CONTENT 3 ANNUAL REPORT 8 NUMBERS 12 NOTES 24 AUDITORS REPORT

Transcription

1 ANNUAL REPORT 2013

2 CONTENT 3 ANNUAL REPORT 8 NUMBERS 12 NOTES 24 AUDITORS REPORT

3 OPERATIONS AND OWNERSHIP VNG Norge AS (VNG Norge) is a wholly owned subsidiary of the Leipzig-based Group, VNG Verbundnetz Gas Aktiengesellschaft (VNG AG). The company is responsible for the Group s oil and gas exploration and production activities. As a fully integrated E&P company on the way to becoming a development and production operator, our strategy contains several demanding elements. We will be represented in the most promising areas of the Norwegian and Danish continental shelves and participate in field development projects as both partner and operator, and we will continually develop our organisation so that we can accept more and bigger obligations, and be well prepared for our assignments and challenges. We will prove oil and gas resources, and mature these from discovery to production, through the evaluation of new seismic information, advanced and coherent data modelling, participation in licensing rounds and increased drilling activity. New and interesting opportunities in exploration licences, drilling prospects and partnerships will also be assessed. Farming in and out of licences forms part of our portfolio management. The VNG group is one of Germany s biggest importers of and dealers with natural gas, and its big storage facilities ensure stable deliveries to customers both at home and in the rest of Europe. Pursuing its own petroleum exploration and production activities is highly significant in strategic terms for the VNG group, which has integrated and concentrated its expertise in this area at VNG Norge. At the turn of the year, VNG Norge participated in a total of 32 licences, including 10 as operator. The company was awarded 6 licences in APA 2013, including 3 operatorships. In the first quarter of 2014, the company farmed in to the exploration licence PL550. VNG Norge now has a total of 33 licences, including 11 operatorships on the Norwegian continental shelf. Through its wholly owned subsidiary, VNG Danmark ApS, the company has an interest in two licences on the Danish continental shelf. VNG Norge holds a 4.44 per cent share in the Brage field, 2.5 per cent in the Njord field and 2.5 per cent in the Hyme field. VNG Norge also holds a 20.0 per cent share in the oil discovery in the Asha prospect, PL457, in the North Sea. This discovery will be unitised with the Ivar Aasen development where a PDO was approved by the government in VNG DANMARK VNG Danmark ApS (VNG Danmark) was established in 2010 as a wholly owned subsidiary of VNG Norge. This is a natural continuation of VNG Norge s focus on the North Sea. With its 3

4 proximity to the European gas market and its infrastructure, the Danish continental shelf is an attractive business area to VNG Norge. In March 2013, the first oil from the Hyme field was produced at the Njord Platform. The oil field Hyme has been developed as a subsea template tied back to Njord. In the Danish North Sea, VNG Danmark is involved in the Solsort discovery in licences 3/09 and 4/98. The Solsort-2 appraisal well to test the western flank of the structure was drilled in the autumn of Concept development studies are ongoing. VNG Danmark has started preparing for participation in the 7th licensing round on the Danish continental shelf. ACTIVITIES 2013 VNG Norge was awarded six licences in APA operatorship in PL270B, PL753 and PL757 and a share in PL741, PL742 and PL749. The awarded blocks are in the North Sea and in the Norwegian Sea. The board of directors is very satisfied with these awards and regards them as the authorities confirmation of VNG Norge as a competent company with the necessary capacity to continue to develop the licences. During 2013, VNG participated in 5 exploration wells as partner, one of which led to a discovery. The oil discovery was made in PL348 in the Snilehorn prospect which is considered to be developed as a tie-back to Njord. The estimated amount of the discovery is in the range of 55 to 100 million barrels of recoverable oil. VNG Norge holds a 2.5 per cent share in the licence. In September 2013 it was decided to temporarily shut down the Njord A platform due to concerns about the structural integrity. During the shutdown, repairs to the deck structure are being carried out. The operator expects this to be completed in Q2 2014, and the Njord facility will then be brought back on production. Meanwhile, the long-term future of the Njord field is being considered. DRILLING ACTIVITIES IN THE FIRST QUARTER OF 2014 VNG Norge is a member of a consortium which shares the use of drilling rig Transocean Arctic. The consortium consists of VNG Norge, Lundin Norway AS and Wintershall Norge AS. This is a well-based agreement, which consists of ten permanent wells plus an option of five further wells. VNG Norge is currently using the company s first rig slot in the consortium to drill the Pil prospects in PL586. Preliminary results based on extensive coring, wireline logs and pressure data show that the well has encountered oil and gas in reservoir sands with a very high net to gross ratio. Currently the well is being production tested with a following evaluation of sidetrack to the Bue prospect. VNG Norge holds a 30 per cent share in the licence. In the beginning of this year, VNG Norge acquired a 10 per cent share in PL550 where Tullow Oil AS is operator. Tullow Oil has received a consent from the Norwegian Petroleum Safety Authority to drill the exploration well 31/2-21 S in the Gotama prospect. The current estimate is that the well will be spudded in April. RESERVES AND RESOURCES Through its shares in Brage, Njord and Hyme, VNG Norge has remaining reserves of 0.62 million standard cubic metres oil equivalents, which is equivalent to 3.9 million barrels of oil. ORGANISATION Atle Sonesen took up the position as new Managing Director at VNG Norge on 2 May

5 As part of the VNG Group s strategy to strengthen focus on E&P, all its expertise in this area was concentrated with VNG Norge in The activities of the VNG Norge subsidiary VNG Danmark is run from Norway by an established separate project organisation within VNG Norge. The company s organisation model has been revised and adjusted. Governance and decision processes have been reviewed and we will have focus on continual improvement also into 2014 to ensure VNG Norge will able to efficiently meet its obligations and assignments. At the end of 2013, the organisation counted 70 employees, including Managing Director and 2 IT apprentices equally the number of man-years. 38 % of the employees were women. The management team counts one woman of a total of eight executives. One of the executives is temporarily on assignment from VNG AG. The turnover in 2013 was 8.7 %. On an average, hired-in consultants amounted to 21 manyears throughout VNG Norge is characterised by diversity in gender, age, education and experience and no one is discriminated against on the basis of ethnicity, origin, or religion. This is reflected in the company s recruitment, wages and working conditions, promotions, development opportunities and protection against harassment. In VNG Norge, the retirement age is 70. All employees have received a thorough training in the VNG Norge management system. HEALTH, SAFETY AND ENVIRONMENT It is the company s target that all activities be carried out with no personal injury or damage to the environment. Safeguarding people, the environment and material assets is an integral part of the company s activities. VNG Norge is a partner in the producing fields Brage, Njord and Hyme, where good overall HSE results have been achieved in 2013, despite periods with very high offshore activity level. VNG Norge had no own-operated drilling activities in 2013, but the company has followed its obligations as a partner during the period. VNG Norge is the operator for the drilling operations on licence PL586 in Activities leading up to this have been carried out in 2013, including obtaining the consent to drill and the discharge permit. Also, the company has established and trained the emergency preparedness organisation to prepare for the upcoming drilling operations. VNG Norge did not receive any orders or notification of orders from the Norwegian authorities in In 2013, absence due to illness was 3.0 per cent FINANCIAL STATEMENTS The company s financial statements have been presented in accordance with Norwegian accounting legislation and generally accepted accounting standards (NGAAP). The board of directors and the Managing Director confirm that the going concern assumption is realistic and this assumption has been used when presenting the financial statements. In the view of the board of directors, the annual report gives a true picture of the development in the company, its activities and financial position. INCOME STATEMENT In 2013, the company s profit after tax shows a loss of MNOK Compared to 2012, the loss was increased by MNOK from MNOK 99.5.The loss is mainly related to high exploration drilling activities, of which dry holes 5

6 are expensed, capitalized exploration costs from previous years that is expensed and reduced operating revenues. VNG Norge s operating revenue was reduced by MNOK 54.2 from MNOK in 2012 to MNOK in 2013, mainly because of reduced production on Brage but also due to long-term shutdown on Njord. The reduced production on Brage and Njord was partly offset by the start-up of production from Hyme in March In total, the company sold barrels of oil equivalents in 2013 compared to barrels of oil equivalents in In 2013, the average sales price achieved for crude oil was USD 108 per barrel, compared to USD 113 per barrel in This, seen together with a reduction in production, reduced oil sales by MNOK 12.4 from MNOK to MNOK Revenues related to gas sales were reduced by MNOK 5.9 from MNOK 38.9 in 2012 to MNOK 33.0 in Revenues related to NGL sales were reduced by MNOK 27.8 from MNOK 39.5 in 2012 to MNOK 11.8 in Both of these reductions are mainly related to the Njord shut-down, hence lower produced and sold volumes. Exploration costs have increased by MNOK from MNOK in 2012 to MNOK in The increase is mainly related to significant increased exploration activity. In 2013 five exploration wells were drilled of which 4 were dry-holed, compared to one well in 2012 that was capitalised as a discovery. Expensed exploration costs previously capitalized is increased by MNOK from MNOK to MNOK The expense is in all material respect related to PL 270. VNG Norge does no longer consider the discovery from 2009 commercial. BALANCE SHEET The company s balance sheet shows assets of MNOK in 2013, compared to MNOK in The main reason for the increase from 2012 are increased current assets due to a high expected exploration tax refund and capital contributions to VNG Danmark. This increase is offset by reduced intangible assets due to the impairment of PL 270. The company has a good equity situation with equity of MNOK which represents an equity ratio of 32 per cent. Investments during the year have been funded through an increase in non-current liabilities to the parent company and an equity increase by MNOK 500. The equity increase is done by converting MNOK 500 of the intercompany loan into equity. At year-end, VNG Norge had no distributable equity. Cash flow In 2013, cash flow from operations was MNOK The net negative cash flow from operations is mainly related to high exploration activity. The company s investments by MNOK are mainly related to investments in VNG Danmark and investments in producing assets. The company has MNOK 57.2 in cash and cash equivalents on the balance sheet date and the possibility to draw on MNOK in the existing credit facility. Liquidity is considered to be satisfactory. FINANCIAL RISK The company s financial position and results are largely affected by business risks, and mainly by the prices achieved for crude oil and natural gas, exchange rates in USD and the possibility to optimise the licence portfolio through purchase and sale of ownership interests. The trends in price and exchange rate are determined by the trend in the international economy and in the oil industry. The company continuously monitors the development in these parameters in the short and long term. In 2013, 6

7 the company used no financial instruments to secure achievement of results and financial position. new discoveries and to continue developing the operations in Norway and Denmark. The company considers its customers credit worthiness to be very good. The risk that the company s customers will not have the financial strength to meet their obligations is considered to be low. In 2014, VNG Norge will participate in at least two exploration wells. The well in PL 586 is operated by VNG Norge. The Company will also participate as a partner in PL550 with Tullow Oil Norge AS as operator. The company s activities in 2013 were financed through long-term loans from the parent company, VNG AG and increased equity. The loans have a floating interest rate and therefore the company is exposed to market changes in the interest rate. OUTLOOK The board of directors is satisfied with the activity throughout the year. VNG Norge is well positioned to make In addition to these activities, the company is working on maturing new prospects both as an operator and as a partner, and on participating in licensing rounds. The parent company s financial strength and long-term investments in Norway and Denmark provide good opportunities for further growth. Stavanger, 29 April 2014 Hans-Joachim Polk Chairman of the Board Atle Sonesen Managing Director Joachim Piske Board Member Bodo Rodestock Vice Chairman of the Board Michael Diekmann Board Member Jarle Erik Sandvik Board Member Kjell-Ole Heggeland Board Member Tone Jacobsen Board Member 7

8 PROFIT AND LOSS STATEMENTS 1 JANUARY - 31 DECEMBER IN NOK THOUSANDS NOTE Sales revenues Other operating revenues 2, Operating revenues Exploration costs 3, Exploration costs capitalised in previous years Production costs Salary and other personnel costs Decommissioning and removal Depreciation Other operating expenses Operating costs Operating loss Interest income Other financial income Interest expenses to group companies 13, Net foreign exchange gain/(loss) Interest expenses Other financial expenses Net financial items Loss before taxes Income taxes Loss of the year Allocation of net income for the year: Transferred to/(from) Retained Earnings

9 BALANCE SHEETS 31 DECEMBER IN NOK THOUSANDS NOTE ASSETS Intangible assets Capitalised exploration costs Deferred tax assets Total intangible assets Non-current assets Tangible assets Pension assets Shares in subsidiaries Total non-current assets Current assets Accounts receivable Other receivables Cash and cash equivalents Total current assets Total assets

10 BALANCE SHEETS 31 DECEMBER IN NOK THOUSANDS NOTE EQUITY AND LIABILITIES Equity Share capital Share premium reserve Paid-in equity Retained earnings Total equity NON-CURRENT LIABILITIES Decommissioning and abandonment provisions Deferred taxes Long-term intercompany loan Total non-current liabilities CURRENT LIABILITIES Accounts payable Withholding taxes and social security payables Other current liabilities Total current liabilities Total equity and liabilities Stavanger, 29 April 2014 Hans-Joachim Polk Chairman of the Board Atle Sonesen Managing Director Joachim Piske Board Member Bodo Rodestock Vice Chairman of the Board Michael Diekmann Board Member Jarle Erik Sandvik Board Member Kjell-Ole Heggeland Board Member Tone Jacobsen Board Member 1010

11 CASH FLOWS STATEMENTS 1 JANUARY - 31 DECEMBER IN NOK THOUSANDS NOTE Net cash flows from operating activities Loss before income tax Depreciations Impairment of intangible assets Tax refund Expensed exploration costs previously capitalised Changes in current assets Changes in current liabilities Changes in other current balance sheet items Net cash flows from operating activities Net cash flows used in investing activities Investments in tangible assets Tax on purchase of asset Investments in intangible assets Investments in subsidaries Net cash flows used in investing activities Net cash flows from financing activities Increase /(reduction) in long-term intercompany loan Net cash flows from financing activities Net increase in cash and cash equivalents Cash and cash equivalents as of Cash and cash equivalents as of

12 NOTES ACCOUNTING PRINCIPLES The financial statements have been prepared in accordance with the Norwegian Accounting Act and Norwegian generally accepted accounting principles (NGAAP). REVENUE RECOGNITION Revenues related to petroleum products are recorded when the title passes to the customer according to the contractual terms. Classification and valuation of balance sheet items Tangible assets are assets meant for permanent ownership or use. Other assets are classified as current assets. Receivables to be repaid within one year are classified as current assets. Long- and short-term liabilities are classified according to the same principles. Tangible assets are valued at cost, but are impaired to the recoverable amount on a decline in value if it is expected that the decline is not temporary. Tangible assets with a limited useful life are depreciated over the estimated economic life of the asset. Long-term liabilities are included in the balance sheets at the nominal amount when established. Current assets are valued at the lower of purchase value and market value. Short-term liabilities are included in the balance sheets at the nominal amount when established. USE OF ESTIMATES Preparing the accounts in accordance with accounting principles makes it necessary for the management to adopt estimates and evaluate conditions which affect the value of the assets and liabilities in the balance sheets, and for revenues and expenses for the fiscal year. The final, realised values may differ from these estimates. Jointly controlled assets Interests in jointly controlled assets are recognised by including the company s share of assets, liabilities, revenues and expenses on a line-by-line basis. FOREIGN CURRENCY The company s functional and reporting currency is NOK. Cash equivalents denominated in foreign currency are valued at the exchange rate at the year-end. Foreign currency transactions are recorded applying the exchange rate at the date of the transaction. INTANGIBLE ASSETS; CAPITALIZED EXPLORATION COSTS Costs related to geological and geophysical activities as well as other exploration costs are expensed on a current basis. Expenditures to acquire mineral interests in oil and gas properties and expenditures to drill and equip exploration wells are capitalised as exploration and evaluation expenditures within intangible assets until it has been clarified whether the exploration well has found proven reserves or not. If, following evaluation, the exploration well has not found proven reserves, the previously capitalised costs are expensed. Capitalized exploration costs are not depreciated. The assets are reclassified and depreciated as part of tangible assets when the decision to develop a particular area is made. TANGIBLE ASSETS; OIL AND GAS FIELDS Costs related to development of production facilities and the acquisition cost of production licences with proven reserves are capitalised and depreciated using the unit of production method. According to this method, annual depreciation is calculated as the ratio between the year s petroleum sale and the total economic remaining proven and probable reserves. OTHER TANGIBLE ASSETS Other tangible assets are capitalised and depreciated over the expected life of the assets. Depreciation is calculated based on the initial cost of the assets and by using the straight-line method. Maintenance of tangible assets is expensed as incurred and included in other operating expenses, whilst additions and improvements are capitalised and depreciated. IMPAIRMENT Intangible assets and tangible assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be 12

13 NOTES recoverable. If the assessment determines that the assets are impaired, the carrying amounts of those assets are written down to the recoverable amount, which is the higher of fair value less cost to sell and value in use. DECOMMISSIONING AND REMOVAL OBLIGATIONS Provisions for decommissioning and removal are built up gradually in step with the economic life of the equipment so that the provisions are sufficient to cover the costs at the time of removal. Provisions for decommissioning and removal are calculated according to the unit of production method and are treated as ordinary operating expenses in the profit and loss account. OVER-/UNDERLIFT OF PETROLEUM PRODUCTS In producing fields, obligations and receivables will arise between the licence owners if the owners shares of the production differ from the quantities sold or lifted by the companies. Obligations arising as a result of lifted quantities of crude oil and NGL being larger than the company s share in the licence are valued at the production cost and receivables arising as a result of lifted quantities of crude oil and NGL which are less than the company s share in a licence, are valued at the lower of the production cost and sales price. SUBSIDIARIES The company s subsidiary is valued at cost. The investment is valued at acquisition cost for the shares, unless a writedown has been necessary. Write-down to fair value is performed when the impairment is due to circumstances that cannot be assumed to be temporary. Any impairment loss is reversed when the basis for the impairment no longer exists. INCOME TAXES Income taxes are expensed when incurred, i.e. tax costs are related to the annual result before tax. The tax cost in the profit and loss includes tax payable for the year and changes in deferred taxes. When calculating the tax expense, the applicable tax rates for standard taxation (28%) and special taxation (50%) have been used. Deferred tax (27% and 51%) has been calculated based on the temporary differences between accounting values and tax values. The reason for the use of deferred tax/deferred tax benefit is different principles for the establishment of the commercial and taxable result. Tax-increasing as well as tax-reducing timing differences which reverse or may be reversed during the same period have been balanced and included at net value. Net deferred tax benefit is included in the balance sheets to the extent it is likely that it may be utilised. The uplift reduces the base for special tax. Earned and deferred uplift from capitalised expenditures have been fully reflected in the tax calculation. Refund of tax related to exploration costs according to the Petroleum Tax Act 3c.5 is recorded as income under taxes in the profit and loss statement and included as other receivables in the balance sheet. PENSION LIABILITIES Defined benefit plans are valued at the present value of accrued future pension benefits on the balance sheet date. Pension plan assets are valued at their fair value. Changes in the pension obligations due to changes in pension plans are recognised over the estimated average remaining service period. The accumulated effect of changes in estimates and in financial and actuarial assumptions (actuarial gains or losses) less than 10% of the higher of defined benefit pension obligations and pension plan assets at the beginning of the year is not recognised. When the accumulated effect is above the 10% limit at the beginning of the financial period, the excess amount is recognized in the income statement over the estimated average remaining service period. The net pension cost for the period is classified as salaries and personnel costs. Social security cost on under-funded pension liability and periodic pensionable contribution, is accrued. Costs related to defined contribution plans are expensed as they occur. CASH FLOWS STATEMENT The cash flows statement is presented using the indirect method. Current assets include all bank deposits and cash at the end of the year, including the non-distributable taxwithholding account. 13

14 NOTES 2. OPERATING REVENUES IN NOK THOUSANDS PRODUCT / FIELD BRAGE NJORD HYME SUM BRAGE NJORD SUM Crude oil NGL Dry gas Sales revenues Other income Total operating revenues EXPLORATION COSTS IN NOK THOUSANDS Exploration costs from lisences Dry exploration wells Seismic, well data and field studies Total SALARIES AND OTHER PERSONNEL COSTS IN NOK THOUSANDS Wages and salaries Recharged salaries Social security costs Pension costs including social security costs (note 15) Other personnel costs Total All employees of VNG Norge have a bonus agreement under which they may receive payments depending on the achievement of company goals and employee goals. The bonus is paid in cash. The company employed 69.8 man-years in At the end of the year, the company employed 70 persons. Compensation to key management 2013: NAME SALARY PENSION OTHER BENEFITS Atle Sonesen Fees paid out in 2013 for the board of directors were NOK

15 NOTES 5. TANGIBLE ASSETS 2013 OIL- AND GAS PRODUCING OIL FIELDS UNDER TOOLS AND IN NOK THOUSANDS AND GAS FIELDS DEVELOPMENT EQUIPMENT TOTAL Cost as of Additions Disposals/reclass Cost as of Cumulative depreciation as of Depreciation for the year Cumulative depreciation as of Carrying amount as of OIL- AND GAS PRODUCING OIL FIELDS UNDER TOOLS AND IN NOK THOUSANDS AND GAS FIELDS DEVELOPMENT EQUIPMENT TOTAL Cost as of Additions Disposals/reclass Cost as of Cumulative depreciation as of Depreciation for the year Cumulative depreciation as of Carrying amount as of Investments in oil and gas fields are depreciated according to the unit of production method, whereas, on investments in tools and equipment, straight-line depreciation over 3-5 years is made. 15

16 NOTES 6. OTHER OPERATING EXPENSES IN NOK THOUSANDS Office costs and IT costs Rental cost/leasing Insurance Services Travelling costs Loss on sale of office equipment Other costs Recharged other costs Total The company has signed leases for offices in Oslo and Stavanger, respectively for 3 and 8 years, total lease commitment for offices is NOK 13.5 million. VNG Norge AS has, in partnership with two other companies, a lease on a drilling rig to be used for two drilling slots, one of which in the beginning of The cost of the company s auditor is included in other costs and can be specified as follows: AMOUNTS EXCLUSIVE OF VAT AND IN NOK THOUSANDS Statutory auditing fees Other consultants fee Total auditor s fee INTANGIBLE ASSETS IN NOK THOUSANDS CAPITALIZED EXPLORATION COSTS Book value as of Additions Expensed exploration costs previously capitalised Book value as of The expensed amount of NOK million is mainly related to previously capitalised exploration cost on PL 270. The capitalised costs are impaired since VNG Norge no longer considers the discovery commercial. 16

17 NOTES 8. TAXES The year s tax cost on ordinary profit is calculated as follows: % 28 % 50 % 28 % 28 % 50 % IN NOK THOUSANDS ONSHORE ONSHORE ONSHORE ONSHORE ONSHORE ONSHORE Income(loss) before tax Permanent differences Change in temporary differences Uplift Loss transferred from onshore to offshore Basis for exploration tax refund Basis for tax payable This year tax payable Tax effect Brage Harmonisation Correction earlier years Exploration tax refund Change in deferred tax Tax expense on income (loss) IN NOK THOUSANDS 27 % 51 % 28 % 50 % Temporary differences Intangible assets Tangible assets Decommissioning and abandonment Gain and loss account FX assets/debt Pensions, options, accruals Over-/underlift Tax loss to be carried forward Uplift to be carried forward and unused uplift Basis for deferred tax/deferred tax asset Deferred tax/(deferred tax asset) as of Deferred tax/(deferred tax asset) recognized as of

18 NOTES Reconciling effective tax cost: IN NOK THOUSANDS Profit before taxes Tax at nominal rate Recongnized tax expense Difference Reconciliation: Permanent differences, 78 % Uplift Adjustments from previous years Financial cost 28 % Interests on loss carried forward Total OTHER RECEIVABLES IN NOK THOUSANDS Over/-undercall lisences Prepaid costs Underlift VAT receivable Exploration tax refund Other receivables Total DEPOSITS The company s bank deposits at the year-end include NOK 9.2 million on the account for non-distributable withheld taxes. 18

19 NOTES 11. EQUITY SHARE SHARE RETAINED IN NOK THOUSANDS CAPITAL PREMIUM EARNINGS TOTAL Equity as of Profit for the year Equity as of Profit for the year Equity as of Increase in capital Profit for the year Equity as of On December 3rd, 2013 the share capital in the company was increased from NOK 4,088,650 to NOK 54,088,650, with the increase of 50,000,000 shares at a nominal value of NOK 1.00 each. NOK was paid per share, given a total capital increase of NOK 500,000,000. The capital increase was funded through convertion of intercompany loan to equity. The share capital in the company at the year-end is therefore divided into 54,088,650 shares with a nominal value of NOK 1.00 per share. All shares in the company are held by VNG - Verbundnetz Gas Aktiengesellschaft. The parent company has its headquarters in Leipzig, Germany. The parent company prepares consolidated accounts, which include VNG Norge AS and its subsidiary VNG Danmark ApS. Group accounts can be obtained from: VNG Verbundnetz Gas Aktiengellschaft Braunstrasse Leipzig, Germany 12. DECOMMISSIONING AND REMOVAL OBLIGATIONS The company makes provision for future decommissioning and removal obligations for producing fields according to the unit of production method. Discounted decommissioning and removal obligation is estimated to be NOK of which the following have been allocated: IN NOK THOUSANDS REMOVAL DECOMISSIONING TOTAL 2013 Provisions as of Expense Provisions as of Provisions as of Expense Provisions as of

20 NOTES 13. LONG-TERM INTEREST-BEARING INTERCOMPANY OBLIGATION The company has a group loan from VNG Verbundnetz Gas Aktiengesellschaft. The loan is structured as a credit facility with a limit of NOK 1,800 million or similar in foreign currency (USD, EUR and DKK). It runs until March The interest on the loan is 1 month NIBOR + 3 % margin if the facility is withdrawn in NOK. No security is pledged on the loan. 14. OTHER CURRENT LIABILITIES IN NOK THOUSANDS Salaries, holiday pay and related costs Working capital from licences Provisions Other short-term liabilities Total PENSION COSTS Most pensions in VNG Norge AS are covered through a collective pension scheme. Provisions for future pension commitments are made in accordance with calculations performed by an actuary. Employees covered under the scheme will receive 66% of their pay up to 12G at a retirement age of 67 years. The company also has a defined benefit plan and defined contribution plans for payments in excess of 12G. At the end of 2013, 70 employees were covered by the scheme. An actuarial method is employed whereby the pension commitment is determined as the present value of that part of the estimated future pension benefits that has been earned as of the balance sheet date, having regard to certain basic parameters and factors. IN NOK THOUSANDS Service costs Interest costs on obligation Return on plan assets Administration costs Amortisation of net actuarial losses (gain) Social security costs 0 0 Net pension costs defined benefit plans Cost of defined contribution plan, including social security Total pension costs

21 NOTES IN NOK THOUSANDS Defined benefit obligation as of Fair value of plan asset as of Unrecognised net actuarial loss Social security costs 0 0 Net pension assets The calculation of future pension commitments is based on the following economic assumptions: Expected return on plan assets 4,4 % 3,6% Discount rate 4,1 % 4,2% Rate of compensation increase 3,75 % 3,25% Expected increase in social security base amount (G) 3,5 % 3,0% Expected increase in pensions 0,6 % 0,0% 16. NET FOREIGN EXCHANGE GAINS AND LOSSES IN NOK THOUSANDS Foreign exchange gain/(-loss), realised items Foreign exchange gain/(-loss), unrealised items Total INVESTMENT IN SUBSIDIARIES On 17 May 2010 VNG Norge AS established VNG Danmark ApS, in Denmark. The subsidiary has its office address in Copenhagen, Denmark, but is operated by the company, which owns 100 % of VNG Danmark ApS. VNG Danmark ApS has a book value of NOK million in the company s balance sheet. VNG Danmark ApS financial result for 2013 is DKK million and book equity is DKK million. 21

22 NOTES 18. FINANCIAL RISK The company is exposed to changes in prices on crude oil and natural gas. No contracts to reduce future price risks were executed in Similarly, the company is exposed to changes in exchange rates, especially USD. No futures or similar contracts have been made to reduce the company s currency risk. The company considers the creditworthiness of its clients to be very good and therefore considers the risk of default low. 19. RESERVES, TERM OF LICENCE ETC. (NOT AUDITED) The company operates with total remaining proven and probable reserves in standard cubic metre oil Equivalents (Sm 3 oe) RESERVES MILL. SM 3 OE MILL. BOE Oil 0,312 1,965 Gass 0,217 1,363 NGL (Natural gas liquids) 0,093 0,585 Total 0,622 3,913 Reserve estimates are based on the company s own calculations of proven and probable reserves. The calculations are based on the definitions in Guidelines to classification of the petroleum resources on the Norwegian continental shelf (Norwegian Petroleum Directorate, 2001). The reserves can be assigned to the following fields: ESTIMATED REMAINING LICENSE PERIOD PRODUCTION PERIOD Brage yrs Njord yrs Hyme yrs The Njord A Platform is currently shut down due to concerns about the structural integrity. During the shut down, repairs to the deck structure are being carried out. The operator expects this to be completed in Q2 2014, and the Njord facility will then be brought back into production. Meanwhile, the long-term future of the Njord field is being considered. 22

23 NOTES 20. TRANSACTIONS WITH RELATED PARTIES RELATED PARTIES CONNECTION OWNERSHIP VNG - Verbundnetz Gas Aktiengesellschaft (VNG AG) Parent company 100 % VNG Danmark ApS (VNG Danmark) Subsidiary company 100 % IN NOK THOUSANDS Sale of services to VNG Danmark and VNG AG Recharge of costs to VNG Danmark and VNG AG Purchase of services from VNG AG Interest expense on long-term loan from VNG AG The balance sheet includes the following amounts as a result of transactions with related parties: IN NOK THOUSANDS Accounts receivable Accounts payable Total

24 AUDITOR S REPORT 24

25 Oslo Office Filipstad Brygge Oslo Stavanger Office Laberget Stavanger Postal address Postboks 720 Sentrum NO-4003 Stavanger Contact Tel: post@vng.no