FINANCIAL CALENDAR: Shareholder information Analytical information... 36

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1 A N N U A L R E P O R T

2 C o n t e n t s The Prosafe group Group structure The year in brief Financial highlights President s review Directors report Offshore Support Services Drilling Services Floating Production Health, safety, environment and quality.. 30 Focus: Intellectual capital Shareholder information Analytical information Consolidated accounts Parent company accounts Auditor s report Management Addresses FINANCIAL CALENDAR: First quarter May 2002 Second quarter August 2002 Third quarter October 2002 Fourth quarter February 2003

3 T h e P r o s a f e g r o u p Prosafe aims to be a leading and innovative supplier of products and services in selected niches of the global oil and gas industry. In line with this strategy, the company has consolidated the world market for accommodation/service rigs and now owns eight units operating in the North Sea and the Gulf of Mexico. Prosafe also commands a leading position in production drilling in the Norwegian sector of the North Sea, with a market share of around 50%, and is a major player in floating production in Asia and Africa. Prosafe ASA was formed in 1997 through the merger of the listed companies Safe Offshore ASA and Procon Offshore ASA, which were also founded that year. Safe Offshore was set up to take over the accommodation/service rigs Safe Britannia, Safe Caledonia and Safe Lancia and related business from Offshore Accommodation Group plc, while Procon Offshore was the result of the demerger of Transocean ASA's production drilling operation, which was originally started up back in 1972 when Moran Brothers first came from Texas to begin drilling on Ekofisk. In 1998 Prosafe acquired the listed company Discoverer ASA, which owned the accommodation/service rigs Safe Regency and Jasminia. The company has since gone on to purchase the accommodation/service rig Safe Scandinavia (formerly the Polycrown) from the Statfjord licensees in 1999, the MSV Regalia from Halliburton in 2000 and the accommodation/service rig Polyconcord from K/S Rasmussen Offshore A/S in February In March 2001 Prosafe acquired Singapore-based Nortrans Offshore Ltd (now Prosafe Production Pte Ltd), a company then listed on the Oslo Stock Exchange whose business is the conversion, chartering and operation of FPSO/FSO vessels. Prosafe now has three divisions: Offshore Support Services, Drilling Services and Floating Production. Offshore Support Services currently has five rigs in the Gulf of Mexico and three in the North Sea. Drilling Services has production drilling contracts on Gullfaks, Snorre, Heidrun, Jotun, Oseberg, Ringhorne (from 2002) and Kvitebjørn (from 2003). The division also operates the Rubicon, a modularised lightweight rig for drilling and well workovers, and provides drilling-related technical services. Floating Production owns and/or operates a fleet of six FPSO/FSO vessels off Angola, the Ivory Coast, Vietnam, India, Egypt and Indonesia, with a seventh vessel currently under conversion to FPSO duties and due to begin operation off Nigeria in the spring of PROSAFE ANNUAL REPORT 2001 THE PROSAFE GROUP 1

4 G r o u p s t r u c t u r e BERGEN STAVANGER ABERDEEN HOUSTON SUEZ GULF OF MEXICO INDIA VIETNAM IVORY COAST SINGAPORE OFFICE FPSO/FSO OPERATION ACCOMMODATION/SERVICE RIG DRILLING OPERATION ANGOLA JAVA PROSAFE ASA Stavanger OPERATING REVENUES % 37% 2 OFFSHORE SUPPORT SERVICES FLOATING PRODUCTION DRILLING SERVICES Aberdeen Singapore/Houston Bergen/Stavanger ACCOMMODATION/SERVICE RIG FPSO/FSOs PLATFORM DRILLING AND Gulf of Mexico Ivory Coast RELATED SERVICES North Sea Angola North Sea Vietnam Heidrun Egypt Snorre India Gullfaks Indonesia Oseberg Heidrun PROSAFE ANNUAL REPORT 2001 GROUP STRUCTURE 14% Offshore Support Services 918 Floating Production (pro forma) 341 Drilling Services EBITDA % 23% 65% Offshore Support Services 619 Floating Production (pro forma) 216 Drilling Services 118 EMPLOYEES 31/12/ % 8% 16% Offshore Support Services 122 Floating Production 251 Drilling Services 1 152

5 VISION PROSAFE SHALL BE A LEADING AND INNOVATIVE SUPPLIER OF PRODUCTS AND SERVICES IN SELECTED NICHES OF THE GLOBAL OIL AND GAS INDUSTRY. 3

6 T h e y e a r i n b r i e f Prosafe further focuses its business PGS extends the Regalia's charter on Banff in the UK sector until March 2001 by selling Procon Engineering AS to Hydralift ASA Prosafe acquires Singapore-based company Nortrans Offshore Ltd to become a major player in floating production in Asia and Africa Offshore Support Services wins a contract from Norsk Hydro to provide services on Fram in the Norwegian sector for two months in 2003 Norsk Hydro extends the Rubicon's charter on Snorre TLP in the Norwegian sector until 15 August 2002 Offshore Support Services is awarded a twoto three-month contract to supply accommodation services in the North Sea from mid-june 2001 Offshore Support Services wins a one-year charter for the Safe Lancia on Cantarell in the Gulf of Mexico running until August 2002 Prosafe makes a strategic breakthrough in subsea well intervention when Statoil charters the Regalia for the maintenance of four wells on Statfjord, Gullfaks, Åsgard and Norne in the Norwegian sector in 2003 January February March April May June July Statoil charters the Safe Britannia for use on Statfjord in the Norwegian sector for 90 days in the second quarter of 2001 Statoil extends the maintenance and modification contract on Heidrun in the Norwegian sector until the end of 2002 Petronas extends the Ruby Princess's charter on Ruby off Vietnam until 22 October PROSAFE ANNUAL REPORT 2001 THE YEAR IN BRIEF

7 Offshore Support Services is awarded a 300-day charter for the Safe Britannia on Cantarell running until August 2002 Offshore Support Services wins a three-month contract from Chevron to supply flotel services on Alba in the UK sector in the second quarter of 2002 Statoil awards Offshore Support Services a contract to supply flotel services on Sleipner for four months and Statfjord for three months in 2002 Floating Production's contract to operate the Al Zaafarana is extended until November 2005 Statoil extends the drilling contract on Gullfaks until April 2003 Offshore Support Services is awarded a charter for the Safe Caledonia on Cantarell running until May 2002 Agip awards Floating Production an eightyear deepwater FPSO contract on Abo off Nigeria starting in the spring of 2003 The Endeavor's charter is extended until August 2002 Prosafe further streamlines its business by selling off the remainder of the Other Business division August September October November December Jan 2002 Feb 2002 Vaalco charters the Petroleo Nautipa for use off Gabon for two years from the autumn of 2002 with options to extend by a further three years The Regalia is guaranteed employment until the autumn of 2003 thanks to new contracts from Statoil on Åsgard in 2001 and BP west of Shetland in 2002 The Espoir Ivoirien is named at the Keppel yard in Singapore Statoil extends the drilling contract on Heidrun until June 2003 The Espoir Ivoirien arrives on Espoir off the Ivory Coast Offshore Support Services wins a two- to three-week contract from Statoil to supply flotel services on Gullfaks starting in April 2003 Prosafe enters into an agreement with K/S Rasmussen Offshore A/S on the purchase of the semisubmersible accommodation/service rig Polyconcord FPSO Espoir Ivoirien commenees production on Espoir PROSAFE ANNUAL REPORT 2001 THE YEAR IN BRIEF 5

8 F i n a n c i a l h i g h l i g h t s Note Operating revenues (NOKm) EBITDA (NOKm) EBIT (NOKm) EBIT margin (%) Profit for the year (NOKm) Cash flow from operating activities (NOKm) Capital expenditure (NOKm) Total assets (NOKm) Working capital (NOKm) Cash and deposits (NOKm) Interest bearing debt (NOKm) Net interest bearing debt (NOKm) Book equity (NOKm) Equity ratio (%) 2 44,4 44,5 46,5 Net asset value (NOKm) Enterprise value (NOKm) Market capitalisation (NOKm) Return on capital employed (%) 5 12,1 22,1 10,2 Return on equity (%) 6 15,3 26,1 1,8 Number of outstanding shares (1 000 shares) Average number of outstanding shares (1 000 shares) Share price (NOK) 120,00 136,00 82,50 Book equity per share (NOK) 8 85,80 64,25 49,38 Net asset value per share (NOK) 158,69 109,83 65,29 Earnings per share (NOK) 9 10,89 14,60 0,88 Cash flow per share (NOK) 10 30,12 21,63 12,40 Market capitalisation / EBITDA 4,6 4,5 5,9 Market capitalisation / EBIT 7,9 6,0 10,3 Market capitalisation / Profit for the year 11,6 9,2 92,5 Market capitalisation / Cash flow from operating activities 4,2 6,2 6,6 Market capitalisation / Book equity 1,4 2,1 1,7 Market capitalisation / Net asset value 0,8 1,2 1,3 1 Interest bearing debt - Cash and deposits 2 Book equity / Total assets 3 Book equity adjusted for market value on vessels as per estimates from brokers 4 Market capitalisation + Net interest bearing debt 5 EBIT + Interest income / Average total assets - Average interest free debt 6 Profit for the year / Average book equity 7 Average outstanding and potential shares 8 Book equity / Number of outstanding shares 9 Profit for the year / Average outstanding and potential shares 10 Cash flow from operating activities / Average outstanding and potential shares 6 PROSAFE ANNUAL REPORT 2001 FINANCIAL HIGHLIGHTS

9 MISSION BY PROVIDING OUR CLIENTS WITH INNOVATIVE AND COST-EFFICIENT SOLUTIONS, PROSAFE SHALL MAXIMISE SHAREHOLDER VALUE AND CREATE A CHALLENGING AND MOTIVATING WORKPLACE. 7

10 P r e s i d e n t ' s r e v i e w 30 years ago Moran Brothers came to Norway from Texas and laid the first foundations for Prosafe with the drilling contract on Ekofisk. Today Prosafe is a high-profile player in the Norwegian offshore business and a major international supplier in key markets. In the early days we knew little about offshore oil production, but over the years the industry has become a major driver behind economic growth not only in Norway, but also elsewhere in the world. However, our current prosperity was by no means a given: it has been built up through hard work, innovation and perseverance. Norwegian oil production has now peaked, but there are still sufficient reserves for another 50 years of oil production and another 100 years of gas production in the Norwegian sector. Prosafe plans to continue to play a major role in this market, thanks in part to the solutions we have developed in areas like subsea well intervention that ensure higher recovery rates and longer field lifetimes. Oil is an international industry and so Prosafe further focused its attention on selected growth niches in 2001, with the acquisition of Nortrans Offshore proving a key step in this direction. We have set our sights high when it comes to Prosafe's international expansion and our move into floating production marked an important milestone. I am confident that Prosafe's human and technological resources leave us well equipped at every level to handle growing international competition. We will continue to pursue an industrial strategy and take things one step at a time in the future. Concrete targets, efficient operation and a sharp strategic focus will enable us to build an enduring business. Our vision is to be a leading and innovative supplier of products and services in selected niches of the global oil and gas industry. We are well on our way to realising this vision after the major progress made in recent years. Prosafe Offshore is the world's leading owner and operator of semisubmersible service rigs, Prosafe Drilling Services is the market leader in platform drilling in the Norwegian 8 PROSAFE ANNUAL REPORT 2001 PRESIDENT'S REVIEW

11 sector and Prosafe Production is a leading owner and operator of floating production vessels outside the North Sea. We now employ some 1,600 people worldwide and generated operating revenues of NOK 2.4 billion in sector and Prosafe aims to grow further in this market by developing its existing contract portfolio, providing related supplementary services and focusing on selective international expansion was a year of healthy earnings thanks to good results at all three divisions. Prosafe Offshore put in a strong financial performance on the strength of high rig utilisation during the year, and the outlook for 2002 is promising. Demand for flotel services in the North Sea is growing and so we are planning to bring one rig back from the Gulf of Mexico in May The contract with Statoil for the maintenance of subsea wells marked a strategic breakthrough for our focus on this new growth niche. The work will be carried out by the MSV Regalia, which is now secured continuous employment until autumn 2003, only interrupted by a yard stay. In the coming years Prosafe will continue to develop its strategy of offering a flexible rig fleet suitable for use in different niches and regions. We stepped up our work on integrating the group during the year to create a common identity for all companies on the basis of our core values. We are also looking to give Prosafe's expertise and capacity an even higher profile in the international oil market. You can read more about Prosafe s intellectual capital elsewhere in this report. We have been working hard to bring about further improvements when it comes to health, safety and the environment. Over the last three to four years we have cut lost-time injuries by 50%, but we will not rest until occupational injuries and illnesses are eradicated altogether. My goal is for all of our employees to return home in at least as good health as when they left. Prosafe's move into floating production has given us access to a rapidly growing market. Prosafe Production was recently awarded an eight-year contract by Agip for the operation of an FPSO vessel at a depth of 550 metres on Abo off Nigeria. This marked another strategic breakthrough for Prosafe as Nigeria is one of the most important markets for future deepwater FPSO developments. In addition the contract will introduce Prosafe to new and important customers in the FPSO market. The year also brought a one-year extension of the Endeavor's charter, a four-year extension of the contract to operate the Al Zaafarana, a one-year extension of the Ruby Princess's charter from Petronas and a new two-year charter from Vaalco for the Petroleo Nautipa off Gabon. Arne Austreid President Prosafe Drilling Services put in a solid financial performance in The company is currently working intensively on preparations for the start-up of drilling on Ringhorne for Esso in the autumn of Statoil extended the maintenance and modification contract on Heidrun by one year in 2001 and exercised the first of three one-year extension options on the Gullfaks and Heidrun drilling contracts. Platform drilling is a stable business in the Norwegian PROSAFE ANNUAL REPORT 2001 PRESIDENT'S REVIEW 9

12 PROSAFE GENERATED AN OPERATING PROFIT OF NOK 515 MILLION IN THE COMPANY CONTINUED TO PURSUE A FOCUSED STRATEGY, ACHIEVING A NUMBER OF KEY MILESTONES, AND ENTERS 2002 IN A STRONG POSITION TO FURTHER ITS VISION OF BEING A LEADING SUPPLIER OF PRODUCTS AND SERVICES IN SELECTED NICHES OF THE GLOBAL OIL AND GAS INDUSTRY. D i r e c t o r s ' r e p o r t FINANCIAL PERFORMANCE Oil prices were relatively volatile in 2001, albeit around a level that can be considered normal historically. Nevertheless, volatility at levels below the USD 22/bbl floor for OPEC's target range results in uncertainty that impacts pricing in the capital markets. The terrorist attacks in the USA on 11 September 2001 also led to general uncertainty about the outlook for the global economy and oil prices. In a turbulent year, Prosafe has remained committed to safe and profitable operations, pursued a focused strategy and achieved a number of key milestones. Prosafe sold off the remaining operations within Other Business that were no longer part of its core business and assumed a leading position in the fast-growing market for FPSO/FSO vessels. This represented a major step in the group's international expansion and Prosafe is now represented in the world's most important offshore regions. The group's operating revenues grew by NOK 472 million to NOK 2,418 million, and the operating profit was NOK 515 million. The group generated net profit for the year of NOK 350 million, which equates to earnings per share of NOK Excluding capital gains on the sale of Procon Engineering AS, non-recurring charges relating to the discontinuing business in Azerbaijan, unrealised currency losses on the company's long-term USD loans of NOK 41 million and goodwill amortisation charges of NOK 51 million, the net profit for the year was NOK 406 million and earnings per share NOK The group's assets increased by NOK 2,741 million to NOK 6,518 million during the year as a result of the acquisition of Prosafe Production (Nortrans Offshore Ltd) and the conversion of the FPSO Espoir Ivoirien. Prosafe had cash holdings of NOK 763 million and an equity ratio of 44% at the year-end. In accordance with 3-3 of the Financial Reporting Act (Norway), the board confirms that the company is a going concern and that the accounts have been prepared accordingly. FINANCING The acquisition of Prosafe Production for NOK 1,768 million in 2001 was financed by a 50/50 combination of loans from the company's main bankers and a placing of new shares with the former shareholders of Nortrans Offshore. A total of 7.3 million shares were issued, increasing the average number of shares in issue during the year up to 32.2 million. The group had gross interest-bearing debt of NOK 2,903 million and net interest-bearing debt of NOK 2,140 million at the year-end. Based on the current financing structure, this equates to annual payments of around NOK 400 million (USD 45 million). As a natural part of the company's development in 2001 following the acquisition of Prosafe Production, Prosafe is now in a phase where its long-term financing structure is under review. The company aims to have a permanent solution in place by the end of Its main bankers are currently Nordea, Den norske Bank, Fortis, Skandinaviska Enskilda Banken, Bank of Scotland and Sparebank1 SR-Bank. 10 PROSAFE ANNUAL REPORT 2001 DIRECTORS' REPORT

13 OPERATIONS AND OUTLOOK Drilling Services This division consists of Prosafe Drilling Services AS and changed name during the year from Offshore Drilling & Related Services. The division boasts a strong domestic market, a broad customer base and extensive expertise. The division has drilling contracts on Gullfaks and Heidrun for Statoil, Oseberg and Snorre for Norsk Hydro, and Jotun for Esso. It is also involved in planning and preparations for the start-up of drilling on Ringhorne for Esso in the autumn of 2002 and Kvitebjørn for Statoil in the summer of In addition Prosafe Drilling Services owns the lightweight drilling rig Rubicon, which is currently working on Snorre B for Norsk Hydro, and provides a range of technical services and maintenance and modification services for operators in the Norwegian sector. Activity levels were generally high in 2001 and Statoil exercised options to extend the drilling contracts on Gullfaks and Heidrun by 12 months during the second half of the year. drilling company in the Norwegian sector, while the possibility of selective project-oriented international expansion remains a part of the strategy. Offshore Support Services Prosafe owns eight of the ten purpose-built semisubmersible accommodation/service rigs in service worldwide. The company's strategy is unchanged: to build on its position as the market leader in this deepwater market and consider potential new sources of employment and geographical markets. In 2001 Prosafe won a contract from Statoil to carry out maintenance on four subsea wells, with Statoil holding options on a further eight wells. This contract marked a breakthrough for the company's strategy of identifying new rig applications and has taken Prosafe into a new growth niche was another good year for the rig fleet, with rig utilisation of 80% and operating profit of NOK 421 million. The division continues to account for the bulk of the group's cash flow, generating operating profit before depreciation of NOK 619 million on operating revenues of NOK 918 million. The general outlook for the Norwegian sector of the North Sea is bright in both the short and the long term. A focus on higher recovery rates is resulting in a steadily growing need for drilling, upgrading and maintenance services. This in turn is fuelling demand for the types of service offered by Prosafe. The North Sea and the Norwegian sector look set to remain a strong domestic market for decades to come. The main challenge for 2002 will again be to focus on safe and profitable operations. The company will also be looking to have the drilling contracts on Oseberg and Snorre extended, secure continued employment for the Rubicon and pursue a possible contract for Phillips on Ekofisk. The company's strategy is still first and foremost to be a leading platform Prosafe plans to upgrade the MSV Regalia in the fourth quarter of 2002 and early 2003 so that it can be used for the maintenance of subsea-completed wells, starting with the Statoil contract in the spring of Otherwise the main focus in 2002 will be on securing continued employment for the Safe Britannia and Safe Lancia. Activity in the Gulf of Mexico remains high. Cantarell remains the most important field, but there are plans to develop other fields too in the years ahead. There are also signs that the USA will increasingly be looking to expand its reserves both in the Gulf of Mexico and off Alaska. All in all, this bodes well for continued demand in the Gulf of Mexico. PROSAFE ANNUAL REPORT 2001 DIRECTORS' REPORT 11

14 The drivers behind demand in the North Sea include the hook-up of new installations, the tie-back of subseacompleted wells, maintenance projects and upgrade needs. Prosafe is confident of continued demand for oil and attention on increasing recovery rates and so anticipates continued demand for its rigs also in this part of the world. Floating Production This division consists of Prosafe Production (formerly Nortrans Offshore Ltd) and its subsidiaries. The division has its operational head office in Singapore and has vessels operating off West Africa and in Southeast Asia. The business was taken over with effect from 1 April 2001 for accounting purposes and so only the last nine months of 2001 are consolidated in the group's results for the year. The division operates a fleet of six FPSO/FSO vessels, of which it owns three units 100%, has a 50% stake in two units (the Madura Ayu and Petroleo Nautipa) and is only the operator of one (the Al Zaafarana). A seventh vessel, the RISK Operational risk Prosafe's business focuses primarily on the final phases of an oilfield's lifecycle: production. This part of the value chain is where the operators generate their income and is therefore less sensitive to fluctuations in oil prices than the earlier phases of exploration and development. Prosafe's business is also based on firm dayrate contracts of varying duration, but with the emphasis on medium/long-term contracts for both platform drilling and floating production. Flotel charters in the Gulf of Mexico have also traditionally been long-term contracts. Following Prosafe's move into the floating production market, the company's income base has been extended to include the most important offshore regions worldwide and so the company now has a far higher degree of operational security than before also in geographical terms. In line with standard industry practice, the group's contracts may contain clauses that, under certain circumstances, Reidar Lund Chairman Geir Worum Vice Chairman Egil Bergsager Christian Brinch Bengt Eskilson Grey Warrior, is being converted in 2002 and will begin production for Agip on a firm eight-year charter off Nigeria in the spring of The Espoir Ivoirien, which began production for Canadian Natural Resources (CNR) off the Ivory Coast in February 2002, was at an early stage of conversion when the acquisition of Nortrans Offshore took place in the spring of The conversion of the vessel was completed on time and on budget and will contribute to a substantial increase in earnings from the division in The charters for the Al Zaafarana, Endeavor and Ruby Princess were extended during the year and the division won a new charter for the Petroleo Nautipa. The overall outlook for the FPSO market is bright, with particularly high levels of activity in regions other than the North Sea, which are Prosafe's principal focus areas. The main challenges in 2002 will be to secure continued employment for the Ruby Princess from the autumn of 2002 and complete the conversion of the Grey Warrior for operation on Abo off Nigeria. The company will also be looking for additional projects and working on strengthening its organisation in Singapore in line with growing levels of activity. entitle customers to terminate them early. Provided that this is not due to negligence on Prosafe's part, the group may be entitled to compensation from the customer to offset to some extent the impact of such early termination on its earnings. Financial risk Prosafe is a Norwegian company and prepares its accounts in line with Norwegian and international accounting standards. In 2001 around 70% of the company's operating revenues came from the North Sea, 20% from the Gulf of Mexico and 10% from Southeast Asia and West Africa. USD revenues accounted for around 85% of the company's operating profit before depreciation of NOK 888 million in 2001 and virtually all of the underlying assets are valued and traded in USD. As part of the company's financial management strategy, all interest-bearing debt is drawn down in USD and can therefore be viewed as a direct hedge. As a result, from 2002 the company will no longer revalue its USD debt in line with fluctuations in the USD/NOK exchange rate, but carry loans in the consolidated accounts at the exchange rates ruling when they were drawn. On balance, a strong USD against the NOK is beneficial to Prosafe. 12 PROSAFE ANNUAL REPORT 2001 DIRECTORS' REPORT

15 HEALTH, SAFETY, ENVIRONMENT AND ORGANISATION Health, safety and the environment (HSE) play a key role in the company's core values and in the management of the company's resources and the planning and implementation of its operations. The company is continuing to sharpen its focus on training, safety precautions and follow-up work. The number of lost-time injuries per million working hours was 2.6 in 2001 and has therefore halved over the last three to four years. Attention is being drawn to this major improvement, not only internally through experience transfer and reward schemes, but also externally among customers and suppliers in connection with reporting, prequalifications and tendering. All in all, the combination of high priority, good results and close follow-up is providing even greater motivation to develop and improve our preventive HSE programme focusing on both procedures and work processes. Prosafe sets great store by auditing its own procedures and those of its suppliers and partners. All work carried out by SHAREHOLDERS The register of shareholders on 31 December 2001 showed that no one shareholder controlled more than 20% of the company's shares. The ten largest shareholders had a combined 51.5% stake in the company, with its remaining shares held between more than 3,000 different investors. POST-BALANCE-SHEET EVENTS In January 2002 Agip awarded Prosafe a new deepwater FPSO contract off Nigeria running for a firm period of eight years from the spring of 2003 with two one-year extension options. The firm part of the contract is worth around USD 220 million. In February 2002 Prosafe purchased the semisubmersible accommodation/service rig Polyconcord for USD 34.5 million as part of its strategy of building up a fleet of purpose-built accommodation/service rigs for the global deepwater market. Jon M. Fjose Olav Gjesteland Torild R. Alvheim Karl Urdshals Arne Austreid President & CEO Prosafe is to comply with the requirements laid down by customers and relevant authorities. However, the company's operations can still lead to accidental discharges of pollutants into the sea and air and so Prosafe works actively to protect the natural environment from pollution by setting internal targets, constantly improving its procedures and optimising employee attitudes. Relationships between employees, trade unions, management and board were again good in The reduction in injuries and a drop in absence through illness from 4.1% to 3.4% are good indications of a safe and good working environment. Prosafe plans to build further on the experience gained and results achieved in 2001 and continue its preventive work, concentrating on training, experience transfer and attitudes. The group had 1,737 employees at the end of the year: 1,152 within Drilling Services, 122 within Offshore Support Services, 251 within Floating Production, 14 within the parent company Prosafe ASA and 198 within the Other Business division sold in January In February 2002 Prosafe sold the remaining operations in the Other Business division to a group of senior employees in Aberdeen. The transaction had only a minor impact on the consolidated balance sheet and no impact on the consolidated profit and loss account. DISTRIBUTABLE RESERVES AND COVERING OF LOSS AT PROSAFE ASA The parent company Prosafe ASA had distributable reserves of NOK 319 million on 31 December The board proposes that the parent company's net loss for the year of NOK 60.7 million be covered as follows: Group contribution NOKm 56.4 Transferred from other equity NOKm 4.3 Total NOKm 60.7 Tananger, 19 March 2002 PROSAFE ANNUAL REPORT 2001 DIRECTORS' REPORT 13

16 PROSAFE COMMANDS A LEADING POSITION IN THE GLOBAL MARKET FOR ACCOMMO- DATION/SERVICE RIGS. THE COMPANY S RIGS OPERATED UNDER LONG-TERM BAREBOAT CHARTERS IN THE GULF OF MEXICO AND TIME CHARTERS IN THE NORTH SEA IN PROSAFE ALSO MADE A STRATEGIC BREAKTHROUGH IN SUBSEA WELL INTERVENTION DURING THE YEAR AND WILL BEGIN ITS FIRST CONTRACT IN THIS NICHE IN THE SPRING OF OFFSHORE SUPPORT SERVICES EMPLOYED 122 PEOPLE AT THE END OF O f f s h o r e S u p p o r t S e r v i c e s OPERATIONS Accommodation/service rigs have traditionally been used wherever there is a need for additional accommodation, engineering or storage capacity offshore. Examples of when these needs arise include the installation and testing of new installations, the upgrading and maintenance of platforms and the hook-up of satellite fields to existing installations. The rig can be linked to other installations by gangways or personnel can be transported to and from the rig by boat. The accommodation/service rig will typically supply power and fresh water to the installation to which it is connected. These rigs boast a large number of berths and deck cranes and can provide welfare and catering services. The MSV Regalia can also be used in the subsea construction market and will be used in the subsea well intervention market from STRATEGY Prosafe has consolidated the global market for accommodation/service rigs over the last four years and now owns eight units, including the Polyconcord purchased in February The company's strategy is unchanged: to build on its position as the market leader in this deepwater market and consider potential new sources of employment and geographical markets Prosafe won a contract from Statoil during the year to carry out maintenance on four subsea wells, with Statoil holding options on a further eight. This contract marked a breakthrough for the company's strategy of identifying new rig applications and has taken Prosafe into a new growth market. Three of the company's units the Safe Lancia, Jasminia and Safe Regency were employed in the Gulf of Mexico throughout the year and a fourth the Safe Caledonia began working there in February The Safe Britannia worked a charter for Statoil on Statfjord in the North Sea during the second quarter and was then transferred to the Gulf of Mexico where it began a ten-month charter on 15 October. The Safe Scandinavia worked two charters in the North Sea during the year with a combined duration of around four months. Utilisation of the multi-service vessel Regalia purchased by Prosafe in 2000 was high. The rig was employed by PGS on Banff, by BP west of Shetland and by Statoil on Åsgard. The Regalia is a flexible vessel with state-of-the-art dynamic positioning (DP3) that can be used both in the traditional flotel market and in the subsea construction market. It is now planned to bring in the rig in the autumn of 2002 for upgrade to subsea well intervention duties. 14 PROSAFE ANNUAL REPORT 2001 OFFSHORE SUPPORT SERVICES

17 PROSAFE ANNUAL REPORT 2001 OFFSHORE SUPPORT SERVICES 15

18 FINANCIAL PERFORMANCE (2000 figures in brackets) Offshore Support Services generated operating revenues of NOK 918 million (NOK 982 million) and operating profit of NOK 421 million (NOK 554 million). Rig utilisation was 80% (84%). The decrease in operating revenues and profit was due primarily to lower utilisation of the Safe Scandinavia and Safe Britannia and the inclusion of a capital gain of NOK 20 million on the sale of the drillship Discoverer I in the 2000 figures. These factors were offset in part by the fact that the Regalia was in operation virtually throughout the year. The useful life of the accommodation/service rigs is assumed to be 30 years, but their actual lifetime is hard to establish since no units have yet been condemned on the grounds of age. However, there is every indication that well-maintained accommodation/service rigs will have a useful life of more than 30 years. Activities within Offshore Support Services are organised through a rig-owning company, Prosafe Rigs AS, which is eligible for Norway's special tax scheme for shipping companies. This means that the rig-owning company's profits are not taxed until they are distributed as dividends or the company leaves the scheme. The division had assets of NOK 2,609 million at the yearend. MARKET The market in the Gulf of Mexico has picked up since the mid-1990s, with the development of Cantarell providing an important stimulus for demand for accommodation/service rigs. Charters in this market run for longer than in the North Sea where the main drivers behind demand are upgrades, maintenance and the hook-up of satellite fields, all of which are normally more short-term projects than continuous field development. Prosafe has already won contracts for 2003 from Norsk Hydro on Fram and Grane and from Statoil on Gullfaks and for subsea well intervention. OUTLOOK Activity in the Gulf of Mexico remains high. Cantarell remains the most important field, but there are plans to develop other fields too in the years ahead. There are also signs that the USA will increasingly be looking to expand its reserves both in the Gulf of Mexico and off Alaska. All in all, this bodes well for continued demand in the Gulf of Mexico. The drivers behind demand in the North Sea include the hook-up of new installations, the tie-back of subseacompleted wells, maintenance projects and upgrade needs. Prosafe is confident of continued strong demand for oil and attention on increasing recovery rates and so anticipates continued demand for its rigs also in this part of the world. Offshore Support Services enters 2002 with a strong order backlog. The most important challenges in 2002 will be to secure continued employment for the Safe Britannia and Safe Lancia and complete the upgrading of the Regalia for subsea well intervention duties. Contracts already entered into by the year-end guarantee rig utilisation of around 70% in The Safe Caledonia and Safe Britannia are currently on charters in the Gulf of Mexico running until mid-may and mid-august The Safe Caledonia will then return to the North Sea for a four-month contract for Statoil on Sleipner starting on 1 July. Statoil has an option to extend this charter by two months. The Safe Lancia, Jasminia and Safe Regency are on charters in the Gulf of Mexico expiring in August, November and December 2002, respectively. KEY FIGURES (NOKm) Operating revenues EBITDA OPERATING PROFIT (NOKm) HIGHLIGHTS January 2001 PGS extends the Regalia's charter on Banff until March 2001 March 2001 Offshore Support Services wins a contract from Norsk Hydro to provide services on Fram for two months in 2003 EBIT EBIT margin 46 % 56 % 45 % Assets Investments Fleet utilisation 80 % 84 % 61 % Employees February 2001 Statoil charters the Safe Britannia for use on Statfjord for 90 days in the second quarter of 2001 June 2001 Offshore Support Services is awarded a two- to three-month contract to supply accommodation services in the North Sea from mid-june PROSAFE ANNUAL REPORT 2001 OFFSHORE SUPPORT SERVICES

19 In mid-april the Safe Scandinavia will begin a three-and-ahalf-month charter from Chevron on Alba in the UK sector of the North Sea before transferring to Statfjord for a threemonth charter to Statoil, which holds an option to extend this charter by two months until the end of In April 2003 the rig is due to begin a charter for Statoil on Gullfaks with a firm duration of 15 days and a seven-day extension option. The rig has also been fixed by Norsk Hydro for use on Grane for 152 days beginning in June The Regalia has been hired by Statoil for use on Åsgard until mid-april and will then transfer immediately to a project west of Shetland for BP until September. It is then planned to bring in the rig to be upgraded for subsea well intervention duties. The Regalia has already been fixed by Statoil for subsea well intervention work in the spring of 2003 and by Norsk Hydro for flotel services on Fram for two months starting on 1 July CONTRACT OVERVIEW Safe Britannia Safe Caledonia Safe Scandinavia Safe Lancia Safe Regency Jasminia MSV Regalia Polyconcord Fixed contracts Options Yard stay July 2001 Offshore Support Services wins a one-year charter for the Safe Lancia September 2001 Offshore Support Services is awarded a 300-day charter for the services on Sleipner for four months and Statfjord for three months in 2002 November 2001 Offshore Support Services is awarded a charter for the Safe Caledonia on Cantarell running until August 2002 Prosafe makes a strategic breakthrough in subsea well intervention when Statoil charters the Regalia for the maintenance of four wells on Statfjord, Gullfaks, Åsgard and Norne in Safe Britannia on Cantarell running until August 2002 Offshore Support Services wins a three-month contract from Chevron to supply flotel services on Alba in the second quarter of 2002 Statoil awards Offshore Support October 2001 The Regalia is guaranteed employment until the autumn of 2003 thanks to new contracts from Statoil on Åsgard in 2001 and BP west of Shetland in 2002 on Cantarell running until May 2002 February 2002 Offshore Support Services wins a two- to three-week contract from Statoil to supply flotel services on Gullfaks starting in April , with options on a further eight Services a contract to supply flotel Acquisition of the Polyconcord PROSAFE ANNUAL REPORT 2001 OFFSHORE SUPPORT SERVICES 17

20 F l e e t O f f s h o r e S u p p o r t S e r v i c e s POLYCONCORD SAFE BRITANNIA Design: Aker H3 modified Yard : Rauma Repola, Finland Built: 1977, modified/enhanced 1979/1992/1994 Class: DnV + 1A1 Column Stabilised Accommodation Unit Compliance with Regulations: Bahamas/UK Length/breadth: m x m Operating Draft: m Displacement : 21,895 t Deck Area: 500 m 2 Payload : abt 1,000 t Workshop/Warehouse : 1 workshop, 250 m 2 store Office Facilities: 77 workstations Helideck: 2 x Sikorsky S61N. 1 hangar Gangway: Telescopic 36.5 m +/- 6.0 m Cranes: 1 x 40 t, 1 x 25 t No. of Beds in 2 Bed Cabins: 500 Life Saving Capacity: 500 Mooring System: 12 point winch, 76 mm wire Thrusters: 2 x 2,4 MW propellers Power Generation: 4 diesel generator sets - total 6,000 kw Fresh Water Production: 100 t/24 hours Design: Pacesetter - enhanced Yard: GVA, Sweden Built: 1980, enhanced 1987 Class: DnV, + 1A1, "Column Stabilised Unit", EO-LOCATION, HELDK, DYNPOS AUTR, POSMOOR V ATA, FF1, SBM Compliance with Regulations: Isle of Man/UK/Norway Length/breadth: m x m Operating Draft: m Displacement: 24,303 t Deck Area: abt 1,300 m 2 Payload: abt t (620 DP mode) Workshop/Warehouse: 5 workshops m 2. 8 warehouses/stores m 2 Office Facilities: 104 workstations Helideck: EH101 Merlin Gangway: MA 36.5 m +/- 6.0 m Crane - Portside: Main hoist - 50 t at 20.0 m Whip hoist - 15 t at 57.0 m Crane - Starboard Side: Main hoist - 40 t at 13.5 m Whip hoist - 5 t at 47.0 m Max no. of Beds: 812 No. of Beds in 2 Bed Cabins: 637 Life Saving Capacity: 812 Mooring System: 9 point wire winches Station Keeping System: TAMS/DP system, NMD2 Thrusters: 4 x 2.4 MW azimuthing Thrusters. 2 x 1.5 MW fixed thrusters Power Generation: 7 diesel generator sets - total 13,100 kw Fresh Water Production: 200 t/24 hours SAFE CALEDONIA SAFE LANCIA Design: Pacesetter Yard: GVA/Kockums, Sweden Built: 1982 Class: DnV, + 1A1, "Column Stabilised Unit", EO-LOCATION, HELDK, POSMOOR V ATA, DYNPOS AUT, SBM Compliance with Regulations: Isle of Man/UK/Norway Length/breadth: m x m Operating Draft: m Displacement: 20,615 t Deck Area: abt 900 m 2 Payload: abt 700 t Workshop/Warehouse: 5 workshops m 2 1 warehouse/store m 2 Office Facilities: 75 workstations Helideck: EH101 Merlin Gangway: MA 30 m + 6.5/-5.5 m Crane - Portside: Main hoist - 50 t at 21.2 m Whip hoist - 5 t at 69.0 m Crane - Starboard Side: Main hoist - 40 t at 16.5 m Whip hoist - 5 t at 47.0 m Max no. of Beds: 550 No. of Beds in 2 Bed Cabins: 510 Life Saving Capacity: 550 Mooring System: 10 point wire winches Station Keeping System: TAMS/DP system Thrusters: 4 x 2.4 MW azimuthing thrusters Power Generation: 6 diesel generator sets - total 12,050 kw Fresh Water Production: 200 t/24 hours Design: GVA 2000 Yard: GVA, Sweden Built: 1984 Class: LRS, + OU, 100 A1, Accommodation Unit, + LMC UMS, HELIDECK Compliance with Regulations: Isle of Man/UK Length/breadth: m x m Operating Draft: m Displacement: 13,284 t Deck Area: abt 1,100 m 2 Payload: abt 626 t Workshop/Warehouse: 3 workshops m 2 1 store - 13 m 2 Office Facilities: 46 workstations Helideck: Sikorsky S61N Gangway: MA 30 m + 6.5/-5.5 m Crane - Portside: Main hoist - 25 t at 28.0 m Whip hoist - 5 t at 53.0 m Crane - Starboard Side: Main hoist - 50 t at 20.0 m Whip hoist - 15 t at 50.0 m Max no. of Beds: 600 No. of Beds in 2 Bed Cabins: 340 Life Saving Capacity: 600 Mooring System: 10 point wire winches Thrusters: 2 x 2.4 MW azimuthing thrusters Power Generation: 3 diesel generator sets - total 8,970 kw Fresh Water Production: 270 t/24 hours 18 PROSAFE ÅRSRAPPORT 2001 OFFSHORE SUPPORT SERVICES FLÅTEOVERSIKT

21 JASMINIA SAFE REGENCY Design: GVA 2000 Yard: GVA, Sweden Built: 1982 Class: LRS, A1 OU, Accommodation Unit, + LMC UMS, HELIDECK Compliance with Regulations: Liberia Length/breadth: m x m Operating Draft: m Displacement: 12,800 t Deck Area: abt 690 m 2 Payload: abt 640 t Workshop/Warehouse: 4 workshops m 2 2 stores m 2 Office Facilities: 25 workstations Helideck: Sikorsky S61N Gangway: Fixed J4.2 +/- 3.0 m Crane - Portside: Main hoist - 25 t at 24.0 m Whip hoist - 7 t at 46.0 m Crane - Starboard Side: Main hoist t at 40.0 m Whip hoist - 5 t at 60.0 m Max no. of Beds: 535 No. of Beds in 2 Bed Cabins: 477 Life Saving Capacity: 540 Mooring System: 8 point wire winches Thrusters: 2 x 2.4 MW azimuthing thrusters Power Generation: 3 diesel generator sets - total 6,300 kw Fresh Water Production: 270 t/24 hours Design: Pacesetter Yard: FELS, Singapore Built: 1982 Class: DnV, + 1A1 Column Stabilised Unit, EO-LOCATION, HELDK, FF1 Compliance with Regulations: Bahamas Length/breadth: m x m Operating Draft: m Displacement: 20,850 t Deck Area: abt 800 m 2 Payload: abt 550 t Workshop/Warehouse: 2 workshops m 2 1 store m 2 Office Facilities: 88 workstations Helideck: Chinook 234 Gangway: MA /- 5.0 m Crane - Portside: Main hoist t at 15.0 m Whip hoist - 8 t at 58.0 m Crane - Starboard Side: Main hoist - 40 t at 13.5 m Whip hoist - 5 t at 47.0 m Max no. of Beds: 771 No. of Beds in 2 Bed Cabins: 598 Life Saving Capacity: 780 Mooring System: 8 point wire winches Station Keeping System: TAMS system Thrusters: 4 x 2.4 MW azimuthing thrusters Power Generation: 5 diesel generator sets - total 9,400 kw Fresh Water Production: 200 t/24 hours SAFE SCANDINAVIA MSV REGALIA Design: Aker H-3.2E Yard: Aker Verdal, Norway Built: 1984 Class: DnV, + 1A1 Column Stabilised Unit, EO-LOCATION, HELDK, FF1 Compliance with Regulations: Norway, UK, Isle of Man Length/breadth: m x m Operating Draft: m Displacement: 27,784 t Deck Area: abt 1,200 m 2 Payload: abt 1,930 t Workshop/Warehouse: 2 workshops m 2 1 store m 2 Office Facilities: 59 workstations Helideck: Chinook 234 Gangway: MA /- 6.0 m Crane - Portside: Main hoist - 50 t at 15.0 m Whip hoist - 5 t at 58.0 m Crane - Starboard Side: Main hoist - 50 t at 15.0 m Whip hoist - 5 t at 58.0 m Max no. of Beds: 327 (527) No. of Beds in 2 Bed Cabins: 327 Life Saving Capacity: 742 Mooring System: 12 point chain winches Power Generation: 3 diesel generator sets - total 6,780 kw Fresh Water Production: 150 t/24 hours Design: GVA enhanced Yard: GVA, Sweden Built: 1985 Class: LR + OU 100 A1, Support Unit, Fire Fighting Unit 3, PC, LMC, UMS, DP (AA), Diving System, 100AT Compliance with Regulations: Bahamas/UK/Norway Length/breadth: m x m Operating Draft: m Deck Area: 3,250 m 2 Payload: 1,000 2,200 t Office Facilities: 6 offices & 1 conference Room Helideck: Chinook 234 Gangway: MA 42.5 m +/- 5.0 m Deck Cranes (Liebherr): Main Crane: 400 t swl at 20.0 m, max water depth m, 200 t swl at 40.0 m, max water depth 1,350.0 m Auxiliary Crane: 100 t swl at 25.0 m, max water depth m, 10 t swl at 60.0 m, max water depth m Max no. of Beds: 260/380 Life Saving Capacity: 280/400 Mooring System: 8 point wire winches Station Keeping System: DP system NMD3 Thrusters: 6 x 2,640 kw azimuthing thrusters Power Generation: 6 diesel generator sets - total 18,600 kw Fresh Water Production: 270 t/24 hours Diving System: Dräger 18 man saturation system, 2 bells, 3 x 6 man chambers, SPHL 1 x 18 man, max op depth 380 MSW PROSAFE ANNUAL REPORT 2001 FLEET OFFSHORE SUPPORT SERVICES 19

22 THIS DIVISION BOASTS A STRONG DOMESTIC MARKET, A BROAD CUSTOMER BASE AND EXTENSIVE EXPERTISE. PROSAFE IS THE LEADING PLAYER IN PLATFORM DRILLING IN THE NORWEGIAN SECTOR OF THE NORTH SEA, WITH A MARKET SHARE OF AROUND 50%. THE DIVISION ALSO PROVIDES MAINTENANCE AND UPGRADE SERVICES, TECHNICAL SERVICES, WELL WORKOVERS, AND PLUGGING AND ABANDONMENT SERVICES FOR REDUNDANT PRODUCTION WELLS. IN ADDITION THE DIVISION OWNS AND OPERATES THE MODULARISED LIGHTWEIGHT RIG RUBICON. THE BUSINESS HAS A HISTORY DATING BACK TO THE EARLY 1970S AND EMPLOYED 1,152 PEOPLE AT THE END OF D r i l l i n g S e r v i c e s OPERATIONS Drilling Services operates primarily in the following fields: production drilling, maintenance and modification services, technical services, well workovers, and the plugging and abandonment of redundant production wells. The company has active drilling and maintenance contracts on Gullfaks, Heidrun, Oseberg South, Oseberg East, Oseberg C, Snorre TLP, Snorre B, Jotun B, Ringhorne and Kvitebjørn, the last two in the planning phase. Drilling contracts are based on dayrates with additional performance incentives. The size of the drilling crew will depend on the size and type of drilling unit, but on average there will be around 30 people working offshore and a further five onshore to support the offshore operation. The technical services department carries out modification and upgrade work on drilling units, operates the company's CRI cutting reinjection units and provides maintenance and modification services on Heidrun. The company's modularised lightweight rig Rubicon is a flexible solution that can be used for drilling, well workovers and snubbing. Thanks to its design, the rig can be mobilised to a fixed or mobile installation relatively quickly using supply vessels, lifted into place in modules by the installation's own cranes and be up and running within two to three weeks. The rig competes with cantilevered jack-up platforms, which are sometimes used for well maintenance over wellhead platforms that do not have their own drilling units. The Rubicon can also be used as a second rig to increase the output from a field, as on Snorre TLP. STRATEGY Drilling Services aims to retain its leading position in production drilling in the Norwegian sector of the North Sea. The division also aims to develop its specialist technical services and other related products and services. The possibility of selective project-oriented international expansion remains a part of the strategy. 20 PROSAFE ANNUAL REPORT 2001 DRILLING SERVICES

23 PROSAFE ANNUAL REPORT 2001 DRILLING SERVICES 21

24 2001 It was a busy year for Drilling Services, with all the contracts expiring in 2001 being extended. The contract from Norsk Hydro for the use of the Rubicon was extended until August 2002, the contract from Statoil for maintenance and modification services on Heidrun until the end of 2002 and the drilling contracts from Statoil on Gullfaks and Heidrun until April 2003 and July The division also began preparing for the drilling contracts on Ringhorne and Kvitebjørn for Esso and Statoil, which are due to start up in the autumn of 2002 and the summer of 2003 respectively. FINANCIAL PERFORMANCE (2000 figures in brackets) Drilling Services generated operating revenues of NOK 1,252 million (NOK 991 million) and operating profit of NOK 82 million (NOK 66 million). One major reason for the increase in earnings was that the Rubicon was employed throughout the year, but the rest of the business also improved its performance. The division had assets of NOK 718 million at the year-end. MARKET Drilling Services operates in a stable to slowly growing market. Recent years have seen more and more new fields in the Norwegian sector being developed and the lifetime of existing fields being extended thanks to improved technology, the hook-up of satellite fields and a focus on higher recovery rates. There is also a growing need for maintenance and modification services as the region's installations grow older and production profiles are extended. OUTLOOK The general outlook for the Norwegian sector of the North Sea is bright in both the short and the long term. A focus on higher recovery rates is resulting in a steadily growing need for drilling, upgrading and maintenance services. This in turn is fuelling demand for the types of service offered by Prosafe. The North Sea and the Norwegian sector look set to remain a strong domestic market for decades to come. The main challenge for 2002 will again be to focus on safe and profitable operations. The company will also be looking to have the contracts on Oseberg and Snorre extended by Norsk Hydro and secure continued employment for the Rubicon. At the same time the division will be working actively with the tender for the Ekofisk contract from Phillips. The contract is due to be awarded in the second quarter of 2002, with work starting up offshore in the fourth quarter. The company's contracts on Gullfaks and Heidrun have been extended and drilling on Ringhorne and Kvitebjørn is expected to commence in the autumn of 2002 and summer of The company will also be maintaining its focus on the maintenance and modification market, spying particular potential in all-in-one solutions that combine maintenance, modification and drilling on an installation. The company's strategy is unchanged: to develop its existing contract portfolio, provide related supplementary services and focus on selective international expansion. CONTRACT OVERVIEW Rubicon Valhall BP Jotun 1) Oseberg East, South, C Snorre TLP Norsk Hydro Snorre B Draugen 1) Shell Gullfaks 1983 Statoil Heidrun Statoil Troll Statoil Ringhorne Kvitebjørn BP Shell Norsk Hydro Esso Norsk Hydro Norsk Hydro Esso Statoil Heidrun M&M Statoil Project phase Fixed contracts Options 1) Draugen and Jotun have been in the maintenance phase since Sep 1995 and Feb 2001 respectively. 22 PROSAFE ANNUAL REPORT 2001 DRILLING SERVICES

25 KEY FIGURES (NOKm) OPERATING PROFIT (NOKm) HIGHLIGHTS April 2001 November 2001 Statoil extends the drilling contract on Gullfaks until April 2003 Operating revenues EBITDA EBIT EBIT margin 7 % 7 % 9 % Assets Statoil extends the maintenance and modification contract on Heidrun until the end of 2002 June 2001 December 2001 Statoil extends the drilling contract on Heidrun until June 2003 Investments Norsk Hydro extends the Rubicon's Employees charter on Snorre TLP until 15 August 2002 PROSAFE ANNUAL REPORT 2001 DRILLING SERVICES 23

26 THE ACQUISITION OF NORTRANS OFFSHORE IN THE SPRING OF 2001 HAS MADE PROSAFE A MAJOR OWNER AND OPERATOR OF FLOATING PRODUCTION, STORAGE AND OFFLOADING (FPSO/FSO) VESSELS OUTSIDE THE NORTH SEA. THE DIVISION OPERATES A FLEET OF SIX MODERN VESSELS OFF WEST AFRICA, VIETNAM, EGYPT, INDONESIA AND INDIA. THE DIVISION ALSO HAS ITS OWN ENGINEERING RESOURCES USED FOR STUDIES, PREQUALIFICATIONS AND TENDERS AND FOR DEVELOPING ITS OWN CONCEPTS AND INNOVATIVE SOLUTIONS. THE DIVISION HAS ITS HEAD OFFICE IN SINGAPORE AND OFFICES IN HOUSTON AND THE COUNTRIES IN WHICH IT OPERATES. FLOATING PRODUCTION EMPLOYED 251 PEOPLE AT THE END OF F l o a t i n g P r o d u c t i o n OPERATIONS Floating Production focuses on the design, engineering and conversion of oil tankers into FPSO/FSO vessels and the operation of the finished vessels. The division owns and operates four vessels (the FPSO vessels Ruby Princess, Espoir Ivoirien and Petroleo Nautipa (50% stake) and the FSO vessel Endeavor), owns 50% of the FSO vessel Madura Ayu, which is operated by its joint venture partner, and operates the FPSO vessel Al Zaafarana, which is owned by the customer. All of these vessels have been converted into FPSO/FSO vessels by Prosafe. A seventh vessel, the Grey Warrior, is under conversion and will be owned and operated by Prosafe on Abo off Nigeria for the operator Agip from the spring of An eighth vessel, the Sky, which is a sister ship of the Espoir Ivoirien and Grey Warrior, was purchased in March 2002 and may also be converted to FPSO duties. The division has a team of engineers in Singapore and Houston working on design, engineering and project management. Particularly high priority is given to the development of mooring systems and fluid swivels, which is an area where the division has built up substantial expertise and patented technology. The division has supplied a number of conversion projects on time and on budget. STRATEGY The company's goal is to be a leading owner and operator of FPSO/FSO vessels. This is to be achieved by supplying, owning and operating cost-effective vessels with the emphasis on projects where the company can differentiate itself through, for example, proprietary mooring systems and fluid swivels The division completed a major conversion project during the year, the Espoir Ivoirien. The project was completed on time and the vessel began a ten-year charter off the Ivory Coast in February The customer holds options to extend this charter by up to ten further years. The vessel has a production capacity of 40,000 bbls/day and a storage capacity of 1.1 million bbls. The Ruby Princess has worked a charter from Petronas on Ruby off Vietnam since October PROSAFE ANNUAL REPORT 2001 FLOATING PRODUCTION

27 PROSAFE ANNUAL REPORT 2001 FLOATING PRODUCTION 25

28 The Petroleo Nautipa has been operating for Canadian Natural Resources on Kiame off Angola since June The Endeavor has been working for Hitech Drilling Services off the eastern coast of India since July The Madura Ayu has been employed by Kodeco off Java in Indonesia since May The Al Zaafarana, which the company operates on behalf of Zaafarana Oil Company, has been working in the Suez Canal since November In 2001 Prosafe purchased the tanker Grey Warrior for conversion to FPSO duties. Preparations for its conversion began in the autumn of 2001 so that it could be completed quickly once employment was found. Agip awarded Prosafe an eight-year charter for the vessel early in January 2002 and the conversion project is due to be completed in the spring of FINANCIAL PERFORMANCE Floating Production has been consolidated in Prosafe's accounts from 1 April 2001, the date of its acquisition. The division generated operating revenues of NOK 253 million and operating profit before goodwill amortisation of NOK 84 million after this date. The goodwill arising in connection with the acquisition is being written off over 20 years and goodwill amortisation charges of NOK 51 million were taken in The division had assets of NOK 2,825 million at the end of the year. The vessels are written off over the life of their charters, allowing for their estimated residual value. Most of the vessels are covered by a special scheme for the taxation of shipping companies based in Singapore, which means that Prosafe is not liable to pay tax to Singapore or Norway on income from the chartering and operation of FPSO/FSO vessels. However, the company is liable to pay sourcedeductible taxes to some of the countries in which it operates. The Petroleo Nautipa is covered by Norway's special tax scheme for shipping companies. MARKET The market for FPSO vessels is the fastest-growing market in the offshore industry. The greatest growth is anticipated outside the North Sea in regions like West Africa, Asia, Brazil and, in the longer term, the Gulf of Mexico. The main driver behind demand for the FPSO vessel as a development concept is the need for cost-effective solutions for marginal fields. FPSO vessels can also be reused on new fields and their use cuts the cost of abandonment at the end of a field's life. Tendering activity in the FPSO market was high throughout 2001, especially in West Africa. Prosafe is taking its share of the market, having won an eight-year charter for the deepwater field Abo off Nigeria. OUTLOOK Floating Production will be focusing primarily on completing the conversion of the Grey Warrior to FPSO duties on Abo and finding continued employment for the Ruby Princess in The division will also be looking for additional projects and working on strengthening its organisation in Singapore in line with growing levels of activity. The overall outlook for the FPSO market is bright, with particularly high levels of activity in regions other than the North Sea, which are Prosafe's main focus areas. The division's earnings are expected to grow in 2002 following the start-up of the ten-year charter for the Espoir Ivoirien in February 2002 and again in 2003 thanks to the Agip charter on Abo commencing in the spring of The existing charters for the Ruby Princess and the Petroleo Nautipa expire in 2002, but the charterer has an option to extend the charter for the former by one year and continued employment has already been secured for the latter. On completing the charter off Angola in the second quarter 2002, the Petroleo Nautipa will be upgraded for a new charter for Vaalco on Etame off Gabon expected to start up in the third quarter CONTRACT OVERVIEW Al Zaafarana Madura Ayu Endeavor Petróleo Nautipa Ruby Princess Espoir Ivoirien Grey Warrior Zaafarana Oil Company Kodeco Hitech Drilling Services Canadian Natural Resources Vaalco Petronas Canadian Natural Resources Agip Contracts Options 26 PROSAFE ANNUAL REPORT 2001 FLOATING PRODUCTION

29 KEY FIGURES (NOKm) 2001 Operating revenues 253 EBITDA 170 EBIT 33 HIGHLIGHTS March 2001 Prosafe acquires Singapore-based company Nortrans Offshore Ltd to become a major player in floating production in Asia and Africa Gabon for two years from the autumn of 2002 with options to extend by a further three years October 2001 The Espoir Ivoirien is named at the Keppel yard in Singapore January 2002 Agip awards Floating Production an eight-year deepwater FPSO contract on Abo off Nigeria starting in the spring of 2003 The Endeavor's charter is extended until August 2002 EBIT margin 13 % Assets Investments 719 Employees 251 April 2001 Petronas extends the Ruby Princess's charter on Ruby off Vietnam until 22 October 2002 August 2001 Vaalco charters the Petroleo Nautipa for use off November 2001 Floating Production's contract to operate the Al Zaafarana is extended until November 2005 December 2001 The Espoir Ivoirien arrives on Espoir off the Ivory Coast February 2002 The Espoir Ivoirien commences production on Espoir off the Ivory Coast PROSAFE ANNUAL REPORT 2001 FLOATING PRODUCTION 27

30 F l e e t F l o a t i n g P r o d u c t i o n FPSO ESPOIR IVOIRIEN Length: 280 m Breadth: 54 m DWT: Storage capacity: bbls Production capacity: bbls/day Water injection capacity: bbls/day Gas compression capacity: 60 MMscfd FPSO AL ZAAFARANA Length: 260 m Breadth : 40 m DWT: Storage capacity: bbls Production capacity: bbls/day FPSO RUBY PRINCESS Length: 270 m Breadth : 43 m DWT: Storage capacity: bbls Production capacity: bbls/day FSO ENDEAVOR Length: 247 m Breadth : 32 m DWT: Storage capacity: bbls FPSO PETROLEO NAUTIPA Length: 266 m Breadth : 44 m DWT: Storage capacity: bbls Production capacity: bbls/day FSO MADURA AYU Length: 171 m Breadth : 25 m DWT: Storage capacity: bbls 28 PROSAFE ÅRSRAPPORT 2001 OFFSHORE SUPPORT SERVICES FLÅTEOVERSIKT

31 PROSAFE ANNUAL REPORT 2001 FLEET FLOATING PRODUCTION 29

32 SAFETY FIRST Health, safety, environment and quality AMBITIOUS TARGETS - INTERNATIONAL STANDARDS Safety is a fundamental core value for the company. This includes prevention of losses related to human life and health, the external environment, property, knowledge and information. Our goal is for our business to have no detrimental impact on health, safety and the environment (HSE). High safety standards in our operations also give us an important competitive advantage and so HSE must always be an integral part of all our activities. LTI FIGURES HALVED RECENT YEARS The number of lost-time injuries (LTIs) per million working hours is now down at 2.6 for the group as a whole, which means that Prosafe has managed to halve the LTI frequency over the last three to four years. LTI frequency No. of lost time injuries per million hours worked 15 All three divisions have quality management systems certified under the international quality management standard ISO The safety management systems for the rig and FPSO/FSO fleets have been approved under the International Safety Management (ISM) Code. The HSE management system at Drilling Services is based on the international guidelines developed by E&P Forum. Systematic preventive HSE work is a line management responsibility. Therefore HSE has high priority in the group's management training programmes. An active and high-profile management commitment is a key factor in realising our aim of leading the way in HSE. However, each individual employee also has a responsibility for carrying out his duties with safety in mind and so help to minimise safety risks. Our practical HSE initiatives including seminars, training and focused campaigns help to motivate and reinforce this commitment on the part of the individual. We have also been building up our HSE resources Thanks to a systematic and targeted safety management programme, 2001 was the safest year yet in the history of the drilling business. The LTI frequency for drilling alone was just 1.8, which is, as far as we are aware, one of the best performances in the Norwegian sector during the year. There has also been a considerable decrease in minor injuries. The drilling business has concentrated hard on selected problem areas like crane and lifting operations and falling objects. This work has really paid off, with the number of falling objects dropping by more than 40% in WORLD-CLASS PERFORMANCE The table below shows that many of our offshore operations have a very good safety record: 30 PROSAFE ANNUAL REPORT 2001 HEALTH, SAFETY, ENVIRONMENT AND QUALITY

33 Days since last LTI (as at 31 December 2001) Technical Services Stavanger 1,571 Petroleo Nautipa 1,263 Heidrun M&M 1,261 Oseberg East 1,188 Ruby Princess 1,168 Jotun B 1,145 Gullfaks C 957 Oseberg C 519 Rubicon 519 Technical Services Bergen 496 Gullfaks A 495 Oseberg South 371 Snorre TLP 359 Al Zaafarana 265 MSV Regalia 239 Endeavor 230 Snorre B 214 Gullfaks B 178 Safe Scandinavia 162 Espoir Ivoirien 101 Cuttings reinjection 75 Heidrun TLP 70 (vessels on b/b-charters not included) ABSENCE THROUGH ILLNESS The average number of employees absent from work due to illness fell from 4.1% to 3.4% in 2001, continuing the downward trend of recent years. Absence through illness Drilling Services reported the highest level of absence through illness (5.6%) while Offshore Support Services and Floating Production reported very low figures. Besides causing personal discomfort and inconvenience, absence through illness is costly to the company and so it has stepped up its work to minimise absence through illness at Drilling Services, with management, departments and union representatives all working together. Drilling Services focused on following up specific absentees during the year in an attempt to help them regain fitness as quickly as possible and make appropriate adjustments to the workplace wherever possible. As far as we are aware, typical levels of absence through illness at drilling contractors in the Norwegian sector are 4-8%. We will not rest until we are the best in this respect. CUSTOMERS RECOGNITION Several customers honoured the company for its good safety work during the year: Esso awarded Prosafe Drilling Services an HSE prize for completing the drilling operation on Jotun B with worldclass results and no lost-time injuries Petronas Carigali awarded Prosafe Production its annual contractor safety prize for an excellent safety record on board the Ruby Princess Canadian Natural Resources awarded Prosafe Production an HSE prize for excellent safety results and safety attitudes on board the Petroleo Nautipa BP awarded Prosafe Offshore a safety prize for MSV Regalia's injury-free project west of Shetland Statoil nominated Prosafe Drilling Services' Technical Services work on Gullfaks C for an HSE prize However, we will not rest on our laurels, but aim to improve our performance further through internal experience transfer and external benchmarking. Prosafe will not be content until all our employees return home in at least as good health as when they left. EXTERNAL ENVIRONMENT All work is carried out in accordance with the requirements laid down by customers and the authorities. The company's offshore operations may nevertheless result in unintentional discharges of pollutants into the sea or air in the event of accidents. However, Prosafe has adopted a zero-mindset philosophy to accidental pollution of the environment and therefore strives actively to protect the environment from pollution from both its own activities and those of its partners by setting internal targets, constantly improving its procedures and optimising employee attitudes. The company's operations result in lawful emissions of exhaust and other gases into the atmosphere. Any other emissions and discharges are reported and followed up in the same way as personnel injuries and damage to property. No undesirable events causing harm to the environment were recorded in CONTINGENCY PLANNING The company has prepared contingency plans to minimise injuries, environmental impacts and damage to property and to ensure that adequate quality-assured information is provided to the outside world should circumstances so dictate. There were no events in 2001 providing for these contingency plans to be activated. PROSAFE ANNUAL REPORT 2001 HEALTH, SAFETY, ENVIRONMENT AND QUALITY 31

34 F o c u s : I n t e l l e c t u a l c a p i t a l PROSAFE IS A PROGRESSIVE COMPANY. INNOVATION AND NICHE ORIENTATION COMBINED WITH A FOCUS ON COSTS AND A CLEAR MANAGEMENT PHILOSOPHY ARE THE BEST GUARANTEES OF INTERNATIONAL CORE VALUES «Our business operations shall be conducted in a professional way in order to satisfy the interests of our clients, shareholders and employees, always based on our core values». P ROFITABILITY SUCCESS. DEMANDING CUSTOMERS, LEADING-EDGE TECHNOLOGY, COMPETITIVE R ESPECT PRICES AND SKILLED PEOPLE ARE THE COMPANY'S SUCCESS FACTORS. ALTHOUGH INNO VATION WE HAVE SUBSTANTIAL STRATEGIC ASSETS IN THE FORM OF RIGS AND PRODUCTION SAFETY VESSELS, IT IS OUR EMPLOYEES TOGETHER WITH OUR CUSTOMERS AND SUPPLIERS WHO AMBITION GENERATE RESULTS IN OUR DAY-TO-DAY OPERATIONS THROUGH FOCUSED AND F OCUS EFFICIENT WORKING PROCESSES. WE BELIEVE IN TAKING ONE STEP AT A TIME E NVIRONMENT AND THINKING LONG-TERM. AND IN THE YEAR AHEAD WE PLAN TO STEP UP OUR WORK ON DEVELOPING AND VISUALISING THE COMPANY'S INTELLECTUAL CAPITAL. 32 PROSAFE ANNUAL REPORT 2001 FOCUS: INTELLECTUAL CAPITAL

35 Prosafe has a straightforward management philosophy that lays the foundations for the visionary strategic management of growing the company. This is vital when it comes to developing the company's intellectual capital. The main features of Prosafe's management philosophy are as follows: Clear and concise vision, mission and corporate strategy Company culture based on corporate core values Clear organisational structure and parent company governance Systematic recruitment and development of human resources Communication with markets and customers at divisional level Active relationship-building both internally and externally Prosafe's vision, mission and corporate strategy are as follows: VISION Prosafe shall be a leading and innovative supplier of products and services in selected niches of the global oil and gas industry. MISSION By providing our clients with innovative and cost-efficient solutions, Prosafe shall maximise shareholder value and create a challenging and motivating workplace. CORPORATE STRATEGY Our mission shall be achieved through innovation and organic growth combined with strategic mergers and acquisitions. success factors and company culture. We do not want anyone at the company to compromise on these core values for short-term gain. These values are an important part of our reason for existence. They are not subject to annual negotiation and revision, but set in stone our customers and shareholders must be able to depend on our core values underpinning everything we do. Prosafe has a straightforward corporate structure a group of companies divided into three divisions, each an independent unit with the skills and capacity to meet the needs of both customers and the authorities. The listed parent company serves a number of central functions: it provides frameworks for the divisions in areas like management, reporting and risk management; realises economies of scale in areas like insurance, financing and IT; handles communication with the stock market and investors; and provides efficient operational control, experience transfer and development of the divisions. Prosafe considers recruitment and follow-up of new recruits to be among the most important processes at the company and so gives priority to a systematic and thorough recruitment process. The company's human resources are the backbone of its intellectual capital. We set great store by professional development and providing interesting and challenging duties at every level. Prosafe also believes in home grown management and so has extensive management development programmes under way in all three divisions. Relationship-building, health, safety and the environment are key topics in these programmes. The divisions have their own more specific visions and strategies reflecting their particular markets, always with the spotlight on customers, suppliers, shareholders and employees. The common denominator for the Prosafe group is "Leadership through innovation". Strategic planning is a continuous process at Prosafe and underlies all development plans and budgets. It is neither possible nor desirable to define procedures for absolutely everything. We want people to think for themselves within the constraints of the various management systems put in place. However, everything we do at Prosafe must be anchored in the company's core values. These core values are the result of 30 years of learning about our own business and in many ways reflect the company's Our business development activities are based always on the customer's need for added value, be it in the form of more efficient operation and utilisation of existing resources or better working methods and innovative new solutions. Close contact with customers and good market insight are vital in this respect. Prosafe has demonstrated for example in subsea well intervention and floating production that the company is capable of coming up with attractive new ideas by combining skills and know-how from different parts of the company to develop new value-adding solutions for the global market. In 2002 we will be stepping up our work to develop and visualise our intellectual capital. This will include active relationship-building both internally and externally. PROSAFE ANNUAL REPORT 2001 FOCUS: INTELLECTUAL CAPITAL 33

36 S h a r e h o l d e r i n f o r m a t i o n SHAREHOLDER POLICY Prosafe's overriding objective is to generate a competitive long-term return on the capital invested by its shareholders so that the company remains an attractive investment option for both Norwegian and foreign investors. The company's management must actively further the development of the company and manage its assets in such a way as to highlight the value of the company as best possible at all times. Prosafe has focused on growth and development since its formation in 1997 and has yet to pay any dividends. In the light of the company's investments in the past year and its future plans, the board is not recommending that any dividend be paid this year either. However, the company will consider the possibility of paying dividends in the future on the basis of its financial performance, financial position and anticipated investment needs. The board has been authorised to buy back up to 10% of the company's shares. This authority is valid until 3 November Prosafe does not currently hold any of its own shares. Prosafe considers it important to provide the stock market with accurate and complete information about the company's business and financial position at all times and so promote the most accurate possible pricing of the company's shares. One way in which the company intends to achieve this is through prompt publication of detailed interim results and the distribution of quarterly and annual reports. Additional information material to the company's underlying value and prospects is reported to the Oslo Stock Exchange and made available on the company's website at The company also holds presentations for analysts and the press when publishing its interim results, which can be accessed live or in recorded form at and on the company's website. On 31 December 2001 Prosafe had 3,118 shareholders, with foreign investors holding 43% of its share capital. Prosafe aims to increase the proportion of non-norwegian shareholders in order to maximise the liquidity of its shares and so optimise their pricing. The company's largest shareholders were as follows at the year-end: 1 Cherryhayes Shipping 4,363, % 2 JCE 4,082, % 3 Folketrygdfondet 1,737, % 4 Odin 1,725, % 5 Storebrand 1,621, % 6 Denver Investment Advisors 938, % 7 Skandinaviska Enskilda Banken 789, % 8 Gjensidige NOR 724, % 9 Avanse 717, % 10 GMO 671, % 11 Vital 552, % 12 Chase Manhattan Bank 544, % 13 Orkla 518, % 14 State Street Bank & Trust Co 510, % 15 Oslo Betong Fabrikk 385, % 16 Skibs AS Abaco 381, % 17 Delphi 370, % 18 Jim McMillan 358, % 19 Nordea 340, % 20 Vesta 326, % Total 20 largest shareholders 21,659, % Prosafe's senior officers have been issued options to subscribe for shares in the company. Further information on this incentive scheme can be found in note 20 to the consolidated accounts. Further information on the shares held by senior officers and directors of the company can be found in note 19 to the consolidated accounts. Prosafe distributes all press releases and interim reports via the Hugin financial information service at Further information on the company can be found at SHARE CAPITAL AND SHAREHOLDERS The company had share capital of NOK 337 million at the year-end, divided into a single class of 33.7 million shares each with a par value of NOK 10. The shares are quoted on the Oslo Stock Exchange's main list under ticker code PRS and are freely transferable. SHARE PRICE AND LIQUIDITY Prosafe's share price was NOK 120 at the year-end, giving the company a market capitalisation of NOK 4.1 billion, down 12% on a year earlier. By way of comparison, the Oslo all-share index fell 14% during the year and the Oslo energy index by 11%. The graph on the right shows movements in Prosafe's share price, the Oslo all-share index and the Oslo energy index between 31 December 1999 and 8 March While Prosafe's share price largely followed the two indices in 2001, it has performed far better than they have since 1 December. 34 PROSAFE ANNUAL REPORT 2001 SHAREHOLDER INFORMATION

37 SHARE PRICE DEVELOPMENT TO oseax energy prs JAN 2000 MAY 2000 SEP 2000 JAN 2001 MAY 2001 SEP 2001 JAN 2002 As can be seen from the table below, a total of 20.1 million Prosafe shares were traded on the Oslo Stock Exchange during the year and turnover for the year was NOK 2,405 million. FINANCIAL CALENDAR Prosafe plans to publish its interim results on the following dates: First quarter: 8 May 2002 Second quarter: 6 August 2002 Third quarter: 30 October 2002 Fourth quarter: 6 February 2003 RISK SCHEME FOR NORWEGIAN TAXPAYERS To prevent double taxation, the RISK scheme allows Norwegian taxpayers to adjust the cost of shares for capital gains tax purposes in line with changes in taxed capital in the company. The annual RISK adjustment applies only to those investors who hold the shares on 1 January each year. The following RISK adjustments have been calculated for Prosafe ASA: 1 January 2001: NOK 1,86 per share 1 January 2000: NOK 0,60 per share 1 January 1999: NOK 1,45 per share 1 January 1998: NOK 1,49 per share Since Prosafe was not formed until 1997, no RISK adjustments have been calculated for previous years. In December 1998 Discoverer ASA merged with Prosafe Rigs AS against payment in Prosafe ASA shares. The exchange ratio of Prosafe shares for each Discoverer share means that a correction factor of needs to be used by former Discoverer shareholders to calculate the RISK adjustment for 1 January This results in a corrected RISK adjustment of NOK Foreign shareholders are taxed under the rules applying in their home countries and are not covered by the RISK scheme. Key share data Change Number of shareholders 3,118 2, Foreign ownership (%) Share price at year-end (NOK) Shares in issue at year-end (1,000) 33,719 26,179 7,540 Market capitalisation at year-end (NOKm) 4,046 3, Turnover (NOKm) 2,405 3, Shares traded (1,000) 20,085 24,392-4,307 Average daily trading volume 80,663 97,179-16,517 Average share price (NOK) Number of transactions 13,326 15,488-2,162 Average number of shares per transaction 1,507 1, Turnover rate (%) PROSAFE ANNUAL REPORT 2001 SHAREHOLDER INFORMATION 35

38 A n a l y t i c a l i n f o r m a t i o n VALUATION Prosafe does not wish to provide guidance or recommend methods for assessing the underlying value of its business as it believes that it is up to the capital markets themselves to come up with a valuation on the basis of their own assessments of the group's operations, development and prospects, together with other information in the public domain. To promote this process, Prosafe aims to maximise coverage and interest in the company by providing a steady flow of information to the stock market. Prosafe's operations consist of independent, but complementary businesses. Offshore Support Services and Floating Production are capital-intensive while Drilling Services is more labour-intensive. As a result, the capital markets have tended to base their valuations of Prosafe on a combination of net asset value and earnings-based measures. Prosafe commissions estimates of the value of its accommodation/service rigs from brokers twice a year. The estimates obtained for January 2002, January 2001 and January 2000 are shown in the table below (values for charter-free vessels). (USDm) Safe Britannia Safe Caledonia Safe Lancia Jasminia Safe Regency Safe Scandinavia Regalia Total A USD/NOK exchange rate of 9.0 puts the market value of the rigs at NOK 3,900 million, which is 83% above their book value of NOK 2,128 million. The following column shows the estimates of the value of Prosafe's FPSO/FSO vessels obtained from brokers in January (USDm) Espoir Ivoirien Ruby Princess 50.0 Petroleo Nautipa (50% of 48.8) 24.4 Endeavor 15.0 Madura Ayu (50% of 4.8) 2.4 Total A USD/NOK exchange rate of 9.0 puts the market value of the vessels at NOK 1,906 million, which is 56% above their book value of NOK 1,220 million. The estimated market value of the rigs and vessels together is therefore NOK 2,458 million above their book value at the year-end. Assuming no other unrealised gains in the group's balance sheet, this gives the group value-adjusted equity of NOK 5,351 million or NOK 159 per share at the year-end. INVESTMENTS The company has made six major investments since its formation in 1997: the acquisition of Discoverer ASA in 1998 for NOK 919 million, the purchase of the accommodation/service rig Safe Scandinavia in 1999 for USD 50 million, the purchase of the multi-service vessel Regalia in 2000 for USD 97 million, the acquisition of Nortrans Offshore Ltd in March 2001 for NOK 1,768 million, the conversion of the Espoir Ivoirien to FPSO duties in 2001 for around USD 100 million and the purchase of the accommodation/ service rig Polyconcord in February 2002 for USD 34.5 million. Offshore Support Services invests around NOK million annually in maintaining each rig. Drilling Services invests NOK million in connection with the start-up of each new drilling contract, but recoups these amounts through the dayrates payable by the customer; otherwise capacity investments within Drilling Services will generally be in line with depreciation charges. Floating Production makes limited investments beyond those in new conversion projects and upgrades of existing vessels for new contracts. 36 PROSAFE ANNUAL REPORT 2001 ANALYTICAL INFORMATION

39 ORDER BACKLOG Offshore Support Services had orders in hand of NOK 1,106 million at the year-end, of which NOK 781 million relate to 2002, guaranteeing rig utilisation of around 70% for the year ahead. The charters for the Safe Britannia and Safe Lancia expire in August 2002 and the Jasminia's charter in November 2002, but Prosafe has high hopes that these charters will be extended given the market outlook for the Gulf of Mexico. Floating Production had orders in hand of NOK 5,075 million at the year-end, including the Agip FPSO contract off Nigeria and the extension of the Endeavor's charter in January Orders in hand for 2002 in isolation totalled NOK 469 million. The Ruby Princess's charter expires in October 2002, but the customer holds a one-year extension option and Prosafe has high hopes that it will be exercised. Drilling Services' contract for the Rubicon expires in August 2002, but Prosafe has high hopes that Norsk Hydro will exercise its option to extend the contract by a further year until August Similarly, the drilling contracts on Oseberg and Snorre expire in the autumn of 2002, but Norsk Hydro has options to extend them by up to maximum five and four years respectively, one year at a time. Excluding extension options, Drilling Services had orders in hand worth an estimated NOK 1,565 million at the year-end, of which NOK 873 million relate to Further information on the divisions' various contracts can be found on pages 17, 22 and 26. SENSITIVITY ANALYSIS Oil prices Oil prices largely dictate the level of activity in the oil and gas industry and so activity in the oil and gas industry has historically been cyclical. However, activity at Prosafe has traditionally proved relatively robust to this volatility because the company's operations focus on the oilfields' production phase and include dayrate charters of varying duration. The oil companies generally increased their budgets when oil prices began to climb in 2000; on balance this bodes well for demand for Prosafe's services going forward. Dayrates and rig utilisation Dayrates for accommodation/service rigs and FPSO/FSO vessels are denominated in USD. An increase of USD 1,000 in the dayrate for each rig will increase the year's earnings by NOK 23 million (NOK 0.68 per share), assuming 100% utilisation of all rigs and a USD/NOK exchange rate of 9.0. A 5% increase in rig utilisation will increase the year's operating profit by NOK 38 million (NOK 1.13 per share), assuming average daily earnings of USD 33,000 before depreciation charges. Exchange and interest rates At present 50-60% of the group's revenues are generated in NOK, but 80-90% of operating profit before depreciation is derived from revenues in foreign currencies, primarily USD. Prosafe therefore estimates future net USD profits and traditionally hedges around 80-90% of these against NOK using forward contracts. This strategy is now being reviewed in the light of the fact that the company is increasingly generating revenues in USD from assets that are valued, traded and financed in USD. A strong USD against the NOK is beneficial to Prosafe given that such a high proportion of profits are derived from USD revenues and that the company's most important assets are traded in USD. Assuming that revenue flows are not hedged, an increase of NOK 0.10 in the value of the USD will increase operating profit by around NOK 8 million. The group's financial management strategy involves constantly monitoring whether all or part of its interest-bearing debt should be hedged against movements in interest rates. Some 50% of the group's debt was hedged in this way at the year-end. Assuming floating rates of interest and current levels of interest-bearing debt, a change of one percentage point in USD interest rates will increase the group's annual interest charges by USD 2.8 million, which is equivalent to NOK 25 million translated using the exchange rate ruling at the year-end. PROSAFE ANNUAL REPORT 2001 ANALYTICAL INFORMATION 37

40 C o n s o l i d a t e d P r o f i t a n d L o s s A c c o u n t (NOKm) Note Charter revenues Other operating revenues Total operating revenues Wages and other personnel expenses 7, Depreciation and amortisation Other operating expenses 3, Merger and reorganisation expenses Total operating expenses Operating profit Financial income Financial expenses Net financial items Profit before other items Other items Profit before taxes Taxes Profit for the year Profit per share (fully diluted) 15 10,89 14,60 0,88 38 PROSAFE ANNUAL REPORT 2001 CONSOLIDATED PROFIT AND LOSS ACCOUNT

41 C o n s o l i d a t e d B a l a n c e S h e e t (NOKm) Note ASSETS Goodwill Rigs Ships Other tangible assets Long term receivables Total fixed assets Stocks Accounts receivable Other short term receivables Shares Cash and deposits Total current assets Total assets EQUITY AND LIABILITIES Share capital Other equity Total equity Pension liabilities Other provisions Total provisions Interest bearing long term debt Total long term debt Interest free short term liabilities Total short term liabilities Total equity and liabilities PROSAFE ANNUAL REPORT 2001 CONSOLIDATED BALANCE SHEET 39

42 C o n s o l i d a t e d C a s h F l o w S t a t e m e n t (NOKm) CASH FLOW FROM OPERATING ACTIVITIES Profit before taxes Gain/loss on sale of fixed assets Gain on sale of shares Depreciation and amortisation Write down of investment Unrealised currency gain/loss Taxes paid Change in stocks Change in accounts receivable Change in other short term receivables Change in interest free short term liabilities Change in other cut-off items Change in translation difference foreign subsidiaries Net cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of tangible assets Acquisition of tangible assets Proceeds from sale of shares Acquisition of shares Acquisition of subsidiary Cash in subsidiary at acquisition Net cash flow from investing activities CASH FLOW FROM FINANCING ACTIVITIES New interest bearing long term debt Repayment of interest bearing long term debt Change in interest bearing short term liabilities Paid in capital from share issues Net cash flow from financing activities Net change in cash and deposits Cash and deposits at Cash and deposits at Undrawn revolving credit facility PROSAFE ANNUAL REPORT 2001 CONSOLIDATED CASH FLOW STATEMENT

43 A c c o u n t i n g P o l i c i e s GENERAL The consolidated accounts are prepared in accordance with Norwegian accounting principles. SEGMENT REPORTING The division into business segments is based on the various types of products and services that the group renders. The group comprises three divisions: Offshore Support Services, Drilling Services and Floating Production. All items relating to the discontinuing business in Azerbaijan and the module business in Aberdeen, which was sold in January 2002, are classified net under other items. This also applies for Procon Engineering AS which was sold in March No material transactions take place between the various divisions. Non-allocated expenses relate to corporate administration and other expenses that cannot reasonably be allocated to the various divisions. Non-allocated balance sheet items relate mainly to cash and deposits owned by the parent company. CONSOLIDATION PRINCIPLES The consolidated accounts include Prosafe ASA and subsidiaries. All subsidiaries are wholly owned. The subsidiaries' accounts are included in the consolidated accounts as from the acquisition date. The acquisition cost of the shares is set off against the equity in the subsidiaries in accordance with the acquisition method. Any values in excess of book value is entered into the accounts at gross value with a provision for deferred tax. Any residual value is recorded as goodwill. Goodwill and other excess values are amortised/depreciated over their estimated useful lives. All transactions and balances between the companies included in the consolidation are eliminated. When consolidating foreign subsidiaries, the profit and loss account is translated into NOK at the average exchange rate for the year, while balance sheet items are translated at the exchange rate at year end. Translation differences are taken directly to equity. Investments in joint ventures are accounted for by proportionate consolidation. RECOGNITION OF REVENUES AND EXPENSES Revenues are recognised as earned. Costs are expensed in the same period as related revenue. CLASSIFICATION OF BALANCE SHEET ITEMS Assets for long term ownership or use are classified as fixed assets. Other assets are classified as current assets. Liabilities which fall due more than one year after they incur, are classified as long term liabilities. Next year's instalment of long term debt is included in long term liabilities. Liabilities which fall due less than one year after they incur, are classified as short term liabilities. PENSIONS Pension liabilities incurred are based on present value of future pension benefits earned on the balance sheet date. Payroll taxes are included in liabilities relating to non-insured schemes. The value of the pension funds is the estimated actuarial value. The value is adjusted every year according to statements provided by the insurance companies. The effect of changes in estimates and pension plans are amortised over the average remaining service period. The effect of changes in estimates is only recognised in the profit and loss account when such changes exceed 10% of gross pension liabilities or pension funds, whichever is the higher. Net pension expenses are classified as wages and other personnel expenses. Net pension expenses include present value of the pension earnings for the period, interest expenses on pension obligations incurred, expected return on the pension funds as well as the amortised effect of changes in estimates and plans. Payroll taxes relating to group pension schemes are recorded as expenses on the basis of pension premiums paid. In the balance sheet, underfunded schemes are classified as a provision and overfunded schemes as a long term receivable. SUBSCRIPTION RIGHTS At the time when subscription rights are awarded under the company's established incentive scheme, the exercise price is set equal to the share price. Thus, the intrinsic value of the subscription rights is zero and no costs are expensed at the date of award. Payroll taxes on the estimated time value of outstanding subscription rights are expensed over the exercise period. Changes in estimates are recognised in the same period as such changes are established. GOODWILL AND TANGIBLE FIXED ASSETS Goodwill and tangible fixed assets are stated at acquisition cost less cumulative amortisations, depreciations and write downs. Assets are amortised/depreciated on a straight line basis over their estimated economically useful lives. When fixing the depreciation rates, allowance is made for any residual value at the end of the depreciation period. Write downs are made if the fair value of a fixed asset is lower than its book value and this is not considered to be a temporary reduction. A write down is reversed to the extent that the basis for the write down is no longer present. PROSAFE ANNUAL REPORT 2001 ACCOUNTING PRINCIPLES 41

44 CLASSIFICATION AND PERIODIC MAINTENANCE The company provides for classification costs of the company's rigs and for periodic maintenance of the company's lightweight rig. The company is also responsible for classification and maintenance of parts of the drilling equipment on the fixed installations owned by clients, and the company makes provisions to cover these costs. The provisions are recognised as short term liabilities or provisions dependent on the planned dates for classification and maintenance. FINANCIAL INSTRUMENTS Forward currency exchange contracts which secure contractual cash flows are treated as financial hedging for accounting purposes. Cash flow from a fixed contract is booked at the exchange rate fixed under a forward currency exchange contract. The difference between the spot rate when entering into the forward exchange contract and the exchange contract rate is recognised at the realisation of the forward exchange contract. Interest rate swaps which meet the requirements for hedging are booked as an adjustment to the interest costs in the initial loan agreement. BORROWING COSTS As a general rule, fees incurred in connection with the arrangement of loan facilities are capitalised and amortised over the loan term. When assets are manufactured internally, a proportional part of the financing costs is allocated to the cost of the asset and depreciated according to the depreciation plan of the asset. The residual proportion is capitalised and amortised over the remaining loan term. TAXES Taxes in the profit and loss account include taxes payable and changes in deferred tax. Deferred tax is calculated on the basis of temporary differences between book and tax values that exist at the end of the financial period. Tax decreasing temporary differences are offset against tax increasing temporary differences, with the exception of temporary differences within different tax regimes. Net deferred tax asset is recognised if it can be utilised through future taxable income. Deferred tax and deferred tax asset are presented net in the balance sheet. STOCKS Stocks are valued at purchase cost or estimated net sales value, whichever is the lower. Goods manufactured internally are valued at manufacturing cost or estimated net sales value, whichever is the lower. MONETARY ITEMS IN FOREIGN CURRENCY Bank deposits, receivables and liabilities in foreign currencies are translated at year end exchange rates. Regarding Prosafe's long term interest bearing debt, the company will change accounting principle from 2002, and no longer revaluate loan in USD according to fluctuations in the USD/NOK exchange rate. CASH AND DEPOSITS Cash and deposits include cash, bank deposits and other liquid investments with a maturity of three months or less. 42 PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

45 N o t e s t o t h e c o n s o l i d a t e d a c c o u n t s NOTE 1 COMPARISON FIGURES Revenues and expenses relating to the module business in Aberdeen, which was sold in January 2002, are classified net under other items. This also applies for Procon Engineering AS, which was sold in March 2001, and for the discontinuing business in Azerbaijan. Comparison figures are adjusted accordingly. NOTE 2 COMPANIES INCLUDED IN THE CONSOLIDATED ACCOUNTS Company's total Group's Company name Country share capital (in 1 000) ownership Prosafe ASA Norway NOK % Prosafe Rigs AS Norway NOK % Prosafe Offshore AS Norway NOK % Prosafe Offshore Norge AS Norway NOK % Prosafe (UK) Holdings Ltd United Kingdom GBP % Prosafe Rigs Ltd United Kingdom GBP 0 100% Prosafe Offshore Ltd United Kingdom GBP 0 100% Prosafe Drilling Services AS Norway NOK % Consafe Engineering (UK) Ltd United Kingdom GBP % Consafe (Burntisland) Ltd United Kingdom GBP % Consafe (Azerbaijan) Ltd United Kingdom GBP 0 100% Consafe (Caspian) Ltd United Kingdom GBP 1 100% Consafe Recruitment Ltd United Kingdom GBP % Consafe International LLC USA USD 6 100% Prosafe Production Services Pte Ltd Singapore USD % Prosafe Production Pte Ltd Singapore USD % GW Shipping Pte Ltd Singapore USD 0 100% Prosafe Services Cote d'ivoire Pte Ltd Singapore USD 0 100% Egyptian Winlines Shipping Co. SAE Egypt USD % Offshore Mooring Services Limited Liberia USD 0 100% Prosafe Production Corporation Liberia USD 0 100% Prosafe Production Inc USA USD 1 100% Nortrans Offshore do Brasil Ltda Brazil USD % Prosafe Production Nigeria Limited Nigeria USD 0 100% Tinworth Limited Bermuda USD 6 50% Shaun Investments S.A. Panama USD 0 50% Sandaband Well Plugging AS Norway NOK % Voting rights equal ownership share. NOTE 3 REMUNERATION TO THE BOARD, THE PRESIDENT & CEO AND THE AUDITORS (NOK 1 000) Board Chairman President & CEO Auditors (audit) Auditors (other services) Presidents in the corporate management team (see note 19), hold agreements covering salary following termination of their employment contracts. The agreements read that the company guarantees two-year remuneration in addition to the notification period if appointments cease. Salary and other remuneration received from other sources in the period will be deducted. Remuneration to the Chairman includes director's fee, salary as Executive Chairman to November 2001 and pension from that time. PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 43

46 NOTE 4 OPERATING REVENUES AND ASSETS BY GEOGRAPHICAL AREAS Operating revenues Norway Mexico United Kingdom Vietnam Angola 48 0 India 35 0 Egypt 21 0 Indonesia 7 0 Singapore 1 0 Total operating revenues Assets Norway Singapore Mexico The Ivory Coast United Kingdom Vietnam Angola India 67 0 Indonesia 18 0 Egypt 9 0 USA 1 0 Other countries Total assets NOTE 5 SEGMENT INFORMATION Offshore Support Services Operating revenues Operating expenses Depreciation Merger and reorganisation expenses Operating profit Assets Liabilities Investments Floating Production Operating revenues 253 Operating expenses -83 Goodwill amortisation -51 Depreciation -86 Operating profit 33 Assets Liabilities Investments PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

47 Drilling Services Operating revenues Operating expenses Depreciation Operating profit Assets Liabilities Investments Corporate expenses and eliminations Operating revenues Operating expenses Depreciation Merger and reorganisation expenses Operating profit Assets Liabilities Investments Prosafe consolidated Operating revenues Operating expenses Goodwill amortisation -51 Depreciation Merger and reorganisation expenses Operating profit Assets Liabilities Investments NOTE 6 QUARTERLY RESULTS 4Q 01 3Q 01 2Q 01 1Q Operating revenues Operating expenses Goodwill amortisation Depreciation Operating profit Net financial items Profit before other items Other items Profit before taxes Taxes Profit for the period PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 45

48 NOTE 7 WAGES AND OTHER PERSONNEL EXPENSES Wages and holiday pay Pension expenses Other remunerations Payroll taxes Hired-in personnel Other personnel expenses Total wages and other personnel expenses Number of employees (quarterly average) NOTE 8 PENSION LIABILITIES Employees in the Norwegian companies are covered by pension schemes which entitle them to future pension benefits (defined benefit plans). The major proportion of the liability is covered by means of investment plans in life insurance companies employees are members of these schemes. Prosafe has also pension liabilities in respect of the Chairman which is partly financed through operations. Foreign subsidiaries have pension schemes in accordance with local practice and legislation. The pension schemes are formalised by means of the subsidiary making an agreed contribution to the individual's pension fund (defined contribution plans), and are consequently not recognised in the balance sheet. Pension expenses - benefit plans Present value of current year earnings Interest expenses on pension liabilities incurred Expected return on pension funds Allocated effect of changes in estimates and pension plans 1 2 Pension expenses - benefit plans Pension liabilities Estimated pension liabilities incl. future wage growth Value of pension funds Estimated net pension liabilities Non-amortised plan changes -2-2 Non-amortised estimate variance Net pension liabilities Assumptions: Discount rate 7,0% 7,0% Expected return on pension funds 8,0% 8,0% Expected wage growth 3,5% 3,5% Expected pension adjustment 3,0% 3,0% Expected national insurance base rate adjustment 3,0% 3,0% Expected annual utilisation of AFP (early retirement from the age of 62) 5,0% 5,0% 46 PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

49 NOTE 9 OTHER OPERATING EXPENSES Materials Repair and maintenance Travel Catering offshore Office and administration Leasing Fees Insurance 20 8 Other Total operating expenses NOTE 10 TANGIBLE FIXED ASSETS AND GOODWILL Machinery and Rigs FSO/FPSO equipment Buildings Goodwill Land Total Acquisition cost Additions Disposals at acquisition cost Acquisition cost Cum. depreciation Cum. depreciation on disposals Depreciation for the year 1) Cum. depreciation ) out of which 5 allocated to other items Net book value Depreciation rate (%) Economically useful life (years) Capitalised borrowing costs Leasing expenses Estimated economically useful life is 30 years for accomodation and service rigs and 20 years for lightweight rigs. FSO/FPSO's are depreciated over their fixed contract period to their estimated residual value. Existing fixed contract periods are 3-10 years. Goodwill relates to Nortrans Offshore Ltd, which was acquired in March NOTE 11 FINANCIAL INCOME Interest income Gain on sale of shares 0 20 Unrealised currency gain - net 0 2 Total financial income NOTE 12 FINANCIAL EXPENSES Interest expenses Realised currency loss - net Unrealised currency loss - net 41 0 Other financial expenses 8 7 Total financial expenses PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 47

50 NOTE 13 OTHER ITEMS Operating revenues Operating expenses Depreciation -5-5 Discontinuation expenses Gain on sale of Procon Engineering AS 60 0 Net other items Other items relate to the module business in Aberdeen, which was sold in January 2002, the discontinuing business in Azerbaijan and Procon Engineering AS, which was sold in March NOTE 14 TAXES Specification of taxes in the profit and loss account: Profit before taxes in Norway Profit/loss before taxes abroad Total profit before taxes Taxes payable in Norway Taxes payable abroad 15 3 Changes in deferred tax in Norway -6-2 Total taxes Specification of taxes in the balance sheet statement: Basis of deferred tax Temporary differences: Fixed assets Current assets Pension liabilities Long term liabilities Short term liabilities Basis for calculation of deferred tax Deferred tax / deferred tax asset (-) Other tax issues: The rig-owning company within the Offshore Support Services business area and Tinworth Ltd, which owns Petroleo Nautipa, are subject to taxation based on the special rules for taxation of shipping companies in Norway. This system of taxation leads to a deferment of taxation from the time when a profit is earned until the time when the profit is distributed as a dividend or when the company ceases to be subject to the taxation scheme for shipping companies. There is no provision for the present value of deferred tax relating to these tax increasing temporary differences, as it is not expected that the taxable income which these differences represent will materialise in the foreseeable future. Prosafe Production Pte Ltd, which owns FPSO Espoir Ivoirien, FPSO Ruby Princess and FSO Endeavor, are subject to taxation based on the special rules for taxation of shipping companies in Singapore. This system of taxation leads to tax exemption in Singapore, but the company pays tax deducted at source in the countries in which it operates. NOTE 15 PROFIT PER SHARE (FULLY DILUTED) Profit per share (fully diluted) is calculated on the basis of profit for the year and average outstanding and potential shares during the year. Average number of outstanding and potential shares was for 2001 and for NOTE 16 ACCOUNTS RECEIVABLE Accounts receivable at gross value Provision for expected loss 0 0 Net accounts receivable PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

51 NOTE 17 OTHER SHORT TERM RECEIVABLES Revenues earned Other short term receivables Total other short term receivables NOTE 18 CASH AND DEPOSITS Restricted cash (taxes withheld) amounted to NOK 32m. NOTE 19 EQUITY Share Other Translation capital equity difference Total Equity Profit for the year New equity Change in translation difference -5-5 Equity Number of shares: Par value: 10 Number of shareholders: largest shareholders/group of shareholders as at : Number of shares Percentage Cherryhayes Shipping ,9% JCE ,1% Folketrygdfondet ,2% Odin ,1% Storebrand ,8% Denver Investment Advisors ,8% SEB ,3% Gjensidige NOR ,1% Avanse ,1% GMO ,0% Vital ,6% Chase Manhattan Bank ,6% Orkla ,5% State Street Bank & Trust Co ,5% Oslo Betong Fabrikk ,1% Skibs AS Abaco ,1% Delphi ,1% McMillan ,1% Nordea ,0% Vesta ,0% Total 20 largest shareholders/group of shareholders ,7% Foreign shareholders 43,2% Norwegian shareholders 56,8% PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 49

52 Shares and subscription rights owned by management and members of the board: Shares Subscription rights Management: Arne Austreid - President & CEO Stig Christiansen - Chief Financial Officer Bjørn Henriksen - President Prosafe Production Petter Tomren - President Drilling Services Trygve Arnesen - President Offshore Support Services Roy Hallås - Vice President Corporate Relations Board of Directors: Reidar Lund *) - Chairman Geir Worum - Vice Chairman 0 0 Karl Urdshals - Board member Egil Bergsager - Board member 0 0 Christian Brinch - Board member 0 0 Bengt Eskilson - Board member Torild R. Alvheim - Employees' representative 0 0 Jon M. Fjose - Employees' representative 0 0 Olav Gjesteland - Employees' representative 0 0 *) Shares owned privately and/or through companies. NOTE 20 SUBSCRIPTION RIGHTS In connection with the incentive scheme in Prosafe established by the general meeting 28 February 1998 and the conversion of share options in Nortrans Offshore Ltd 20 April 2001, the board has per 31 December 2001 awarded subscription rights to the company's management. The subscription rights are awarded as follows: Date Number of rights Exercise price (NOK) ,00 + 1% per month ,00 + 1% per month ,00 + 1% per month , , , ,50 In the initial scheme established by the General Meeting 28 February 1998, the exercise price equals the share price at the time of the award + 1% per month until the subscription rights are exercised. The maximum exercise period for these subscription rights is 36 months. Following the acquisition of Nortrans Offshore Ltd (NOL), share options in NOL were converted to subscription rights in Prosafe on 20 April 2001 at a price below the share price at time of award, as per existing agreements in NOL. The maximum exercise period for these subscription rights are 60 months. Exercise of a subscription right implies that the company issues a new share subscription rights were exercised during Actual value of these subscription rights amounted to NOK 5,6 mill. The number of outstanding subscription rights at was at an estimated total value of NOK 34,1 mill. Actual value is calculated as the difference between the share price and the exercise price. NOTE 21 JOINT VENTURES Company s total Group s Company Country share capital (in 1 000) ownership Sandaband Well Plugging AS Norway NOK % Tinworth Limited Bermuda USD 6 50% Shaun Investments S.A. Panama USD 0 50% 50 PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

53 Included in profit and loss account Operating revenues 55 Profit before taxes 25 Profit for the year 21 Included in balance sheet Fixed assets 89 Current assets 33 Total assets 122 Long term liabilities 34 Short term liabilities 29 Total liabilities 63 Equity 59 NOTE 22 OTHER PROVISIONS Accrued classification costs for rigs Deferred revenues Other provisions 17 0 Total other provisions NOTE 23 INTEREST BEARING LONG TERM DEBT Loans in USD Total interest bearing long term debt As at total interest bearing long term debt amounted to USD 317,4m, out of which USD 119,4m is related to the company's rigs (fleet loan), USD 115m is related to group purposes (of this USD 80m is related to the aquisition of Prosafe Production), and USD 83m is related to the company's FSO/FPSO's. The fleet loan of USD 119,4m is drawn down by Prosafe Rigs AS, which owns the company's accomodation and service rigs. The loan is repaid based on semiannual repayments of USD 9,18m with a profile of 8 years, and a balloon payment of USD 27,55m after 7 years from draw down. Of the USD 115m loan in Prosafe ASA the initial agreement says that USD 80m fall due in September 2002, but this loan will be refinanced by that time. The remaining USD 35m is an interest-only loan which is due The debt of USD 83m related to the company's FSO/FPSO's is divided into 5 project facilities with different repayment profiles. Of this USD 28,6m are due in 2002, USD 23,5m in 2003, and thereafter USD 12m yearly in 2004 and 2005, while remaining USD 6,9m are due in Consequently, debt which fall due later than amount to USD 27,55m or NOK 248,3m translated at the prevailing exchange rate at The interest margins are fixed at 0,875% p.a. for the fleet loan in Prosafe Rigs AS and 1% for the interest-only loan of USD 35m in Prosafe ASA. The margins are adjusted yearly according to a table dependent on the Leverage Ratio as defined below. Consequently, the interest margins were adjusted to 1% p.a. for the fleet loan and 1,125% p.a. for the interest-only loan at the beginning of 2002, and thereafter they may vary between 0,875% and 1,125% p.a., and between 1% and 1,375% p.a. The interest margin on the aquisition loan of USD 80m is 1,75% p.a. For the remaining USD 83m the different facilities are subject to various margins at 0,7% p.a., 1,25% p.a., 1,375% p.a. and 2% p.a. The loan facilities are subject to financial covenants based on consolidated figures: Net Worth Ratio: Net Worth / (Net Worth + Total Debt) 1) shall be minimum 0,4 Leverage Ratio: Total debt / EBITDA shall not exceed 5,0 Working capital: Minimum NOK 150m Liquidity: Minimum NOK 175m, out of which minimum NOK 100m must reside in Prosafe Rigs AS Market value of accomodation and service rigs: Market value of accommodation and service rigs / Loan in Prosafe Rigs AS shall be minimum 2,0 1) Total Debt = interest bearing debt + bank guarantees issued + net liability on interest hedging agreements. PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 51

54 NOTE 24 INTEREST FREE SHORT TERM LIABILITIES Accounts payable Holiday pay and accrued wages Public taxes Taxes payable Classification and maintenance - drilling equipment 11 8 Interest costs Other accrued costs Other interest free short term liabilities 7 10 Total interest free short term liabilities NOTE 25 MORTGAGES AND GUARANTEES In line with industry practice, Prosafe has issued bank guarantees to customers in connection with award and performance of contracts. Total bank guarantees issued amounted to NOK 191,1m at year end. The interest bearing long term debt of NOK 2.860m, see note 23, is guaranteed by first priority ship mortgage on the accommodation and service rigs, accounts receivable and bank deposits within the Offshore Support Services business area, ships within Floating Production and bank deposits in Drilling Services. Book value of assets pledged as security: Accommodation and service rigs Accounts receivable 68 Ships Cash and bank deposits 410 Total NOTE 26 FINANCIAL MARKET RISK Prosafe operates internationally and within capital intensive industry, and is exposed to market risk relating to the development of foreign exchange rates and interest rates. Foreign currency Today 50-60% of the operating revenues are generated in NOK. Operating profit before depreciation measured in foreign currency - mainly USD - amounts however to 80-90%. Consequently, Prosafe will continuously assess the net surplus of USD, and normally about 80-90% of this will be secured against NOK through monthly forward exchange contracts. This strategy is being revalued based on the fact that the company's revenues generated in USD are increasing, and that these revenues are generated from assets which are valued, traded and financed in USD. A strong USD/NOK rate will be favourable for Prosafe based on the relative contribution of profit in USD, as well as the fact that the company's most valuable assets are traded in USD. Under the assumption of the revenues not being hedged against currency movements, and increase of NOK 0.10 in the USD/NOK exchange rate will increase the operating profit by circa NOK 8m. At year end the group had entered into the following forward exchange contracts (amounts in USD 1.000): Amount Exchange Rate , ,8475 Interests According to Prosafe's financial strategy, the company shall continuously assess interest hedging options for its interest bearing debt. At year end 48% of total debt in the group was fixed by a combination of an interest rate swap agreement for floating to fixed interest and an interest corridor with a floor and a cap. Interest rate hedging will increase to cover about 60% of total interest bearing debt during the first quarter of 2002, in time with repayment. Thereafter interest rate hedging remains at about 60% of total debt, based on existing debt and in time with repayment until the end of Under the assumption of a floating interest rate, an increase in the USD interest rate of one percentage point would - based on the current interest bearing debt - amount to circa USD 2.8m per year, equivalent to NOK 25m based on the USD/NOK exchange rate prevailing at PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

55 NOTE 27 MATERIAL SINGLE TRANSACTIONS In March 2001 Prosafe acquired Nortrans Offshore Ltd for NOK 1.768m. In the same month Procon Engineering AS was sold to Hydralift ASA for NOK 118m. The gain from this sale was NOK 60m. In January 2002 the module business in Aberdeen was sold to leading personnel in Consafe. This sale had a neutral impact on Prosafe's consolidated profit. In February 2002 Prosafe acquired the semi-submersible accommodation and service rig Polyconcord for USD 34,5m. NOTE 28 PRO FORMA ACCOUNTS INCL. FLOATING PRODUCTION Below is pro forma accounts for Prosafe under the assumption that the acquisition of Nortrans Offshore Ltd took effect from 1 January All amounts in NOK million. Profit & Loss Account Operating revenues Operating expenses Operating profit before depreciation and amortisation Goodwill amortisation Depreciation Operating profit Interest income Interest expenses Other financial items Profit before other items Other items Profit before taxes Taxes Profit for the period Balance Sheet Goodwill Rigs Ships 577 Other fixed assets 147 Total fixed assets Other current assets 544 Cash and deposits 788 Total current assets Total assets Share capital 335 Other equity Total equity Interest free long term liabilities 37 Interest bearing long term liabilities Total long term liabilities Interest free short term liabilities 512 Total short term liabilities 512 Total equity and liabilities PROSAFE ANNUAL REPORT 2001 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 53

56 P a r e n t c o m p a n y a c c o u n t s PROFIT AND LOSS ACCOUNT BALANCE SHEET (NOK 1 000) Note (NOK 1 000) Note Operating revenues Operating expenses 2, Depreciation Total operating expenses Deferred tax asset Tangible fixed assets Shares in subsidiaries Other fixed assets Total fixed assets Operating profit Net financial items Loss before taxes Taxes Loss for the year Dividends 0 0 CASH FLOW STATEMENT (NOK 1 000) Other current assets Cash and deposits Total current assets Total assets Share capital Share premium reserve Other equity Total equity Pension liabilities Total provisions Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Net change in cash and deposits Cash and deposits Cash and deposits Interest bearing long term debt Total long term debt Interest free short term liabilities Total short term liabilities Total equity and liabilities PROSAFE ANNUAL REPORT 2001 ACCOUNTS - PARENT COMPANY

57 N o t e s P a r e n t c o m p a n y a c c o u n t s NOTE 1 ACCOUNTING POLICIES The accounting principles used for the consolidated accounts also apply for the parent company Prosafe ASA. Investments in subsidiaries are treated according to the cost method. Group contribution received is booked net against equity. NOTE 2 OPERATING EXPENSES Wages and holiday pay Pension expenses Board fees Other remunerations Payroll taxes Hired-in personnel Other personnel expenses Other operating expenses Total operating expenses Average number of employees NOTE 3 PENSION LIABILITIES Prosafe ASA holds pension schemes for employees which entitle them to future pension benefits (defined benefit plans). The number of people included in this scheme is 15. The company also has pension liabilities in respect of the Chairman which is partly financed through operations. For assumptions underlying the actuary calculation, see note 8 to the consolidated accounts. Pension expenses in the profit and loss account: Present value of current year earnings Interest expenses on pension liabilities incurred Expected return on pension funds Allocated effect of changes in estimates and pension plans Pension expenses for the year Pension liabilities in the balance sheet: Estimated pension liabilities incl. future wage growth Value of pension funds Estimated net pension liabilities Non-amortised plan changes Non-amortised estimate variance Net pension liabilities excl. payroll taxes Accrued payroll taxes 0 4 Net pension liabilities incl. payroll taxes PROSAFE ANNUAL REPORT 2001 NOTES TO THE ACCOUNTS - PARENT COMPANY 55

58 NOTE 4 TANGIBLE FIXED ASSETS Machinery, equipment Buildings Land Total Acquisition cost Additions Disposals at acquisition cost Acquisition cost Cum. depreciation Cum. depreciation on disposals Depreciation for the year Cum. depreciation Net book value Depreciation rate (%) Leasing expenses NOTE 5 FINANCIAL ITEMS Interests receivable from group companies Other interest income Gain on sale of subsidiary Interest expenses Interests payable to group companies Realised currency loss - net Unrealised currency loss - net Write-down of receivable in subsidiary Other financial expenses Net financial items NOTE 6 TAXES Specification of taxes in the profit and loss account: Loss before taxes Permanent differences Changes in temporary differences Basis for taxes payable in the profit and loss account Group contribution received Taxable income 0 0 Taxes payable Changes in deferred tax Total taxes PROSAFE ANNUAL REPORT 2001 NOTES TO THE ACCOUNTS - PARENT COMPANY

59 NOTE 6 TAXES CONT. Specification of deferred tax in the balance sheet: Temporary differences relating to: Fixed assets Short term liabilities Pension liabilities Basis for calculation of deferred tax asset Recognised deferred tax asset Utilisation of deferred tax asset is substantiated through future group contributions from Norwegian subsidiaries. NOTE 7 SHARES IN SUBSIDIARIES Number of Book value Company: Share capital (1 000) shares (1 000) Ownership Prosafe Rigs AS NOK % Prosafe Offshore AS NOK % Prosafe (UK) Holdings Ltd GBP % Prosafe Drilling Services AS NOK % Prosafe Offshore Norge AS NOK % Prosafe I AS NOK % Prosafe Production Services Pte Ltd USD % Shaun Investments S.A. USD % Offshore Mooring Services Ltd USD % Nortrans Offshore do Brazil Limitada USD % Total book value NOTE 8 OTHER FIXED ASSETS Shares 0 84 Long term receivables from group companies Total other fixed assets NOTE 9 OTHER CURRENT ASSETS Short term receivables from group companies Other short term receivables Total other current assets NOTE 10 CASH AND DEPOSITS Restricted cash (taxes withheld) was PROSAFE ANNUAL REPORT 2001 NOTES TO THE ACCOUNTS - PARENT COMPANY 57

60 NOTE 11 EQUITY Share Share premium Other capital reserve equity Total Equity New equity Loss for the year Group contribution received (net) Equity Number of shares: Par value: 10 NOTE 12 INTEREST FREE SHORT TERM LIABILITIES Short term liabilities to group companies Accounts payable Public taxes Other interest free short term liabilities Total interest free short term liabilities NOTE 13 MORTGAGES, INTEREST BEARING LOAN AND GUARANTEES In line with industry practice, Prosafe ASA has issued bank guarantees and parent company guarantees (performance guarantees) on behalf of subsidiaries in connection with the award and performance of contracts. Total issued bank guarantees amounted to NOK 92m at year end. The interest bearing long term debt in Prosafe ASA of NOK 315m is guaranteed by security in shares in Prosafe Drilling Services AS. The loan is an interest-only loan and is due 28 February The remaining long term debt of NOK 721m is related to the investment in the Floating Production division, and is guaranteed by security in the shares in Prosafe Production Services Pte Ltd and the shares in Prosafe Rigs AS. This is also an interest-only loan and is due in September 2002, but this loan will be refinanced by that time. Book value of pledged assets in Prosafe ASA amounted to NOK 2.827m per Tananger, 19 March 2002 Reidar Lund Chairman Geir Worum Vice Chairman Egil Bergsager Karl Urdshals Christian Brinch Bengt Eskilson Torild R. Alvheim Jon M. Fjose Olav Gjesteland Arne Austreid President & CEO 58 PROSAFE ANNUAL REPORT 2001 NOTES TO THE ACCOUNTS - PARENT COMPANY

61 A u d i t o r s r e p o r t PROSAFE ANNUAL REPORT 2001 AUDITOR S REPORT 59

62 M a n a g e m e n t Arne Austreid President & CEO Stig Christiansen Chief Financial Officer Trygve Arnesen President Offshore Support Services Bjørn Henriksen President Floating Production Petter Tomren President Drilling Services Roy Hallås Vice President Corporate Relations 60 PROSAFE ANNUAL REPORT 2001 MANAGEMENT