensive Income Commitments Commitments: In December 2006, the Group entered into an agreement to sell three of its ships (WG) under construction in China to Teekay LNG Partners L.P. Two of the ships have be taken over by the buyer and the third vessels is expected to be delivered from SMC in early Subsequent to delivery, IMS have leased back these ships for a period of 15 years each. IMS has two options to extend each lease with a five-year period. IMS also have an option to purchase each of the vessels at a fixed purchase price. The lease agreements have been evaluated against IAS 17 - Leases, and will be classified as operating lease contracts. The ships will enter the Norgas pool upon commencement of the leases. In June 2008, the Group entered into an agreement to sell another two of its ships (MG12,000 cbm) under construction in China to Teekay LNG Partners L.P. Teekay Corporation has agreed to takeover the existing shipbuilding contracts for these vessels from subsidiaries of IM Skaugen SE as well as to provide the funding needed for the construction phase. Teekay LNG has agreed to acquire the vessels upon their delivery. IMS will subsequently lease back these ships for 15 years from Teekay LNG at a fixed-rate with three five year extension options without a fixed price purchase option. The lease agreements have been evaluated against IAS 17 -Leases, and will be classified as operating lease contracts. The ships will enter the Norgas pool upon commencement of the leases. Future minimum rental payments for vessels amount to USD293 million (2009: USD300 million) for the Group (as lessee) and include future bareboat commitments related to leaseback of the three 5,500 cbm, specialized, LPG/ethylene/chemical carriers and the two 12,000 cbm advanced LNG/LPG/Ethylene gas carrier and are payable as follows: Balance sheets cashflows changes in equity Consolidated notes 3:15:08 PM]

81 Note 17: Commitments - I.M. Skaugen SE Group Less than one year More than one year and less than five years More than five years Total Future minimum rental payments for office leases for the Group are payable as follows: Less than one year More than one year and less than five years More than five years Total Shipbuilding contracts Shipbuilding contracts. At 31 December 2010, the Group had contract commitments as shown below, principally relating to the construction of the shipbuilding contracts. These commitments are only for installments and parts ordered. Additional costs will be incurred and the total cost for the shipbuilding contracts will be significantly higher. These commitments are payable as follows: Less than one year More than one year and less than five years More than five years - - Total Type Size Delivery Specialised LPG/Ethylene/Chemical combo carrier / cbm 1Q2011 Advanced LNG/LPG/Ethylene gas carrier cbm 2Q2011 Advanced LNG/LPG/Ethylene gas carrier cbm 3Q2011 In connection with the vessels that have been sold, the Group issues common sales guarantees. Summary all commitments Less than one year More than one year and less than five years More than five years Total Environmental Issues and Contingencies: The Group has available, maximum P & I insurance for all its vessels and for all its operations, which covers against all third-party damages and any personnel injuries, together with the cost of cleaning up any oil or bunker spills. The Group does not have any 'loss of hire insurance' with third-party insurance companies. The Group has full cover for its Hull and Machinery damages and for all vessels, excluding only some of its smaller vessels. The agreed values for such vessels, in case of total loss, covers its estimated market values at the beginning of the year. There is a deductible that requires the Group to pay a certain amount of its damage claims. The Group also carries War Risk insurance for its international fleet. We have a vessel under construction as coordinated by Skaugen Marine Construction (SMC). SMC have not yet been able to resolve the export license procedures and the associated VAT refund issues related to the delivery of Norgas Camilla There is considerable reason to believe that this will be resolved within first quarter of 2011 and this will enable SMC to deliver this ship in This is a serious delay caused by the Sellers of the ship being the shipyard and the trading company involved. Other than the above mentioned item, as of 31 December, 2010 the Group is not involved, to the knowledge of the Board of Directors, in any unsettled material claims or litigations. As a part of its operations, the Group is in the course of its activities, involved in disputes. Provisions have been made to cover the expected outcome of the disputes to the extent negative outcomes are likely and reliable estimates can be made. 3:15:08 PM]

82 Note 18: Guarantees - I.M. Skaugen SE Group NOTE 18: GUARANTEES - I.M. SKAUGEN SE GROUP income Comprehensive Income Parent Company I.M. Skaugen SE has issued a guarantee on behalf of I.M. Skaugen Marine Services Pte Ltd for an amount of up to USD15 million to an external bank for a revolving credit facility. The credit facility was undrawn at year end Guarantees provided Total IMS Group I.M Skaugen Marine Services Pte Ltd (MSPL) has issued a guarantee for the aggregate principal amount of up to USD30 million plus 50 per cent of all interest payable by Singco Gas Pte Ltd. I.M. Skaugen Marine Services Pte Ltd issued a guarantee for the aggregate principal amount of up to USD12 million plus 50 per cent of all interest payable by Singco Gas Pte Ltd in respect of each of the junior tranches under the loan agreement. Skaugen (China) Holding Co. Ltd issued a guarantee for the aggregate principal amount of up to RMB102,75 million, as per 31 December Skaugen (Shanghai) Trading Co., Ltd issued a guarantee for the aggregate principal amount of up to RMB50 million, as per 31 December Balance sheets cashflows changes in equity Consolidated notes Guarantees provided Parent Company IMS SE MSPL credit facility - (undrawn at year end) CSAM - any unpaid interest & cost Nordic LNG Total IMS Group accounts MSPL - related to Singco Gas - construction loan MSPL - related to Singco Gas- mortgage loan Total :15:17 PM]

83 Note 19: Income taxes - I.M. Skaugen SE Group NOTE 19: INCOME TAXES - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes A large share of the Group's activities are managed from Singapore, where the company qualifies for the AIS tax scheme. Taxable income from shipping operations in these companies are exempted from taxation in Singapore and there is no taxation on dividends paid from Singapore to Norway. The Group's share of profits in the lightering activity are subject to taxation in Norway. Tax expense for the year: Taxes payable (640) (116) Changes in deferred tax *) - - Total income tax (640) (116) *) The change in deferred tax assets is calculated based on temporary differences between accounting and tax values. Reconciliation of the year's income tax: Accounting profit before income tax (14 327) (10 029) Statutory tax rate 28% 0 Estimated tax expense at statutory rate Tax effect of profits from joint ventures and associates Effect of tax expense in countries with lower tax rates (2 399) Other (currency translation and permanent differences) (5 589) (6 004) Income tax expenses (640) (116) - Temporary differences are related to the following items: Tax effect of temporary differences: Gain and loss account (1 136) (1 446) Fixed assets / long-term tax positions Other items (225) (706) Tax losses carried forward (24 046) (17 159) Subtotal (21 781) (15 827) Deferred tax liability - retained earnings in joint venture companies - - Gross deferred tax liability / (deferred tax asset) (21 718) (15 827) Valuation allowance Deferred tax (deferred tax assets) (2 500) (2 500) Tax rate applied 28% 28% Reconciliation of gross deferred tax /liability / (deferred tax asset): Opening balance of gross derred tax/liability/ (deferred tax assets) (18 305) Gain and loss account Fixed assets / long term posistions Other items 481 (180) Tax loss carried forward (6 887) Deferred tax liability retained earnings joint venture companies - (785) Closing balance of gross deferred tax / liability / (deferred tax asset) (21 781) (15 827) The temporary differences as of 31 December 2010 and 2009 are, for all material respects, related to limited liability companies taxed in Norway. Deferred tax assets are recognized on the balance sheet based on the expectation of future taxable income, particularly related to the lightering activity of the Group. The estimates are based on the Board of Directors and Management's best judgment and an assessment of future prospects. The defered tax assets are expected to be realized in more than twelve months. The actual outcome of future tax expense may deviate from these estimates. The tax losses carried forward relate to Norway. Following a change in the tax legislation in 2005, these tax losses can be carried forward indefinitely. 3:15:23 PM]

84 Note 20: Earnings - I.M. Skaugen SE Group NOTE 20: EARNINGS - I.M. SKAUGEN SE GROUP Basic earnings per share are calculated by dividing net profit of the year attributable to ordinary equity holders of the parent, by the weighted average number of ordinary shares outstanding during the year. The company's share capital is, for 2010, NOK406,469,850 divided into 27,097,990 ordinary shares with a par value of NOK15 fully paid-in. 27,088,526 shares are qualified to vote, one share equals one voting right Net profit attributable to ordinary equity holders of the parent (14 930) (10 104) Weighted average number of ordinary shares (excluding treasury shares) for basic earnings per share income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:15:27 PM]

85 Note 21: Dividends - I.M. Skaugen SE Group NOTE 21: DIVIDENDS - I.M. SKAUGEN SE GROUP It is not proposed dividend for 2010, nor any dividends paid in It was also not paid dividends in income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes 3:15:32 PM]

86 Note 22: Equity - I.M. Skaugen SE Group NOTE 22: EQUITY - I.M. SKAUGEN SE GROUP The Parent Company's share capital as of 31 December 2010 comprised 27,097,990 ordinary shares with a par value of NOK15,- totaling NOK407,469,850. The Board of Directors received renewed authorization from the Annual General Meeting in 2010 to acquire treasury shares. During 2010 the Company has redeemed 80,600 treasury shares and aquired 9,464 treasury shares. The Board of Directors believes that the acquisitions of the Company's treasury shares will improve the shareholders' return and assure the Company greater financial flexibility in a situation where the Company's equity and liquidity situation is satisfactory. The Board of Directors received authorisatio to increase the share capital with up to NOK203,839,420. The authorisation remains in force for two years from 18th March The Board of Directors received authorisation to issue convertible bonds with up to NOK400,000,000. The convertible loan may be raised in USD, EUR or NOK. The share capital shall by conversion be subject to an increase of up to NOK 203,893,420. The authorisation remains in force for two years from 18th March income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes Authorized 2010 Ordinary shares of NOK 15 each Ordinary shares, issued and fully paid No of shares At 1 January Redemption of treasury shares At 31 December Redemption of treasury shares (80 600) At 31 December Treasury shares No of shares At 1 January Add changes for the year At 31 December Add changes for the year (71 136) At 31 December Shareholders as at 31 December 2010 holding more than 1 percent No of shares Percentage Alcides AS % SES AS % Verdipapirfond Odin % Skagen Vekst % Krepanor AS % Skandinaviska Enskilda A/C Cliente account % Orkla ASA % Odin Maritim % Teigen Frode Naka Racha TLD % MP Pensjon % AS Bemacs c/o Adv. Bertel O Steen % E-Invest AS v/erik Eik % Bratrud Gudmund Joar % Astrup Fearnley AS % Shareholders holding more than 1 percent % Others % Total no of shares % 3:15:36 PM]

87 Note 23: Related Parties - I.M. Skaugen SE Group NOTE 23: RELATED PARTIES - I.M. SKAUGEN SE GROUP income Comprehensive Income Balance sheets cashflows changes in equity Consolidated notes The consolidated financial statements include the financial statements of I.M. Skaugen SE (IMS), of the subsidiaries listed below, and of the joint venture companies listed in Note 7: % equity interest%equity interest 2009 Name Country Subsidiaries: I.M.Skaugen Marine Services Pte Ltd* Singapore 100% 100% Norgas Limited* Bermuda 100% 100% Norgas Carriers AS Norway 100% 100% Norgas Asia Pte Ltd Singapore 100% 100% Norgas Americas Inc USA 100% 100% Norgas Fleet Management (Shanghai ) Co.Ltd China 100% 100% IMS Marine Services AS Norway 100% 100% Creotel Investment AS Norway 100% N/A Cidron Star A Norway 100% N/A Skaugen Marine Construction Co. Ltd China 100% 100% Taizhou Skaugen Wuzhou Shipbuilding Co Ltd China 85% 85% Skaugen (Shanghai) Trading Co Ltd China 100% 100% Skaugen China Holding Co.Ltd China 100% 100% Joint Venture companies: See Note 7 for detailed listing of the Group's joint ventures. Associates: See Note 7 for detailed listing of the Group's associates. Shares in I.M.Skaugen SE held by Members of the Board Number of shares*) Eik, Erik (Chairman) Steen, Bertel O (Vice Chairman) Torgersen, Joh-Aksel - Ulltveit-Moe, Karen Helene Kilaas, Liselott - Skaugen, Morits (CEO and Deputy memeber of the Board)**) *) Includes shares owned by close family/relatives and controlled companies. **) Board member of Alcides AS which is indirectly controlled by Eikland AS. Alcides AS holds percent of the shares in I.M.Skaugen SE. Morits Skaugen indirectly controls one third of the shares in Eikland AS. In 2010 and 2009 the Group had the following transactions with its joint ventures and associates: Sales to related parties Purchases from related parties (27 248) (11 600) Amounts owed by related parties - - Amounts owed to related parties Loans from/to related parties Interest received Amounts owed by related parties - Guarantees on behalf of related parties Transactions with joint venture companies: Transactions with joint venture companies: Management services and technical fleet management services: The Group has, in 2010, performed management services for Somargas Limited and Singco Gas Pte Ltd. Further, the Group has carried out technical fleet management services to Somargas Limited and Singco Gas Pte Ltd. The vessels owned by 3:15:41 PM]

88 Note 23: Related Parties - I.M. Skaugen SE Group Somargas Limited and Singco Gas Pte Ltd are included in pool agreements with the I.M. Skaugen Group. All transactions have been carried out as a part of the ordinary operations where the sales of services are negotiated with the respective related parties. Shenghui Gas & Chemical Systems Co Ltd: Shenghui Gas & Chemical Systems Co Ltd produces components, including cargo tanks, and systems for the gas carrier newbuildings built by SMC. In addition, Shenghui has provided services to SMC in connection with onboard installation and commissioning of the cargo systems. Total sales from Shenghui to SMC in 2010 amounted to USD27.2 million (2009: USD11.3 million). Singco Gas Pte Ltd: In addition to management services and technical fleet management services, the Group is performing construction services for Singco Gas Pte Ltd in connection with the construction of the four Multigas vessels by the company. In 2010, the Group has charged construction services for USD1.6 million (2009: USD2.0 million). The Group has further made guarantees for up to USD44 million. Other related parties Eikland AS, indirectly through Alcides AS, controls per cent of the shares and is the main shareholder of I.M. Skaugen SE. Eikland AS, its subsidiaries and its Board of Representatives, all I.M. Skaugen SE members of the Board of Directors and its senior management, are all regarded as related parties. All transactions between the related parties are based on the principle of "arm's length" (estimated market value). Eikland AS rents office space from I.M. Skaugen SE and paid USD67,000 for these premises in 2010 (2009: USD72,000). Short-term receivables from/liabilities to Eikland AS and its subsidiaries per 31 December 2010 and 2009 was nil. Board member Jon-Aksel Torgersen is also chief executive officer of Astrup Fearnley AS; the parent company of the Fearnley Group. The I.M. Skaugen Group has requested services from certain companies within the Astrup Fearnley Group. These services related to the use of ship brokering services for our gas carriers and bond issue and amounted to USD0.3 million (2009: USD2.6 million). CSAM Health AS: CSAM Health AS an healthcare software company, offering a technology platform giving healthcare providers access to most relevant clinical information at the point of care. IMS Marine Services AS (100 per cent owned subsidiary of I.M. Skaugen SE) owns 25 per cent of the shares. IMS Marine Services AS has granted a loan to CSAM Health AS in the amount of USD248,000. The loan in non-interest bearing until and maturity date is A company controlled by close family members of board member Karen Helene Ulltveit-Moe holds another 25 per cent of the shares in CSAM Health AS. Remuneration: Please refer to Note 5, as well as to Note 4 in the accounts of the parent company, for details of remunerations paid to key management personnel and the Board of Directors. 3:15:41 PM]

89 Income Statements - I.M. Skaugen SE INCOME STATEMENTS - I.M. SKAUGEN SE income Balance sheets cashflows NOK million Notes Other revenues 0 63 Salaries and social costs 3,4,5 (19) (12) Ordinary depreciation Other operating expenses 6 (21) (104) Operating result (40) (53) Result from associates 0 0 Interest income from other Group companies 5 8 Interest income 1 0 Other financial income 1 11 Gain from sale of subsidiaries Dividends and results from subsidiaries 13, Dividends from other companies 5 0 Loss sale of shares (15) 0 Impairment/reversel impairment of long-term shares and receivables 9,13,14 2 (56) Interest expenses to other Group companies (4) (7) Interest expenses (72) (73) Other financial expenses (6) (1) Gains/losses on exchange 9,11 26 (14) Result before taxes (97) 63 Income taxes Result for the year (97) 63 Dividends - - Transferred to/from other equity 97 (63) Group contribution - - Parent notes 3:09:18 PM]

90 Balance sheets - I.M. Skaugen SE BALANCE SHEETS - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes NOK million Notes ASSETS Fixed assets Intangible fixed assets Deferred tax assets Total intangible fixed assets Tangible fixed assets Other fixed assets Total tangible fixed assets 4 5 Financial fixed assets Investments in subsidiaries Loans to group companies Investments Pension assets Long-term receivables - - Total financial fixed assets Total fixed assets Current assets Recivables Other debtors and group companies Total other receivables 5 18 Shares Bank deposits Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Paid-in equity Share capital (27,097,990 shares of par value NOK 15) Treasury shares - (1) Share premium reserve 4 4 Other paid-in equity - - Total paid-in equity Retainied earnings Other equity Total retained earnings TOTAL EQUITY Liabilities Other long-term liabilites Bonds Other long-term liabilities Total long-term liabilities Short-term liabilities Dividends Other short-term liabilities Total short-term liabilities TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Pledges of security 11 Guarantees Oslo, 16 February 2011

91 cashflows - I.M. Skaugen SE STATEMENTS OF CASHFLOWS - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes NOK million Cash Flow from Operations Payments of operating expenses (15) 30 Received payments of dividend 0 0 Interest received 2 13 Interest paid (61) (82) Net Cash Flow from Operations 1) (74) (39) Cash Flow from Investments Investment in fixed assets 5 0 Sale of fixed assets 0 1 Payments of purchase of shares and holdings in other companies (15) (5) Received payments from sale of shares and holding in other companies Received payment related to long term receivables 0 0 Payments related to long term receivables 0 0 Net Cash Flow from Investment (9) 331 Cash Flow from Financing Received payments from raising new long-term debt Repayment of principal of long-term debt (427) (613) Payment of purchase of convertible bonds and treasury shares (6) (2) Payments of dividend 0 0 Net Cash Flow from Financing (133) (98) Effect of changes in exchange rate on cash and cash equivalents 0 0 Net change in cash and cash equivalents (216) 194 Cash and cash equivalents 1 January Cash and cash equivalents 31 December ) Reconciliation Result before taxes (97) 63 Ordinary depreciation 0 0 Write-downs/reversal of write-downs of long-term shares and receivables 2 56 Result from subsidiaries with no cash effect 0 0 Gain/Losses from sale of shares 0 0 Gain/Losses from sale of fixed assets 0 0 Changes in market value of financial current assets 0 0 Change in other debtor (14) (72) Change in short-term liabilities 9 (72) Effect of changes in exchange rate 26 (14) Net Cash Flow from Operations (74) (39) 3:12:32 PM]

92 Parent Company Account income Balance sheets cashflows Parent notes Parent Company Account 1 Note 1 Accounting principles - I.M. Skaugen SE 2 Note 2 Equity - I.M. Skaugen SE 3 Note 3 Salaries, number of employees (NOK '000) - I.M. Skaugen SE 4 Note 4 Remunerations (NOK '000) - I.M. Skaugen SE 5 Note 5 Pensions (NOK '000) - I.M. Skaugen SE 6 Note 6 Other operating expenses (NOK '000) - I.M. Skaugen SE 7 Note 7 Income taxes - I.M. Skaugen SE 8 Note 8 Tangible fixed assets - I.M. Skaugen SE 9 Note 9 Long term intercompany receivables - I.M. Skaugen SE 10 Note 10 Deposits and shares in other companies - I.M. Skaugen SE 11 Note 11 Bonds - I.M. Skaugen SE 12 Note 12 Guarantees - I.M. Skaugen SE 13 Note 13 Investment in subsidiaries (NOK '000) - I.M. Skaugen SE 14 Note 14 Investments - I.M. Skaugen SE 15 Note 15 Financial market risk - I.M. Skaugen SE 16 Note 16 Related parties - I.M. Skaugen SE 3:12:36 PM]

93 Note 1 Accounting principles - I.M. Skaugen SE NOTE 1 ACCOUNTING PRINCIPLES - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes General I.M. Skaugen SE was, on December , transformed from a Norwegian Joint Stock Public Company (ASA) to an European Joint Stock Public Company (Societas Europea, hereafter called "SE-Company"). The new official name is I.M. Skaugen SE. The parent company, IM Skaugen ASA was merged with its wholly owned Danish subsidiary called I.M. Skaugen A/S. There was no issue of new shares. The accounts of I.M. Skaugen SE are prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted accounting principles in Norway. Merger In 2006 the company merged with its wholly owned subsidiary IMS Marine Services AS. Reporting currency The Parent Company accounts are reported in NOK and rounded to the nearest thousand. Use of Estimates The preparation of the financial statements is based on available information at the time of finalising annual accounts. Actual result/outcome may differ. The effects of changes in accounting estimates are accounted for in the same period as the estimates are changed. Fixed Assets Fixed assets are recorded at acquisition cost less accumulated depreciation and impairment charges. Ordinary depreciation is on a straight-line basis and determined by an estimation of the remaining useful economic life of the asset. When there are indications of impairment losses, a formal estimate of recoverable amount is made. The recoverable amount is the higher of net selling price and value in use (discounted future cash flows). When the carrying amount of the asset exceeds its recoverable amount, the carrying amount is reduced to its recoverable amount. Interests in Associates Interests in associates where the Company s influence is considered material, but does not by itself gives full control over the companies' assets, are presented according to the cost method. Joint Ventures Participation in joint ventures are included applying the cost method. Financial Current Assets Listed shares and bonds included in a trading portfolio traded on a regular basis are recorded at market value. Shares not classified as current financial instruments/part of trading portfolio are recorded at the lower of estimated market values and historic cost. Long-term USD swap agreements that are entered in connection with issuance of NOK-loans are accounted for as one transaction if the repayment terms of the loan match the maturity date of the swap agreements. If this is the case, the combined transaction is recorded as a USD loan and hedge accounting is applied. Foreign Exchange Monetary items in foreign currencies are recorded at year-end exchange rates. Items, which are hedged through forward contracts, are recorded at the forward contract rate. The foreign exchange rates for USD as per 31 December 2010 and 31 December 2009 are and , respectively. Loan in USD and Long-term USD Swap Agreements Loans in USD are treated as hedging of investment in subsidiaries and joint venture companies where the underlying 3:16:06 PM]

94 Note 1 Accounting principles - I.M. Skaugen SE revenue streams as well the costs are denominated in USD. The loans are therefore recorded at its historical foreign currency rate in the balance sheet or at the date where the loans were classified as hedging against the underlying investments. Long term USD swap agreements that are entered in connection with issuance of NOK loans are accounted for as one transaction if the repayment terms of the loan match the maturity date of the swap agreements. If this is the case the combined transactions are recorded as a USD loan and hedge accounting is applied. Financial Instruments Financial contracts are defined as hedging or trading contracts. Hedging is accounted for based on the underlying asset/debt of the future transactions. Further, the premium or allowance is recorded on a straight-line basis over the period of the hedge. Trading contracts are recorded at market value and charges in market value are recorded in the Profit and Loss Accounts. Receivables Receivables are recorded at their nominal value less provisions for bad/doubtful debt. Pension Obligations The Company has implemented NRS 6A as an early adoption to IAS 19. The Company has both defined benefit and defined contribution plans. A defined benefit plan is a pension plan that defines the 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. 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. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of related plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually, by independent actuaries, using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash out flows using the market yield on government bonds, at the balance sheet date, as there is no deep market for similar, high-quality corporate bonds in Norway, which have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the employees expected average remaining working lives. For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plan. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. Excess financing (plan assets) that is likely to be utilised is recorded in the Balance Sheet as long term financial assets. Taxes Deferred tax is calculated on the temporary differences existing at year-end between accounting and tax value. Tax increasing and decreasing temporary differences, as well as tax losses carried forward which are offset, or can be offset in the same period, are recorded net. Deferred tax assets that are considered to be offsetting foreseeable future taxable income are recognised and reported as intangible assets in the balance sheet. Classification of items in the Balance Sheet Current assets and short-term liabilities include items due less than one year from draw-down and items related to the operating cycle. Other assets/liabilities are classified as fixed assets/long-term liabilities. First year s instalment of long-term debt is included as long-term debt. Financially motivated investments in shares are classified as current assets, while strategic investments are classified as fixed assets. Treasury shares I.M. Skaugen SE s shareholding of treasury shares is reported at par value under other paid-in equity. The difference between purchase price and par value is included in other equity. Borrowings Bonds are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the Profit and Loss Accounts over the period of the borrowings using the effective interest method. 3:16:06 PM]

95 Note 1 Accounting principles - I.M. Skaugen SE Bonds issued with a discount are presented net. The discount is recognised over the period until maturity using effective interest method. The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent nonconvertible bond. This amount is recorded as a liability on an amortized cost basis, using the effective yield method, until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognized and included in shareholders' equity, net of income tax effects. When repurchasing convertible bonds gain/loss on the debt element is recognised in the Profit and Loss Account. Related parties Alcides AS (main shareholder), Eikland AS and representatives, members of the Board of Directors and top management and subsidiaries, joint ventures and associated companies are regarded as related parties. All transactions between the related parties are based on the principle of arm s length (estimated market value). Provisions Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Contingent gains Contingent gains/income are not recognised. Cash Flows The statements of cash flows are based on the direct method. Restricted cash related to the operations is included as cash equivalents. Shares are considered to have a high price risk and are therefore not classified as cash equivalents. Subsequent events New information concerning affairs existing at year-end is incorporated in the estimates. Material events arising after yearend are disclosed in notes, if any. 3:16:06 PM]

96 Note 2 Equity - I.M. Skaugen SE NOTE 2 EQUITY - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Share Other Total Total Share Tresury premium Paid-in paid-in Other retained Total (NOK '000) capital shares reserve equity equity equity earnings equity Equity as at 31 December (1) Redemption of treasury (1) shares Net result for the year Equity as at 31 December Treasury shares (1) (1) (1) (1) (2) Net result for the year Equity as at 31 December 408 (1) Treasury shares (1) Net result for the year - - (97) (97) (97) Equity as at 31 December The Parent Company's share capital as of 31 December 2010 comprised 27, ordinary shares with a par value of NOK15,- totaling NOK406,469,850. In treasury shares was redeemed. The Board of Directors received renewed authorization from the Annual General Meeting in 2010 to acquire treasury shares. The Company's holding of treasury shares was as at ,464 shares with a book value of NOK At the Annual General Meeting on 18 March 2010, the Board of Directors received authorization to increase the share capital by NOK 203,925. At the Annual General Meeting on 18 March 2010, the Board of Directors received authorization to issue convertible bonds up to NOK 400,000,000. It is emphasized that authorization given to the Board of Directors by the Annual General Meeting, implies that to the extent the share capital is increased in accordance with the authority given, the board shall limit its right to convert loan to share capital by issuing convertible bonds in the corresponding amount. Thus it will be in the board's discretion to decide if the board shall decide to increase the share capital or offer rights to convert bonds to shares through convertible bonds within the total limit of NOK The Board of Directors belives that the aquistions of the Company's treasury shares and convetible bonds will improve the shareholders' return and assuure the Company greather financiel flexibility in a situation where the Company's equity and liquidity situation satifactory. 3:16:10 PM]

97 Note 2 Equity - I.M. Skaugen SE Shareholders as at 31 DeceSharmber 2010 No. of shares Percentage holding more than 1 percsent Alcides AS % SES AS % Verdipapirfond Odin % Skagen Vekst % Krepanor AS % Skandinaviska Enskilda A/C Clients account % Orkla ASA % Verdipapirfond Odin % Teigen Frode Naka Racha TLD % MP Pensjon % AS Bemacs c/o Adv. Bertel O Steen % E-Invest AS v/erik Eik % Bratrud Gudmund Joar % Girones A/S % Shareholders holding more than 1 percent % Others % Total no of shares % Shares in I.M. Skaugen SE held by Members of the Board Number of shares *) Eik, Erik (Chairman) 394,860 Steen, Bertel O (Vice Chairman) 3,250,000 Torgersen, Jon-Aksel 0 Ulltveit-Moe, Karen Helene 5,200 Kilaas, Liselott 0 Skaugen, Morits **) CEO and Deputy member of the Board 35,160 *) Includes shares owned by close family/relatives and controlled companies. **) Boardmember of Alcides AS which is indirectly owned by Eikland AS with 75 per cent. Alcides AS holds per cent of the shares in I.M. Skaugen SE. Morits Skaugen owns indirectly one third of the shares in Eikland AS. 3:16:10 PM]

98 Note 3 Salaries, number of employees (NOK '000) - I.M. Skaugen SE NOTE 3 SALARIES, NUMBER OF EMPLOYEES (NOK '000) - I.M. SKAUGEN SE Salaries and social expenses Salaries Social security tax Pension expenses Other expenses Total The company had nine employees throughout income Balance sheets cashflows Parent notes 3:16:14 PM]

99 Note 4 Remunerations (NOK '000) - I.M. Skaugen SE NOTE 4 REMUNERATIONS (NOK '000) - I.M. SKAUGEN SE Remuneration - paid Directors' fee Salary Bonuses Other Pension cost Total remuneration Executive Team Morits Skaugen, CEO and Deputy member Terje Ørehagen, COO Bente Flø, CFO Board of Directors Erik Eik, Chairman Bertel O Steen jr, Deputy Chairman Karen Helene Ulltveit-Moe Liselott Kilaas Jon-Aksel Torgersen Total Remunerations income Balance sheets cashflows Parent notes One executive holds a loan of NOK 319,000. The loan has a repayment period of three years. Interest rate is 3.23 percent and the loan holds a pledge of security in property. Expensed remuneration Auditors (audit) Auditors (attestations) 52 0 Auditors (tax) - 82 Auditors (non-audit services) Total auditors' remuneration Guidelines for determining salaries and other compensation for employees in leading positions in I.M. Skaugen SE In accordance with the regulations in Paragraph 6-16a of the Norwegian Joint Stock Public Company Laws, the Board of Directors has prepared a statement regarding the guidelines for determining salaries and other compensation for employees in leading positions. Below is a summary of the statement that will be given to the shareholders in the annual general meeting for the company on 18 March There are no changes in the statement compared to the statement given to the shareholders' annual generel meeting in The statement for 2010 has been complied with, in the determination of the compensation levels for General principles The Board of Directors wants the compensation package for leading employees to consist of a fixed salary and a bonus element, which is dependent on the results achieved, with the fixed component normally lower than the bonus element. The total compensation shall be competitive in order to attract and keep the best managers. The bonus for leading employees is determined yearly after the annual accounts for the preceding year have been approved. The bonus for the CEO is determined by the Board of Directors based on a subjective evaluation of the efforts exerted, in relation to achievements of goals, developments of the company s results, cash flow, and the creation of values for the shareholders. The bonus for other leading employees is determined by the CEO according to the same criteria as those used to determine the bonus for the Chief Executive Officer. The Company does not have a stock option plan or other compensation plans which are directly related to the company s share price. The Board of Directors does not, as a general guideline, want any leading employees to have significant benefits in kind. Post employment benefits and pensions A post employment benefit scheme is established for the Chief Executive Officer and the Chief Operating Officer. This is 3:16:18 PM]

100 Note 4 Remunerations (NOK '000) - I.M. Skaugen SE done in order to have clear policies and guidelines in case the Board of Directors should want to terminate the employments. All of the leading employees participate in the ordinary pension scheme for the Company. The Company has established an early pension arrangement and an additional pension contribution plan for the CEO. Below is a detailed description of all of the post employment benefits and pension plans. The CEO's employment agreement has provisions, that amongst others, ensure a separate remuneration if the CEO leaves the Company, equaling two years remuneration. The provisions allows for the Company to request such a termination and it also allows for the CEO to terminate the employment agreement under special situations such as takeover or mergers. The CEO has also, under the agreement, the right to retire at the age of 60 with a remuneration that equals 66 percent of his annual salary until the standard retirement age at 67. The Company also has the right to request such a retirement after 60 years of age. Any other remuneration received from other employments in this period between 60 and 67 shall be deducted from the remuneration received from the Company. After 67 years of age he is entitled to the normal pension package for Company employees, which equals 70 percent of the salary up to 12 times the base amount in the social security system. The pension arrangement is co-ordinated with retirement payments from the Norwegian Social Security Fund, meaning that only the difference between the payments from the Norwegian Social Security Fund and 70 per cent of the salary (up to 12 times the base amount) is paid by the Company. In addition a separate pension agreement has been entered into whereas the Company is committed to pay an annual indexed premium from January 1, 2004 towards a separate retirement package plan, which is a defined contribution plan. The agreement is part of the employment contract and shall only last as long as he is employed by the Company. After 67 years of age the members of the executive team is entitled to the normal pension package for company employees, which equals 70 percent of the salary up to 12 times the base amount in the social security system. As explained above these payments are co-ordinated with the retirements payments from the Norwegian Social Security Fund. One executive is entitled to 18 months termination benefit. 3:16:18 PM]

101 Note 5 Pensions (NOK '000) - I.M. Skaugen SE NOTE 5 PENSIONS (NOK '000) - I.M. SKAUGEN SE income I.M. Skaugen SE has a defined benefit plans for its employees. In addition the CEO has an additional defined contribution agreement. As of 31 December 2010 the pension plan included six persons. The obligations cover employees not included in the insured plan, additional pensions above 12G and some early retirements. Expected return on plan assets and the discount factor are 4.6 percent and 3.2 percent, respectively (5.6 and 5.7 percent in 2009 and 2008). The defined benefit plan was closed for new members late in New employees will enter a defined contribution plan that has been set up. Currently tree members have entered the defined contribution plan. Pension expenses consists of: Present value of this year's pension entitlement Contribution plan Interest on projected benefit obligation Expected return on pension funds (281) (332) Administration cost Social security Ttx Amortised estimate/plan deviation Pension expenses Estimated value of benefit obligations 31 December (5 135) (4 726) Estimated value of pension assets 31 December Unamortised deviation from plan/assumption 31 December Accrued pension asset /(obligation) in the balance sheet 31 December Balance sheets cashflows Parent notes 3:11:51 PM]

102 Note 6 Other operating expenses (NOK '000) - I.M. Skaugen SE NOTE 6 OTHER OPERATING EXPENSES (NOK '000) - I.M. SKAUGEN SE Other operating expenses Office expenses Fees Project costs Total income Balance sheets cashflows Parent notes 3:16:23 PM]

103 Note 7 Income taxes - I.M. Skaugen SE NOTE 7 INCOME TAXES - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Tax expense for the year: Payable taxes - - Changes in deferred tax - - Total tax expenses - - Reconciliation of taxes for the year: Estimated tax expense (27) 18 Tax effect of permanent differences 15 (2) Limitation recognised tax asset - (28) Others Income taxes - - Deferred tax liability / (deferred tax asset) is based on the differences between the accounting and tax values. Temporary differences are related to the following items: Tax effect of temporary differences Gain and loss account 2 2 Financial instruments (16) (25) Other differences - (1) Tax losses carried forward (119) (83) Limitation recognised tax asset Carrying value (18) (18) Tax rate 28% 28% No tax effect is allocated to write-downs of inter-company receivables as the losses are not expected to materialise in the near future. In 2004 the Norwegian Tax legislation for taxation of shares was changed. This change implies that no tax decuction is granted for sale of certain shares. Consequently no temporary difference has been recognised on holdings in shares. Following a change in the tax legislation in 2005 the tax losses can be carried forward in indefinitely. Due to uncertainties if it is possible to utilise the tax losses that might be carried forward within a reasonable time line, the company has not recognised all of its deferred tax assets in the balance sheet. 3:16:27 PM]

104 Note 8 Tangible fixed assets - I.M. Skaugen SE NOTE 8 TANGIBLE FIXED ASSETS - I.M. SKAUGEN SE Other Fixed Assets Other Fixed Assets Balance as at 1 January Additions - - Disposals - - Cost price as at 31 December Accumulated depreciation 31 December (17) (16) Book value as at 31 December 4 5 This year's depreciation (1) (1) Economic life 3-5 years 3-5 years Gain from sale of fixed assets - 1 Board of directors' report 2010 Performance in 2010 Gas activities China activities Marine transfer activities Team of professionals SHE&Q Financial result - Parent company Corporate governance Shareholder statement Appreciation by board 3:11:56 PM]

105 Note 9 Long term intercompany receivables - I.M. Skaugen SE NOTE 9 LONG TERM INTERCOMPANY RECEIVABLES - I.M. SKAUGEN SE As of 31 December 2010 the Parent Company has receivables from Norgas Limited of USD33.1 million. The loan to Norgas Limited is on demand and is fixed at 6 months Libor plus 0.7 percentage point. No specific instalment plan is established, but the receivable is long-term in nature. Loans to subsidiaries per Norgas Limited LIBOR + 0.7% IMS Marine Services AS 3m NIBOR + 2.0% 1 15 Total income Balance sheets cashflows Parent notes 3:16:32 PM]

106 Note 10 Deposits and shares in other companies - I.M. Skaugen SE NOTE 10 DEPOSITS AND SHARES IN OTHER COMPANIES - I.M. SKAUGEN SE Bank deposit Specification of restricted deposits Bank deposit 1 1 Shares Fund - - Total - - income Balance sheets cashflows Parent notes 3:16:35 PM]

107 Note 11 Bonds - I.M. Skaugen SE NOTE 11 BONDS - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Interest rate Maturity Non-current FRN NOK Bond (1) Fixed 10.5 per cent Sept FRN NOK Bond (2) NIBOR per cent June FRN NOK Bond (3) LIBOR per cent Repurchased FRN USD Bond (4) LIBOR per cent Repurchased FRN USD Bond (5) NIBOR per cent Juli FRN NOK Bond (6) LIBOR per cent September ) The Company placed a NOK bond of NOK 200 million into the Norwegian market in September This bond carries a coupon of percent and matures on 16 September, The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK05). The NOK bond has been swapped into a USD obligation through a currency swap with a obligation to repurchase an amount of USD34.6 million in September The currency swap is treated as hedging of the investment in subsidiaries with functional currency in USD. The recorded liability reflects the hedge accounting of the investment. 2) The Company placed a NOK bond of NOK 600 million into the Norwegian market in June This bond carries a coupon of three months NIBOR plus 2.40 percent and matures on 6 June, The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK04). I.M Skaugen SE holds NOK306,5 million of the bond as of 31 December The outstanding NOK bond (NOK293,5 million) has been swapped into a USD obligation through a currency swap with a obligation to repurchase an amount of USD68.7 million in June The currency swap is treated as hedging of the investment in subsidiaries with functional currency in USD. The recorded liability reflects the hedge accounting of the investment. There is a quarterly reset of the USD/NOK currency swap and the current liability reflects the additial payment the counter part made to IMS. 3) The Company placed a USD bond of USD 100 million into the Norwegian market in December This bond carries a coupon of three months LIBOR plus 2.80 percent and was matured on 14 December, ) The Company placed a NOK bond of NOK 175 million into the Norwegian market in March / April This bond carries a coupon of 6.00 percent and repurchased in 5th Feburary, The bond was issued at par value and delisted on the Oslo Stock Exchange (IMSK06) 19th Feburary ) The Company placed a NOK bond of NOK 500 million into the Norwegian market in August This bond carries a coupon of 6.00 percent and matures on 15 July The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK08). The NOK bond has been swapped into a USD obligation through a currency swap with a obligation to pay USD 66.8 million in July The currency swap is treated as hedging of the investment in subsidiaries and jointventures with functional currency in USD. The recorded liability reflects the hedge accounting of the investment. 6) The Company placed a NOK bond of NOK 300 million into the Norwegian market in September This bond carries a coupon of 8.00 percent and matures on 17 September The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK09). This NOK bond has been swapped as a part of the current swap portfolio. The main covenants for the bonds are associated with minimum book equity for the I.M. Skaugen SE Group and "Relevant Assets" that are not encumbered with any mortgage, pledge or other collateral with an equal amount to the outstanding loan. I.M. Skaugen SE was in compliance with the loan convenants at year-end. The Company has used the proceeds from the issuance for general refinancing purposes and to strengthen our balance sheet and financial resources as we move forward. 3:16:38 PM]

108 Note 12 Guarantees - I.M. Skaugen SE NOTE 12 GUARANTEES - I.M. SKAUGEN SE Guarantees Guarantees to subsidiaries - - Guarantees provided to external parties Total The company has guaranteed for up to USD 15 millioner in favour of Nordea Bank Finland PLC in connection with a credit line in one of our wholy owned subsidiaries, and this guarantee is maximized by committed lines. As at the credit line has not been used. income Balance sheets cashflows Parent notes 3:16:42 PM]

109 Note 13 Investment in subsidiaries (NOK '000) - I.M. Skaugen SE NOTE 13 INVESTMENT IN SUBSIDIARIES (NOK '000) - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Time of Ownership/ Business establishment / Cost Voting Shares in subsidiaries office purchase price share Norgas Limited Bermuda % I.M. Skaugen Marine Services Pte. Ltd. Singapore % IMS Marine Services AS Oslo % Crotel Investments AS Oslo % Cidron Star AS Oslo % Number of Share Par Total par Book value Shares in subsidiaries shares capital value value Norgas Limited USD12 USD1 USD I.M. Skaugen Marine Services Pte. Ltd. 216,984,507 USD216,985 USD1 USD216, IMS Marine Services AS 50 NOK NOK Crotel Investments AS NOK NOK Cidron Star AS NOK NOK Total The shares in Norgas Limited have previously been written down by NOK162 million. No dividend was received from I.M. Skaugen Marine Services Pte Ltd in year 2010 (NOK 0,0 million and NOK million in 2009 and 2008 respectively). Creotel Investments AS was incorporated following a demerger of Creo Investment II AS. The company's main activites is ownership and management of 237,496 shares in Telio Holding AS. Cidron Star AS was incorporated following a demerger of FiveStar Marine Nordic AS, after I.M. Skaugen SE and Kagra AS had taken posession of the shares in FiveStar Marine Nordic AS. FiveStar Marine Nordic AS was thereafter demerged. Please also see note 16 Shares in subsidiaries owned by Group Business Ownership/ companies (NOK '000) office Voting share Owned by I.M. Skaugen Marine Services Pte Ltd Number of shares Share Par Total par capital value value Norgas Carriers AS Oslo 100% NOK985 Skaugen Marine Construction Co. Ltd Shanghai 100% USD32 Taizhou Skaugen Wuzhou Shipbuilding Co. Taizhou 85% USD4,459 Ltd. Skaugen (Shanghai) Trading Co. Ltd Shanghai 100% USD7,800 Skaugen China Holding Co Ltd Shanghai 100% USD4,500 - Owned by Norgas Carriers AS: Norgas (Asia) Pte. Ltd. Singapore 100% SGD100 SGD1 SGD100 Norgas Americas Inc. Houston 100% USD10 USD1 USD10 Norgas Fleet Management (Shanghai) Co. Ltd. Shanghai 100% :16:46 PM]

110 Note 14 Investments - I.M. Skaugen SE NOTE 14 INVESTMENTS - I.M. SKAUGEN SE Companies Time of establ./acquisition Purchase price Business office Ownershare Carrying Nordic LNG1 August Stavanger 40.0% - Total investments in associates and joint ventures - Creo Investments II AS2 November Oslo 18.7 % - Total other investments - Total investments - 1) I.M. Skaugen SE sold during 2010 its 40 per cent holding in Nordic LNG AS. 2) Creo Investment AS was demerged in accordance with the share of ownership as at I.M. Skaugen SE thereby got a new whole owned subsidiary called Creotel Investment AS. The demerger was done in accordance with the continuity principles. Se also note 13. value income Balance sheets cashflows Parent notes 3:16:49 PM]

111 Note 15 Financial market risk - I.M. Skaugen SE NOTE 15 FINANCIAL MARKET RISK - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Overview. I.M. Skaugen SE is exposed to a number of different financial market risks arising from its normal business activities. Financial market risk is the possibility that fluctuations in currency exchange rates, interest rates, freight rates, oil prices and steel/nickel prices will affect the value of our assets, liabilities or future cash flows. The main revenue stream for I.M. Skaugen SE is dividends from its investment in subsidiaries and joint venture companies. Thus it is important for the Company to ensure that the financial market risks affecting the earnings in these companies are managed. The management periodically reviews and assesses its primary financial market risks. Once risks are identified, appropriate action is taken to mitigate the specific risk. The primary strategy used to reduce our financial and commodity market risks, is the use of derivatives where appropriate. Derivatives are used periodically in order to hedge the Company s various net exposures as well hedges of specific exposures. When the uses of derivatives are deemed appropriate, only well-understood, conventional derivative instruments are used. These may include futures and options traded on regulated exchanges, and OTC swaps, options and forward contracts. It is Management s policy to enter into derivative financial instruments with only highly rated financial institutions. Credit risks related to derivative commodity instruments are significantly limited because most instruments are settled through commodity exchanges. The Company uses derivatives only for the purposes of managing risks associated with interest rate and currency exposure. The Company does not trade or use instruments with the objective of earning financial gains in interest rate fluctuations alone, nor does it use instruments where there are not underlying exposures. Currency Risks. The major part of the Company's assets are holdings in subsidiaries and joint venture companies within the shipping industry. The underlying revenue stream as well as most of the costs in the subsidiaries and joint venture companies are denominated in USD. Further loan to subsidiaries outside Norway are agreed and paid in USD. In order to mitigate this currency risk the Company entered a USD bond loan in December 2005 and in June The Company entered into a NOK bond in June 2007, September 2008, March / April 2009, August 2009 and Sept Simultaniously the Company entered into a USD swap agreement in order to mitigate the currency risk. In the accounts of I.M. Skaugen SE the USD bond loan, and the USD swap agreements are regarded as hedging of its investment in foreign subsidiaries & joint venture companies. The loans are therefore recorded at their historical foreign currency rate in the balance sheet or at the date where the loans were classified as hedging against the underlying investments. The USD swap agreements are accounted for together with the NOK bond loan and are accounted at the foreign currency rate when the USD swaps were classified as hedging. Future dividend distribution from the company's foreign investments will, however, be subject to fluctuations in the USD foreign exchange rate. The Company periodically enters into forward exchange contracts and USD/NOK positions to hedge against foreign currency exchange risks associated with certain firm commitments and forecasted exposures. This hedging minimizes the impact of foreign exchange rate movement on the Company s results. As of 31 December 2010, the Company had six currency swap agreements; one of NOK 400 million / USD 66.2 million, one of NOK 200 million / USD 34.6 million, one of NOK 88 million / USD 14.9 million, one of NOK 150 million / USD 25 million, one of NOK 136 million / USD 22.7 million, and one of NOK 26 million / USD 4.4 million. The Company had no forward contracts. Interest Rate Risk. Our risk management objective for interest rate risk is to minimize exposure to variability of cash flows arising from changes in interest rates. This objective is achieved primarily by maintaining a high ratio of fixed-interest debt to total debt. Depending on the development of, and an internal analysis of the interest rate market, we enter into various types of interest rate contracts to alter the ratio of fixed-rate to variable-rate debt. At 31 December 2010, after taking into account the effect of interest swaps, approximately 21% of the Company's borrowings are at a fixed rate of interest. Credit Risk. The Company is exposed to a credit loss in the event of non-performance by a counter party of a financial derivative instrument. However, the Company does not anticipate non-performance by any of the counter parties, as such (OTC) contracts are entered only with recognized, creditworthy third parties or the derivative instruments are entered throughclearing houses. 3:16:53 PM]

112 Note 16 Related parties - I.M. Skaugen SE NOTE 16 RELATED PARTIES - I.M. SKAUGEN SE income Balance sheets cashflows Parent notes Eikland AS controls, indirectly through Alcides AS, per cent of the shares and is the main shareholder of I.M. Skaugen SE. Eikland AS and its subsidiaries and its Board representatives, all I.M. Skaugen SE members of the Board of Directors and its senior management, are all regarded as related parties. All transactions between the related parties are based on the principle of "arm's length" (estimated market value). Eikland AS rents office space from I.M. Skaugen SE and paid NOK 405,000 for these premises in 2010 (NOK 455,000 in 2009). Short-term receivables from/liabilities to Eikland AS and its subsidiaries per 31 December 2010 are nil. Board member Jon-Aksel Torgersen is chief executive officer of Astrup Fearnley AS; the parent company of the Astrup Fearnley Group. The I.M. Skaugen Group has acquired services from certain companies within the Astrup Fearnley Group. In year to date 2010, 2009, 2008, and 2007, these services related to bond issue and the use of shipbroking services for our gas carriers and bond issue. For these service I.M. Skaugen SE paid NOK 731,000 in FiveStar Marine Ltd: FiveStar Marine Ltd was sold in The possesion of the shares of its wholy owned subsidiary, FiveStar Marine Nordic AS, was taken over by I.M. Skaugen SE and Kagra AS when the company was sold. FiveStar Marine Nordic AS, was, after the takeover of the shares and conversion of loan to share capital, demerged in accordance with the share of ownership. I.M. Skaugen SE thus owns a wholy owned subsidiary called Cidron Star AS. The demerger was done according to accounting and fiscal continuity. (See also note 13.) CSAM Health AS. CSAM Health AS is an international healthcare software company, offering a technology platform giving healthcare providers access to most relevant clinical information at the point of care. IMS Marine Services AS, a wholy owned subsidiary of I.M. Skaugen SE, owns at year end 25% of the shares in CSAM Health AS. IMS Marine Services AS has also lent CSAM Health AS NOK 1.5 million. This loan is interest free until , and is due for repayment in full on A company controlled by close family members of board member Karen Helene Ulltveit-Moe holds another 25 per cent of the shares in CSAM Health AS. Nordic LNG AS: The company was sold in 2010, and all guarantees in favour of this company has been terminated. Shares in I.M. Skaugen SE held by Members of the Board Number of shares *) Eik, Erik (Chairman) 394,860 Steen, Bertel O (Vice Chairman) 3,250,000 Torgersen, Jon-Aksel 0 Ulltveit-Moe, Karen Helene 5,200 Kilaas, Liselott 0 Skaugen, Morits **) 35,160 *) Includes shares owned by close family/relatives and controlled companies. **) Boardmember of Alcides AS which is owned indirectly by Eikland AS with 75 percent. Alcides AS holds percent of the shares in I.M. Skaugen SE. Morits Skaugen owns indirectly one third of the shares in Eikland AS. 3:16:57 PM]

113 Auditors report AUDITORS REPORT Click the link below to open Auditors report. - To save as PDF rightclick and choose "Save target as..." auditors_report _english.pdf Kb 3:09:22 PM]

114 PricewaterhouseCoopers AS Postboks 748 Sentrum NO-0106 Oslo Telefon To the Annual Shareholders' Meeting of I.M Skaugen SE Independent auditor s report Report on the Financial Statements We have audited the accompanying financial statements of I.M Skaugen SE, which comprise the financial statements for the parent company and the financial statements for the group. The financial statements for the parent company comprise the balance sheet as at December 31, 2010, and the income statement, statement of changes in equity and cash flow statement, for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements for the group comprise the balance sheet at December 31, 2010, income statement, statement of comprehensive income, changes in equity, cash flow for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors and the Managing Director s Responsibility for the Financial Statements The Board of Directors and the Managing Director is responsible for the preparation and fair presentation of these financial statements in accordance with Norwegian accounting act and accounting standards and practices generally accepted in Norway for the company accounts and in accordance with International Financial Reporting Standards as adopted by EU for the group accounts, and for such internal control as the Board of Directors and the Managing Director determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical equirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Alta Arendal Bergen Bodø Drammen Egersund Florø Fredrikstad Førde Gardermoen Gol Hamar Hardanger Harstad Haugesund Kongsberg Kongsvinger Kristiansand Kristiansund Larvik Lyngseidet Mandal Mo i Rana Molde Mosjøen Måløy Namsos Oslo Sandefjord Sogndal Stavanger Stryn Tromsø Trondheim Tønsberg Ulsteinvik Ålesund PricewaterhouseCoopers navnet refererer til individuelle medlemsfirmaer tilknyttet den verdensomspennende PricewaterhouseCoopers organisasjonen Medlemmer av Den norske Revisorforening Foretaksregisteret: NO

115 Opinion on the financial statements for the parent company In our opinion, the financial statements of the parent company give a true and fair view of the financial position of I.M Skaugen SE as at December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian accounting act and accounting standards and practices generally accepted in Norway. Opinion on the financial statements for the group In our opinion, the financial statements of the group give a true and fair view of the financial position of the group I.M Skaugen SE as at December 31, 2010, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements and the going concern assumption, and the proposal for coverage of the loss is consistent with the financial statements and complies with the law and regulations. Opinion on Registration and documentation Based on our audit of the financial statements as described above, and controll procedures we have considered necessary in accordance with the International Standard on Assurance Engagements ISAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that the company s management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Oslo, 16. februar 2011 PricewaterhouseCoopers AS Erling Elsrud State Authorised Public Accountant (Norway) Note: This translation from Norwegian has been prepared for information purposes only. (2)

116 Responsibility Statement RESPONSIBILITY STATEMENT We confirm, to the best of our knowledge, that the financial statements for the period 1 January to 31 December 2010 have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the entity and the group taken as a whole. We also confirm that the management report includes a true and fair review of the development and performance of the business and the position of the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group. Oslo, 16 February 2011 Board of Directors, I.M. Skaugen SE Responsibility statement 3:09:25 PM]

117 Analyst Info ANALYST INFO INDEX 1: IMS past achievements and future opportunities 2: Analytical info a IMS group b Gas activities i. Norgas ii. Small scale LNG iii. Chemicals c China activities i. SMC Shipbuilding ii. Shenghui Gas & Chemical iii. TNGC River Transportation d Marine transfer activities 3: Financial Risks 2. Analytical info 2.1 IMS Group Revenue & Profit drivers The core business segments that the Group is engaged in are transportation petrochemical gases (ethylene, propylene, butadiene, vcm) as well as LNG and LPG through Norgas, marine transfer activities through SPTand our activities in China (including newbuilding through SMC). The legal and corporate charts provide a brief overview of the company structure. The core business segments that the Group is engaged in are transportation petrochemical gases (ethylene, propylene, butadiene, VCM) as well as LNG and LPG through Norgas, marine transfer activities through SPT and our activities in China (including newbuilding through SMC). The legal and corporate charts provide a brief overview of the company structure. For the year, IMS reported a net loss of USD14.9 million (loss of USD10.1 million in 2009). The EBITDA was USD 19.4 million (USD24.2 million in 2009). The Group's gross revenues totalled USD117 million (USD108 million in 2009). Net cash flow from operations in 2010 is negative USD 31 million (positive USD 26.6 million in 2009). The Skaugen Marine Construction Co Ltd. SMC newbuilding activities combining the Wintergas (WG) and Multigas (MG) vessels (classified as projects under construction) were the main reasons of the negative cash flow from operations in The vessels will all be delivered in 2011, thus they will improve the cash flow from operations in As of 31 December 2010, the group has USD 49 million tied up in working capital for the WG and MG vessels (2009 USD 52 million). Total assets were USD275.8 million. Shareholders equity amounted USD 78.7 million or USD 2.90/NOK 17 per share. The net debt at the end of 2010 was USD 84.6 million and the net interest-bearing debt totalled USD million. The ratio between current assets and current liabilities was 137 percent. Total liquidity as of the end of 2010 was USD 40 million, which is considered sufficient for the company's ongoing business activities. The interest coverage ratio (EBITDA / Net interest cost) was 1.1 for the year :09:30 PM]

118 Analyst Info 2.2 IMS Group Financing The equity ratio at year end was 28.5 per cent up from 27.5 per cent at year end This is as a result of reduction in working capital tied up in the SMC newbuilding projects. In the last quarter of this year reduction in short-term liabilities reduced the working capital and thus the overall leverage of the company and increased the equity ratio. The policy of the company is to be at all times above 30 per cent. The process of improving some of the key balance sheet ratios through optimization of debt and working capital will continue through 2011, with the completion of the current newbuilding program in In September 2010 part of the outstanding bonds, due in 2011, were refinanced in order to reduce the refinancing risk. Part of the remaining balance will be extended through refinancing in 2011, while some of it will be repaid by proceeds from sale and leaseback arrangements we have committed to. Total outstanding bond debt per 31 December 2010 is USD158.7 million of which USD59.1 million is in Gas activities Norgas Business overview: For Norgas, 2010 was mainly driven by increased imports into Asia and inter Asian trade due to the quite buoyant demand for petrochemicals in this region. In addition new trading opportunities opened up from diverging regional cost of production for ethylene. In the second half of the year we observed a general increase in the capacity utilization of ethylene crackers and this is a good sign of more trade especially if it is coupled with rising product prices. The volumes exported and subject to seaborne transportation were lifted by the efficient low cost producers in the Middle East and for overseas markets following maintenance downtime earlier in the year. All of the above helped to tighten the supply/demand balance, and the last half of 2010 was the best for Norgas in This will enable us to profit more on our services in When going into 2011 we are thus in a positive trend in most of our core business segments. The market balance in the gas carrier business of Norgas and TNGC is perhaps even better than expected with the peak of newbuildings deliveries behind us. 3:09:30 PM]

119 Analyst Info Supply & Demand (SR & Ethylene tonnage): Demand: The Chinese economy is expected to continue to grow and its appetite for petrochemical products is increasing. Despite the fact that China is expanding its own capacity in order to gain on self-sufficiency, the country is still relying on much of the import from especially the Middle East area. As the main feedstock for Chinese ethylene production, the naphtha price has a substantial influence on the cost of production which is then again determined by the development in crude oil price. According to not only the IEA, the era of low oil may be over and the future crude oil price is on an upward trend. Meanwhile the Middle East as the world's lowest cost producer has a clear advantage compared to higher cost countries in Europe and Asia due to their access to low cost feedstock.products that we transport. Supply: With an increased production capacity we will see more long haul trades from the Middle East to Asi a, especially China in the years to come. Overall the seaborne petrochemical gas trade is forecasted to be back on 2008 level in 2011, with steady and improved volumes going forward. The ton mile effects of the changing trade patterns are evident and these could probably enable us to enjoy a double digit growth in demand the next several years. There are 15 Semi Refrigerated newbuildings of 4.000cbm and above (both short and long haul vessels) delivered during 2010, with 8 of these having ethylene capacity. The existing world fleet (4.000cbm and above) of 289 Semi Refrigerated vessels ( cbm) has now an order book of 40 vessels ( cbm capacity) to be delivered before end of Norgas has now 5 new ships or (49.800) cbm capacity to be delivered in this period and that is about 17% of the ethylene capacity to come in this period. The growth in the supply or the fleet will be somewhat mitigated by ship recycling in the period with 15% of the capacity ( cbm) that are now 25 years or more and thus eligible for recycling or alternative uses in the coming years. During 2010 there were 16 Semi Refrigerated ships scrapped. The normal age for scrapping of such vessels has been in the period between 27 and 30 years of age. However at about 25 years of age it is quite normal for such ships to cease carrying ethylene and concentrate on other less demanding products to trade Small scale LNG The heart of the operation is the sea-borne transportation of small-scale LNG - is provided by our unique and innovative Multigas carriers. In addition to LNG, the vessels are able to carry a wide range of other liquefied gas cargoes, including ethylene, LPG and vinyl chloride monomer (VCM). When LNG is being carried, an innovative Mini LNG plant will be utilized to reliquefy all natural gas boil-off. 3:09:30 PM]

120 Analyst Info SMC is currently building 6 Multigas carriers for Norgas, one of them was finalized in January 2010, and 4 more vessels await for final confirmation to be built. These ships are designed with full flexibility and capacity to link the hubs where pipelines are not able to reach. The Mini LNG plants patented and licensed technology was developed by I.M. Skaugen in cooperation with SINTEF Energy Research in Norway. The flexibility inherent in the cargo handling system enables the Mutligas carriers to switch between the LNG, LPG and petrochemical gas trades as commercial circumstance dictate. However, it is the ability to transport LNG at cryogenic temperatures (-163 C) that makes these ships particularly notable. The demand from Asia especially China is also showing strength within the areas of energy. With an increasing crude oil price and decoupling with natural gas price, it will speed up the shift within power generation, heating and transportation from traditional diesel or heavy fuel to natural gas in form of LNG. The environmental and economic benefit is significant and it will facilitate to ease the energy shortage many emerging countries are facing as the bottle-neck of the overall economic growth. Our small-scale LNG concept is an efficient solution for making natural gas available to the stranded customers that are not connected to the pipeline networks. Additional effects with our concept compared to large scale projects are less CAPEX, fast track solution, and a unique scalability and flexibility. We see potentials within many of our core geographic focus areas such as South-East Asia, alongside the Yangtze River in China, South East Asia, the Indian sub-continent and the GCC region in the Middle East Chemicals Our specially designed "WG" type vessels are planned for a growing intra-asian trade, with an innovative ship design combining both petrochemical and chemical capacity. The concept is unique and thus new, and we experience that implementation in current markets has been a slower process than previously anticipated as both of these freight markets (gas and chemicals) in this specific region have suffered from over capacity and/or lack of products to be shipped. The overall improvement of the markets in the second half of the year affected our WG vessels carrying gases in north Asia positively, but the chemical markets are yet to see the same development. Waiting time for these vessels was reduced as they were fixed on more consecutive voyages and reduce the idle time. Our third ship of this type is expected to be delivered in 1Q11, and we are now allocating additional commercial resources on implementation of this project. We view the WG ships as promising based on growing increased inter Asian trade (short haul) stemming from strong economic growth in the region and we are counting on improved profitability in this field in Picture: One of our WGs 2.3 China activities Our other activities in China continued on a trend of acceptable progress throughout the year SMC - Shipbuilding In the Skaugen China Activities we took successful delivery of three gas carriers in 2010, all made by Skaugen Marine Construction (SMC) in Shanghai on an "EPCS" conceptual basis. In 2011 SMC will deliver four combined LPG, Ethylene and LNG carriers, and one combined Ethylene / LPG / Chemical carrier. We were not able to resolve the export license and VAT refund issues related to the delivery of "Norgas Camilla" 2010, but do expect this to be sorted out within first quarter of 2011 and this will enable SMC to deliver this ship in This is a serious delay caused by the trading company involved and this event has absorbed about USD 35 mill in additional working capital without proper returns and for many months in A delivery will improve our profitability in Shenghui Gas & Chemical Systems Our other activities in China continued on a trend of acceptable progress throughout the year. In the 4Q10 Shenghui (50%) retrieved some of the grounds lost re the expected growth in revenues in the third quarter. The company recorded 28% growth in revenue from last year. We will also focus on visualizing and/or realizing values created in Shenghui through an IPO process. 3:09:30 PM]

121 Analyst Info TNGC River Rransportation We are satisfied with the improved performance of TNGC (49%) in 2010 due to increasing demand of petrochemical gases in China. Our revenue increased 92% compared to the previous year with more profitable margins on petrochemical gases and 31% of the total revenue was from LPG. This is a complete change from prior periods with a significant improved business driven by strong petrochemical gas. We have gained a new partner at TNGC and we expect to experience further growth in seaborne transportation of not only LPG, but more so petrochemical gases and LNG in the Chinese domestic market. 2.4 Marine transfer activities The SPT (50%) ship to ship transfer activities suffered from very weak crude tanker markets over the whole of 2010 and more so in the 4Q2010, and with the second half of the year being more difficult than the first. In the last quarter of the year we were not able to offset the losses in the tanker segment with revenues from our promising global support service. However, we are growing our revenues from emerging markets inclusive of "East of Suez" where we experienced increased demand for these types of services. For the SPT tanker business we will continue to focus and growth in the global support segment in order to reduce our exposure to the very volatile tanker markets, a market that continues to look challenging ahead, as the massive delivery of crude oil newbuildings still seems to be the case in It seems not very likely at this point that the output gap will be closed for crude tankers in Risks The IMS Group is, at all times, exposed to a number of different uncertainties arising from our normal business activities. These are financial, operational and market related risks. To successfully manage these risks collectively is one of the key skills that we require for the management of the company. The answer is not to seek hedging to mitigate all risks, but to actively pursue a sum of activities that enables us to navigate through the opportunities and challenges that will dictate the returns we may generate in the shorter term.. The "asset utilization" or keeping our ships gainfully employed with the most efficient scheduling is the key driver to profitability for the company. We have achieved historical high contract coverage for the petrochemical gas carriers of Norgas for the year of 2011 and the balance of the days are subject to spot market returns. The contract coverage also has the flexibility between agreed high and low volumes and the difference will affect the levels of utilization. These fluctuations will dictate how we utilize the capacity. We have, for most of our other business units, achieved lower contract coverage ratios for the assets than within the Norgas Gas carriers. This is where we subject to various degrees of market related risks that will influence the returns we can generate form the services we offer. The change in price levels of the commodities we transport may affect the volumes offered for transport thus the demand for our services. The most relevant of the commodities we transport are crude oil and petrochemical gases as well as LNG. The four key petrochemical gases - especially ethylene, propylene, VCM and butadiene as well as LPG and the naphtha prices, they all need to be monitored. On an operational level we are subject to changing costs for the services we require related to the operation of the vessels and for the shipbuilding activities, including the sourcing of raw materials and labor as well as procurement of components. Again, a significant part is related to the oil and bunker prices, of which the fluctuations in prices will affect our operating costs. For some contracts we have achieved a contractual coverage against such changes. Fluctuations in steel and metal prices also affect the newbuilding programs. 3:09:30 PM]

122 Analyst Info We carry insurances that will protect us from losses or damage to our ships or for other ships if we damage them, as well as damages to the environment and accidents causing harm to human beings. We carry insurances to cover for the potential losses related to the pirate activities in the Gulf of Aden and similar places. In all cases, we carry a higher deductible than many others to ensure lower costs due to the well-functioning management of the company. This has paid off historically. From a financial market risk point of view, the main risk areas are the USD interest rates related to our mortgage debt and bond portfolio, the currency risks associated with USD/RMB, USD/Euro as well as USD/NOK fluctuations mostly related to our newbuilding program and, to some extent operational cost. Most of our revenues are in USD or in currencies effectively tied to the USD. In addition, we are closely monitoring covenants in our debt portfolio and our cash management activities at all levels, as a normal part of our business. Risk management includes maintaining both sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The group is also exposed to counter party risks regarding financial matters. However, it trades only with recognized and creditworthy third parties. We have had very few disputes with our clients regarding payment and performance that have caused a loss to the company. In connection with the Group's shipbuilding projects the Group has entered into sales and leaseback agreements to sell three of the newbuilding vessels to Teekay LNG Partner L.P, upon delivery in We have also entered an agreement with a banking syndicate to fund four of the newbuildings of the "MG series". Both types of agreements depend on certain conditions being met, which are customary of the trade. These also rely on the counterparties being willing and able to fund their obligations. We are quite confident that we have chosen the correct counterparties for these transactions. The key risks we focus on today are the possibility of delays of these newbuildings beyond the "cancellation date" of the leases, the availability of bank financing, as well as the possible reduction in value of those ships subject to bank finance. Such reduction is expected and may require the Group to pledge additional capital in the future for those ships. 3:09:30 PM]

123 Shareholder Info SHAREHOLDER INFO rmation Investor relations policy I.M. Skaugen SE aims to keep shareholders, analysts and investors updated to the Company s operations in a timely fashion, both by releasing information regularly and holding presentations. The financial calendar showing publication dates for the company s quarterly interim reporting is available on our website. I.M. Skaugen has for several years focused on achieving and maintaining a transparent and accountable financial reporting system. Accurate and thorough information is vital for securing reasonable pricing for the company, based on underlying values and earnings. It is our policy to report promptly, within 10 working days of the end of each quarter. Open investor presentations are arranged on a regular basis. The CEO reviews the results and comments on the performance as well as the outlook. The Group s Chief Financial Officer also participates at these presentations, as do other members of the corporate management from time to time. These presentations are available at the Group s website. Beyond this, the Group maintains a regular dialogue with and conducts presentations to analysts and investors. Shareholder Policy The company s shareholder policy aims to create shareholder value through our emphasis on Cost and Service Leadership, constantly improving customer service and focusing on operational efficiency, thereby growing the business profitability. I.M. Skaugen s goal of creating value for its shareholders means a continuous focus on ensuring that the company s balance sheet and its financing - inclusive of its equity - is adapted to the company s objectives, strategy and risk profile. The Board of Directors has adopted a financial policy that amongst others have targeted an equity ratio (book equity in percent of total assets) of no less than 30 percent. The company favors a dividend policy based on financial performance, but the increase in share price should, over time, account for the largest part of the return on shareholder investment. When appropriate, and particularly when the share price is considered low, the company aims to buy back its own shares from the market. In correspondence with the Norwegian code of practice for corporate governance shareholders have the opportunity at each annual general meeting to approve any mandate to the Board of Directors to issue shares or purchase own shares. Board of Directors of I.M. Skaugen SE Please refer to our web site for information on the members of the Board, including details related to the date of election, term of office, relevant expertise, other appointments and/or employment, as well as details of any business or personal connection to the company. Mandates granted to the Board of Directors The Parent Company's share capital as of 31 December 2010 comprised 27, ordinary shares with a par value of NOK15. - totaling NOK406, 469,850. In treasury shares was redeemed. The Board of Directors received renewed authorization from the Annual General Meeting on 18th March 2010 to acquire treasury shares. The Company's holding of treasury shares was as at ,464 shares. At the Annual General Meeting on 18 March 2010, the Board of Directors received authorization to increase the share capital by NOK 203,234,925. At the Annual General Meeting on 18 March 2010, the Board of Directors received authorization to issue convertible bonds up to NOK 400,000,000. It is emphasized that authorization given to the Board of Directors by the Annual General Meeting, implies that to the extent the share capital is increased in accordance with the authority given, the board shall limit its right to convert loan to share capital by issuing convertible bonds in the corresponding amount. Thus it will be in the board s discretion to decide if the board shall decide to increase the share capital or offer rights to convert bonds to shares through convertible bonds within the total limit of NOK :09:36 PM]

124 Shareholder Info The Board of Directors believes that the acquisitions of the Company's treasury shares and convertible bonds will improve the shareholders' return and assure the Company greater financial flexibility in a situation where the Company's equity and liquidity situation satisfactory. All authorization is registered in the Register of Business Enterprises. The IMSK share performance In 2010 the IMSK share price decreased 8.7 percent from NOK 40.4 to NOK 36.9 per share at the end of the year. Compared to its peers, the stock has performed at average in 2010 as a whole. Vs. the OSEBX index and the transport index the stock price lagged the general market recovery and the IMSK share made its bottom at a later stage as shown in the chart below. Measured from the lowest point in the mid of August to year end the yield was percent. The average share price during the year was NOK 34.1 and it reached a low of NOK 29 and a high of NOK The Board of directors suggests not paying any dividends for :09:36 PM]

125 Shareholder Info 3:09:36 PM]

126 THE FLEET Norgas I.M. Skaugen s fleet from our gas carriers to our Aframax tankers is one of the newest and most advanced in the industry. The result is reduced vessel downtime, improved productivity and simpler vessel management vital ingredients in meeting the needs of our customers and future opportunities. Our newbuildings feature semi-pressurized/fully refrigerated gas carriers which are being managed through SMC in China. In addition to LNG, the vessels are able to carry a range of other liquefied gas cargoes. 11_02_11_IMS_Fleet_LIST_web.pdf Kb SPT 3:09:39 PM]

127 I.M. Skaugen SE Innovative Maritime Solutions FLEET LIST

128 I.M. Skaugen SE - Cutting edge technology - With an eye to the future Norgas Vessel CBM Tanks Temp. IMO Bar Built/Rebuilt Acquired Norgas Unikum 2) Q 2011 Norgas Vision 2) Q 2011 Norgas 2) Norgas Creation 2) Norgas Invention 2) Norgas Conception 2) Q 2011 Norgas Shasta Norgas Napa Norgas Sonoma Norgas Petaluma Norgas Alameda Norgas Orinda Norgas Carine Norgas Patricia Norgas Chief Norgas Trader Norgas Challenger Norgas Energy Norgas Pan 1) 5 800/ / / Norgas Cathinka 1) 5 800/ / / Norgas Camila 1) 5 800/ / / To be conf. 3) Type CBM DWT Tanks IMO LOA Temp. TBN Multigas 2) TBN Multigas 2) TBN Multigas 2) TBN Multigas 2) ) 9,600cbm of organic chemical capacity or 5,800cbm gas capacity. 2) Advanced LNG/LPG/Eth gas carriers. 3) To be confirmed.

129 I.M. Skaugen SE - Cutting edge technology - With an eye to the future Fleet list Fleet list is updated by the beginning of I.M. Skaugen s fleet from our gas carriers to our Aframax tankers is one of the newest and most advanced in the industry. The result is reduced vessel downtime, improved productivity and simpler vessel management vital ingredients in meeting the needs of our customers and future opportunities. Our newbuildings feature semi-pressurized/fully refrigerated gas carriers which are being managed through SMC in China. In addition to LNG, the vessels are able to carry a range of other liquefied gas cargoes. TNGC Vessel/Barge CBM DWT LOA Beam Draft Built Acquired Tian En Tian En Tian En Tian En Tian En Tugs Power LOA Beam Draft Built Acquired Tian En Tug-1 2x600kw Tian En Tug-2 2x600kw SPT Vessel DWT(MT) LOA(M) Beam(M) Hull Year Built SPT Challenger Double 2007 SPT Champion Double 2007 SPT Conqueror Double 2007 SPT Crusader Double 2007 SPT Explorer Double 2008 SPT Navigator Double 2008 Support Vessels 1) Engines LOA (ft) BHP Bow Thruster Built/Rebuilt SPT Defender 2) 2xCAT Yes 1976/1992 SPT Protector 2) 2xCAT Yes 1977/1991 SPT Pearl 2xDetroit 16V Yes 1982 SPT Guardian 2xCAT Yes 1981/1991 SPT Vigilance 2xCAT Yes 1982/2007 SPT Victory 2xCAT Yes 1981/2007 Barge Tons LOA (ft) Built/Rebuilt SPT1 135, /2008 1) Lightering support vessels. 2) Equipped with fire fighting cannons with 10,000 GPM output and dispersant capacities.

130 Board Members BOARD MEMBERS Erik Eik Bertel O. Steen Liselott Kilaas Jon-Aksel Torgersen Karen H. Ulltveit-Moe Morits Skaugen Deputy member to the board Monica Skaugen Deputy member to the board Erik Eik - Chaiman of the board General Manager and Owner E-Invest AS Mr. Eik has served as a member of the BoD since 1994 and as Chairman from March An economist, graduated from the College of Business Administration and Economics in Bergen, Mr. Eik is general manager and owner of E-Invest AS. He was managing director of Felleskj Rogaland Agder from 1989 to 1995; managing director of Svacom a/s from 1985 to 1987, director of Statoil's economic/finance and administration staff from 1982 to Mr. Eik holds positions on various boards, and he is presently chairman of the boards of Det Stavangerske Dampskipsselskap A/S, Folke Hermansen AS, Herfo Finans AS and O.C. Østraadt AS. Mr. Eik is also among I.M. Skaugen's 20 largest shareholders. His current term on the I.M. Skaugen board expires in Bertel O. Steen jr. - Vice Chairman Deputy ChairmanMr. Steen was elected board member in He is a qualified lawyer admitted to the Supreme Court and also holds a MSc in Business Administration. He is presently manager of various family owned investment companies and is serving as chairman and board member of several companies within shipping, property, industry, finance and trade. 3:09:44 PM]

131 Board Members Mr. Steen has previously worked in the Ministry of Trade and Industrys shipping department, been an assistant judge in the county of Orkdal, and an in-house lawyer in Stolt-Nielsen Shipping Company. In 1982 Mr. Steen established his own law firm, which he ran until he joined Torkildsen, Tennøe & Co. as a partner. His current term on the I.M. Skaugen board expires in Liselott Kilaas CEO Aleris AB Ms. Kilaas holds a MSc from the University of Oslo and a MBA from the International Institute for Management Development (IMD) in Lausanne. She has previously held leading positions in the oil and gas industry, PA Consulting Group and Stento ASA. Ms. Kilaas serves as Board Member of Telenor ASA, Adresseavisen and the Executive Board of Norges Bank. Her current term on the I.M. Skaugen board expires in 2012 Jon-Aksel Torgersen Chief Executive Officer of Astrup Fearnley AS Chief Executive Officer of Astrup Fearnley AS Mr. Torgersen was elected to the board in He holds a MBA, specialising in finance, from Hochschule St. Gallen, Switzerland. Currently he is the CEO of Astrup Fearnley AS, which is the parent company of a number of investment and broker companies in Norway and abroad. Mr. Torgersen has extensive experience as board member and board chairman of a number of companies within the property, shipping, finance, industry and offshore sectors, and is at present chairman of the board of Atlantic Container Line AB and member of the board of Finnlines Plc. His current term on the I.M. Skaugen board expires in Karen Helene Ulltveit-Moe Professor in International Economics, University of Oslo Professor in International Economics, University of Oslo Ms. Ulltveit-Moe was elected to the board in She holds a PhD in economic from Norwegian School of Economics and Business Administration (NHH), Bergen, Norway. Presently she is Professor in International Economics, Department of Economics at the University of Oslo. Ms. Ulltveit-Moe holds positions on various boards and committees. She is member of the board of Kverneland ASA, and member of the corporate assembly of Norsk Hydro ASA and Storebrand ASA. She has served as member of different public commissions appointed by the Norwegian government to consider tax policy reforms and industrial measures. Her current term on the I.M. Skaugen board expires in :09:44 PM]

132 Board Members Deputy member to the board Morits Skaugen CEO of I.M. Skaugen SE Joined the I.M. Skaugen SE board in late 1990 and became CEO in 1992, when the company initiated a complete turnaround process and restructuring. Has since then been in charge of refocusing the Group and its activities with its global reach, its customer service programs, quality focus, cost reductions as well as its drive to develop its current innovation processes. Now the company has made the growth markets East of Suez as its main trust and developing cooperation and alliances in China, South East Asia as well as the GCC region. Holds a degree in Business Administration from Seattle University, Washington in USA, and has top managerial and board experience in finance, industrial, shipping and marine-related service activities, nationally and internationally. Current external directorships in CSAM Health AS, Creo Advisors AS and Chairman of Oslo Maritime Network as well as the Managing director and board member of Eikland AS; the main shareholder of I.M. Skaugen SE. His current term on the I.M. Skaugen board expires in Deputy member to the board MonicaSkaugen Joined the I.M. Skaugen SE board in :09:44 PM]

133 KEY PEOPLE Executive management team Morits Skaugen Chief Executive Officer I.M. Skaugen SE Bente Flø Chief Financial Officer I.M. Skaugen SE Terje Ørehagen President/COO Norgas Carriers Norgas Trygve Dyrlie VP Marketing Asia/LNG&chem. Alex Jalali VP Marketing MENA/Europe/Am J. Majumdar VP Marketing Asia Fredrik Hedberg CFO/Business Control & Improvements Ragnar Rud VP SHEE&Q Director Naveen Kumar VP Fleet Manager Håkan Werner VP Business Development/LNG Su Wei Su Business Development/LNG James Tan Business Development/chem. Skaugen China Richard Wang President - SCHC richard.wang@skaugen.cn Sean Chen General Manager - SMC sean.chen@skaugen.cn Fei Ming Director - SCHC fei.ming@skaugen.cn Jennifer Chen General Manager/Site Head- NFM jennifer.chen@skaugen.cn Christian Reksten-Monsen Director - SCHC crm@skaugen.cn Yao Song Business Development/LNG yao.song@skaugen.cn Lucy Xiang SHE&Q Director lucy.xiang@skaugen.cn Judy Fan HR&Admin Director judy.fan@skaugen.cn SPT Simon Duncan President simon.duncan@sptmts.com Ian Laws Managing Director/SPT UK Ian.laws@sptmts.com 3:09:48 PM]