The subsidiary Siem WIS AS develops technology and products for the oil and gas drilling industry.

Transcription

1 SIEM OFFSHORE INC. ANNUAL REPORT

2 This is.. is an owner and operator of modern support vessels for the global oil and gas service industry. The Company has grown significantly since it was established as a stand-alone company in July 2005 and has currently a fleet of 24 vessels in operation and 17 vessels under construction. The fleet consists of platform supply vessels, multipurpose field and ROV support vessels, large anchor handling tug supply vessels, and other support vessels. The Company s fleet provides services in the North Sea, Brazil, Gulf of Mexico and Asia-Pacific. The Company has an integrated operation with offices in Norway (Kristiansand and Rovde), Brazil (Rio de Janeiro) and the Cayman Islands, and provides a wide range of services from its vessels, equipment and experienced onshore and offshore personnel with high focus on Health, Safety, Environment and Quality. The objective of the Company s is to become a preferred supplier of marine services to the oil and gas industry based on high focus on Health, Safety, Environment quality and reliability, and by providing cost efficient solutions by close cooperation with customers. The subsidiary Siem WIS AS develops technology and products for the oil and gas drilling industry. The Company is listed on the Oslo Stock Exchange under the ticker symbol SIOFF. 2

3 CONTENT KEY FIGURES 4 BOARD OF DIRECTORS REPORT 5 CONSOLIDATED INCOME STATEMENT 9 CONSOLIDATED BALANCE SHEET - ASSETS 10 CONSOLIDATED BALANCE SHEET - EQUITY AND LIABILITIES 11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 12 CONSOLIDATED CASH FLOW STATEMENT 13 NOTES TO THE ACCOUNTS 14 AUDITOR S REPORT 39 BOARD OF DIRECTORS 40 CORPORATE GOVERNANCE 41 FINANCIAL CALENDAR 43 FLEET LIST MARCH

4 KEY FIGURES Consolidated Statement Operating revenue 159,342 73,554 13,233 Net operating expenses -79,543-53,074-12,617 Depreciation and amortization -18,961-10,895-1,972 Other gains/(losses) ,160 0 Gain on sale of interest rate derivatives Other gains/(losses) - Currency exchange forward contracts 39,618 20,789-3,085 Operating result 100,259 41,534-4,441 Net financial items -1,287 4,213 3,281 Result before taxes 98,972 45,747-1,160 Taxes and minorities This year's tax expense -1,937-1, Result for the financial year 97,035 44,528-2,058 Attributable to minorities -1, Attributable to equity holders 98,368 45,012-2,057 Consolidated Balance Sheet Non-current assets 624, ,311 48,091 Current assets 276,792 81,674 44,860 Total assets 901, ,985 92,951 Equity 478, ,114 54,480 Provisions for liabilities 840 8, Non-current liabilities 370, ,670 19,119 Current liabilities 54,034 27,004 18,951 Total liabilities and shareholders' equity 904, ,985 92,952 Key Ratios Note Weighted average number of outstanding shares (1,000) 194, , ,463 Earnings per share in USD (EPS) Share price per year end (in NOK) Book shareholders' equity per share in USD Book equity ratio 3 53% 41% 59% Price/earnings per share (P/E) N/A Liquidity ratio Notes (1) Earnings per share (EPS) = Result for the financial year/average number of shares outstanding (2) Book shareholders' equity per share = Book shareholders' equity / Number of shares outstanding (3) Book equity ratio = Book equity / Total assets (4) Price/Earnings per share (P/E) = Stock Exchange price at 31 December / Net earnings per share (5) Liquidity ratio = Current assets / Current liabilities 4

5 BOARD OF DIRECTORS REPORT Description of Business The Board of Directors of. present their report for the year ended 31 December 2007 together with the financial statements for the year. The financial statements and related notes will be laid before the shareholders at the Annual General Meeting to be held 8 July The year of 2007 was profitable with further expansion of the Company s business. The operating revenue and result increased significantly as several new vessels were delivered and put into operation. The Company s capital base was increased through the issue of new shares and from retained earnings. Further commitments were entered into for investments in highly sophisticated support vessels of modern design. The Company s range of services will continue to increase as these vessels are delivered from yards during the coming years. The work force increased by 33 employees during the year and the Company will continue to recruit skilled offshore and onshore personnel in line with the scheduled increase in activity. The Board of Directors thank the shareholders for their support and the employees for their contributions and achievements. Main events in 2007 The Company took delivery of two mid-size Platform Supply Vessels ( PSV ) of VS 470 mk II design and one Multipurpose Field- and ROV Support Vessel ( MRSV ) of MT 6016L design from Norwegian yards. Options for the construction of six additional Anchor-Handling, Tug, Supply ( AHTS ) vessels of VS 491 design at a Norwegian yard were exercised for delivery during Two of the shipbuilding contracts for the AHTS vessels were sold to Singa Star Pte Ltd and its subsidiaries ( Singa Star ) as part of a long-term cooperation agreement described below. The Company also acquired a 1999-built large-size PSV of MT 6000 design and a shipbuilding contract for a mid-size PSV of MT6009 design, to be delivered from a Norwegian yard in first quarter The one remaining standby vessel and one crew boat operated in Brazil were sold. Three of the mid-size PSVs were chartered out for a period of three years each. One large-size PSV was converted to a cable-lay vessel for a three-year charter. A five-year charter was entered into for the second MRSV to be delivered in second quarter The equity was increased by approximately NOK 1.3 billion through the issue of 85,972,966 new ordinary shares. 55,972,966 new shares were issued by way of a rights issue at NOK per share in June and 30,000,000 new shares issued at NOK per share in December by way of a private placement to Singa Star. The Company entered into an agreement for a long-term cooperation with the unrelated Singapore-based private company, Singa Star, whereby Siem Offshore exercised the option for the construction of two AHTS vessels and transferred the shipbuilding contracts for such vessels to Singa Star. Singa Star has granted an option to Siem Offshore to buy back the second shipbuilding contract. Siem Offshore will establish a pool for its 10 AHTS vessels under construction for Siem Offshore and the two additional vessels transferred to Singa Star. Siem Offshore will become the commercial manager of the pool and conduct the shipbuilding supervision and the technical management for the two vessels. The solutions based on the Siem WIS technology are being introduced to the managed pressure drilling ( MPD ) market worldwide. The market response supports the Company s belief that the technology and solutions may solve common challenges within the emerging MPD area. A qualification test of the prototype of the constant circulation device, the Siem WIS CircSub, is expected to be performed at a test well during second quarter

6 Subsequent Events In January 2008, the Company, through its 51%-owned subsidiary Siem Meling Offshore DA, entered into an agreement to acquire a shipbuilding contract for a large-size PSV of VS 485 design. The contract price is approximately NOK 315 million and the vessel is scheduled for delivery in first quarter 2009 from a Norwegian yard. Also in January, Siem Consub SA, a 100%-owned subsidiary, entered into an agreement with Petrobras, Brazil to build two Fast Supply Vessels of GPA 150 design for 8 years plus 8 years time charter contracts. The accumulated contract value for the two vessels is approximately USD 45 million for the firm period and both vessels are scheduled to be delivered from a Brazilian shipyard and commence operation in the first quarter of Financial Performance The consolidated financial statements for Siem Offshore are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Based on the estimated future earnings and operating expenses and the present financing, the financial statements have been prepared under the going-concern assumption. In 2007, the Company recorded revenues of USD 159 million (2006: USD 74 million), net profit attributable to the shareholders of USD 98 million (2006: USD 45 million) and USD 0.50 earnings per share (2006: USD 0.28 per share). The net profit for 2007 includes realised and unrealised currency gain of USD 39.6 million arising from the revaluation to market of open currency exchange contracts during These currency exchange contracts have been entered into to cover the NOK commitment in relation to the vessels under construction at Norwegian yards. Prior to ordering vessels from Norwegian yards, the Company applied for fixed 12-year interest rate options ( CIRR ) related to the long-term financing of such vessels. The Company was granted such options by the Norwegian Export Credit Agency. During 2007, the Company sold the right to exercise such options to a first class international bank (the Bank ) in consideration for an up-front payment of USD 23.5 million. If the options for the fixed interest rates are exercised by the Bank, then the Company will draw up to USD 950 million from the Norwegian Export Credit Agency. Any long-term loans drawn from the Norwegian Export Credit Agency will be placed as corresponding deposits in the Bank as financial security for any loans drawn. The up-front payment of USD 23.5 million was recorded as a gain during second and third quarter of 2007 in accordance with advice received at that time. After further discussions with our auditors, it was determined that the recognition of the gain, related to each relevant vessel, shall be recorded over the term of any drawn loans, or in whole if the relevant loan is not drawn. Accordingly, USD 0.1 million of the total up-front payment is recorded in the 2007 profit and loss account (see also note 10). The Board proposes that the net profit of USD 98 million for 2007 be carried forward in the balance sheet as retained earnings and that no dividend be paid for As of 31 December 2007, retained earnings were USD 124 million. Balance Sheet and Financing Shareholders equity was USD 462 million, or USD 1.82 per share, based on 253,891,866 issued and outstanding shares. The book equity ratio was 53%. The cash position at year end was USD 188 million. The gross interest-bearing debt was USD 364 million. Such debt includes the equivalent of NOK 269 million drawn under a Term Loan Facility in the majority-owned company, Siem Meling Offshore DA. The Company has USD 67 million available in way of undrawn borrowings under loan and working capital facilities per year-end Future yard instalments for vessels under construction totalled NOK 6.4 billion (USD 1.2 billion) at the end of Such yard instalments fall due in 2008 with NOK 1.4 billion (USD 252 million), 2009 with NOK 2.9 billion (USD 536 million), and 2010 with NOK 2.1 billion (USD 393 million). Shareholder Information As of 31 December 2007, Siem Offshore had 2,657 shareholders. The total number of issued and outstanding shares in Siem Offshore was 253,891,866 shares. The largest shareholder, Siem Industries Inc., held 34% of the shares. Approximately 48% of the outstanding shares were owned by Norwegian shareholders at year-end The Board holds authorisation to issue 81,108,134 new shares. 6

7 Corporate Governance As a company incorporated in the Cayman Islands, Siem Offshore is subject to Cayman Islands laws and regulations. Cayman Islands corporate law is to a great extent based on English law. In addition, certain aspects of Norwegian Securities law apply to the Company due to its listing on the Oslo Stock Exchange. The Company endeavours to maintain high standards of corporate governance and is committed to ensuring that all shareholders of the Company are treated equally. The Board monitors the performance of management through regular meetings and reporting. All the issued shares in Siem Offshore are freely tradable and carry the same rights with no restrictions on voting. The 2008 Annual General Meeting of the Company will be held at the George Town office of the Company on 8 July Shareholders can attend or be represented by proxy. A revised Norwegian Code of Practice for Corporate Governance was published on 4 December 2007, which is effective 1 January The Company has provided an annual statement relating to their compliance with the code dated 28 November 2006 (see separate section page 41). Financial Risks Interest and currency rates Risk The majority of the company s assets are denominated in NOK. Future yard instalments and most of the vessels operating costs are nominated in NOK. Overhead expenses are primarily in USD, NOK and BRL. Management monitors these risks and enters into forward currency contracts for hedging purposes from time to time to reduce the exposure to currency fluctuations. Siem Offshore has entered into such currency exchange contracts in order to fix the NOK commitment in relation to the vessels under construction at Norwegian yards. As of 31 December 2007, the Company has sold forward approximately USD 186 million, equivalent to NOK 1.1 billion, of the total future yard commitments of NOK 6.4 billion at average exchange rate USD/NOK All interest-bearing loans are based on floating interest rate, except the loan from BNDES in Brazil and the loans drawn from the Norwegian Export Credit Agency in relation to the sale of the interest rate options received from Eksportfinans. Liquidity Risk The Company is financed by debt and equity. If the Company fails to repay or refinance its loan facilities, additional equity financing may be required. There can be no assurance that the Company will be able to repay its debts or extend their re-payment schedule through re-financing of the loan agreements or not experience net cash flow shortfalls exceeding the Company s available funding sources or to comply with a minimum cash requirements, nor can there be any assurance that the Company will be able to raise new equity, or arrange new borrowing facilities, on favourable terms and in amounts necessary to conduct its ongoing and future operations, should this be required. Yard Risk The process for construction of new vessels is associated with numerous risks. Among the most critical risk factors in relations to such construction is the risk of not receiving the vessels on time, at budget and with agreed specifications. In addition, there is the risk of the different yards experiencing financial or operational difficulties resulting in bankruptcy or otherwise adversely affecting the construction process. The Company has obtained certain guarantees of financial compensation including refund guarantees in case of delays and non-delivery, and it has the right to cancel contracts if delivery of vessels is significantly delayed. However, no assurance can be given that all risks have been fully covered. Delays and non-delivery of the vessels under construction is likely result in a loss of income for the Company, and could also possibly lead to breach of contract in respect of contracts entered into between the Company and third parties concerning employment of vessels. Credit risk The Board considers that the credit risk is diversified as the Company is not significantly exposed to one individual customer or contract as at 31 December

8 Safety and Environmental Issues The core values of Siem Offshore include the strict observance of laws, best practices and acting responsibly towards the environment. The Company is in compliance with environmental regulations imposed by relevant national authorities and international conventions. There is always a risk that bunkers and oils onboard our vessels may cause pollution to the environment and that collision and serious breakdowns of the vessels may occur. However, regarding the operational activities and vessels fully owned by Siem Offshore, the Company has devised systems with the aim to prevent such incidents and to mitigate the damages should they occur. Siem Offshore did not experience material spills of fuel during 2007 and caused no environmental harm. One of our core values is that the Company shall not compromise on safeguarding the individual life, health or safety. There have been no serious accidents involving personnel in 2007 relating to the operation by the Company. Management and Organization The number of employees at the end of 2007 was 618. The Company offers its employees a sound working environment with possibilities for professional development where individuals are treated equally and without discrimination. Outlook The supply and demand for the PSV spot market remained generally in balance during The demand declined at the end of fourth quarter and has remained at a relative lower level during first quarter Such decline in demand is believed to be seasonal and has often been experienced at this time of the year. The spot market day rates have been volatile during first quarter Some vessels have secured medium-term fixtures and the level of activity has increased. There is an encouraging level of global interest in medium and long term employment of PSVs, in particular for midand large-size vessels for project-related work. We continue to feel confident about the specification and demand for the AHTS vessels we have under construction. The high number of vessels under construction is a concern and additional yard orders may lead to an oversupply of support vessels for the offshore industry. Replacement of older and smaller vessels will however, increase the demand for the company s type of vessels. 31 March 2008 Kristian Siem Richard England Bjørn Johansen Chairman (sign.) sign.) (sign.) Ulf Sørdal Michael Delouche Terje Sørensen Chief Executive Officer (sign.) (sign.) (sign.) 8

9 CONSOLIDATED INCOME STATEMENT (Amounts in USD 1,000) Note Operating revenue 2,22 159,342 73,554 13,233 Operating expenses 6,17,18,19,22-79,543-53,074-12,617 Depreciation and amortization 3-18,961-10,895-1,972 Other gains/(losses) ,160 0 Gain on sale of interest rate derivatives Other gains/(losses) - Currency exchange forward contracts 28 39,618 20,789-3,085 Operating result 2 100,259 41,533-4,441 Financial income and expenses Net currency items 20 8, Result from associated companies 5, ,151 3,242 Interest income 20 3, Financial expenses net 20-13,756-5, Net financial items -1,287 4,213 3,281 Result before taxes 98,972 45,747-1,160 This year's tax expense 9-1,937-1, Profit for the financial year 97,035 44,527-2,057 Attributable to minorities 29-1, Attributable to equity holders of the parent 29 98,368 45,012-2,057 Weighted average number of outstanding shares ('000) 194, , ,463 Earnings per share Diluted earnings per share

10 CONSOLIDATED BALANCE SHEET - ASSETS (Amounts in USD 1,000) Note Intangible assets 3 9,232 7, Non-current intangibles 9,232 7, Non-current tangibles Vessels under construction 3,16 79,724 36,834 9,897 5,999 Vessels and equipment 3 421, ,821 24,516 5,508 Capitalised project costs 3 2,910 4,107 5,400 6,434 Total non-current tangibles 504, ,762 39,813 17,941 Financial non-current assets Investment in associated companies 5 15,718 18,723 8,054 5,339 CIRR Loan deposit 10 93, Long-term receivables 7 2, Total financial non-current assets 111,554 19,611 8,278 5,550 Total non-current assets 624, ,311 48,091 23,491 Current assets Accounts receivable 7 49,793 21,191 13,102 6,914 Other short-term receivables 7 22,293 16,039 7,449 13,587 Non-current asset held for sale ,600 2,600 Derivative financial instruments 14 15,598 9, Bank deposits 8 188,308 34,384 21,709 31,588 Total current assets 276,792 81,674 44,860 54,689 Total assets 901, ,985 92,951 78,180 10

11 CONSOLIDATED BALANCE SHEET - EQUITY & LIABLITIES Opening Balance (Amounts in USD 1,000) Note Equity Paid-in capital Share capital 2,539 1,675 1,302 1,348 Share premium reserve 335, ,650 84,018 86,804 Total paid-in capital , ,325 85,320 88,153 Other equity Other reserves 25,610-26,328-28,783-28,742 The year's result 98,368 45,012-2,057 0 Total retained result 123,977 18,684-30,840-28,742 Shareholders' equity 461, ,008 54,480 59,411 Minorities 13,895 10, Total equity , ,115 54,480 59,411 Liabilities Provisions Pension liabilities Deferred taxes 9 0 7, Total provisions for liabilities 840 8, Non-current liabilities Borrowings falling due after 1 year , ,384 19,116 5,515 CIRR Loan 10 93, Tax liabilities 9 8, Unearned CIRR 23, Other non-current liabilities Total non-current liabilities 370, ,670 19,119 5,520 Current liabilities Accounts payable 9,478 4,291 1, Borrowings falling due within 1 year 10 23,891 4,557 1, Provisions for other liabilities and charges 12 8,398 7,569 5,399 4,087 Derivative financial instruments ,158 3,971 Payable taxes 9 1, Other current liabilities 11,13 11,015 9,705 5,464 3,192 Total current liabilities 54,034 27,004 18,951 12,761 Total liabilities 425, ,870 38,471 18,769 Total equity and liabilities 901, ,985 92,951 78,180 Secured debt , ,561 14,650 Guarantees 15 6,399 4,167 5,784 11

12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Amounts in USD 1,000) Total number of shares Share Capital Share prem. reserves Other reserves Retained earnings Shareholders' equity Minority interest Total equity Equity at opening July ,833,222 1,348 86,804-28,742 59,411 59,411 Cancellation of own shares September ,100, ,002-2,033-2,033 Cancellation of own shares November ,542, The year's result -2,057-2,057-2,057 Effect of exchange rate differences Equity as of ,191,222 1,302 84,018-28,783-2,057 54, ,480 Share issue to owner of Rovde Shipping AS 35,019, ,289 25,639 25,639 Share issue to owner of WIS AS 2,300, ,245 2,268 2,268 Cancellation of own shares May ,662, ,347-1,364-1,364 Share issue to certain key employee 1,650, ,445 1,462 1,462 Minority interest arising on business combinations 0 13,988 13,988 Distribution to minorities 0-3,600-3,600 Other items The year's result 45,012 45, ,527 Effect of exchange rate differences 4,197 4, ,400 Equity as of ,498,900 1, ,650-24,585 43, ,009 10, ,115 Share issue July ,972, ,113-2, , ,375 Share issue December ,000, , ,414 97,414 Share issue to certain key employee 420, Minority interest arising on business combinations 0 4,418 4,418 Other items The year's result 98,368 98,368-1,333 97,035 Effect of exchange rate differences 9,267 9, ,011 Equity as of ,891,866 2, ,448-17, , ,964 13, ,859 12

13 CONSOLIDATED CASH FLOW STATEMENT (Amounts in USD 1,000) Note Cash flow from operations Profit before taxes, excluding interest ,244 49,915-1,294 Interest paid -10,514-3, Paid taxes in the period -1, Result from associated companies 35-8,151-3,242 Other gains / losses ,160 0 Dividend from associated companies 5,088 4, Depreciation and amortization 18,961 10,895 1,972 Other changes Changes in short-term receivables and payables -26,477-7,762 2,098 Net cash flow from operations 93,870 34,189-1,492 Cash flow from investment activities Interest received 3, Investment in fixed assets -284, ,339-23,810 Short-term loan to related parties ,500 Investment in shares -2,395-2,464 0 Received from sale of fixed assets 11,148 31,501 0 Change in paid in capital associated Companies ,381 0 Paid- in capital Siem Meling Offshore DA -3,124-5,219 0 Cash received from acquisition of shares in subsidiaries 0 12,057 0 Net cash flow from investment activities -275, ,038-19,768 Cash flow from financing activities Buy back of own shares 0-1,364-2,833 Settlement for sale of interest rate derivatives 23, Received from raising of new equity 222,308 1,462 0 Distribution to minorities 0-3,600 0 Received from raising of new long-term debt 97, ,345 14,650 Repayment of long-term debt -8,510-4, Net cash flow from financing activities 334, ,176 11,357 Effect of exchange rate differences 1,001-5, Net change in cash 153,924 12,675-9,879 Cash at bank as of ,384 21,709 31,588 Cash at bank as of ,308 34,384 21,709 13

14 NOTES TO THE ACCOUNTS Note 1 - Accounting Principles Basis of preparation Siem Offshore Group ( The Company ) prepares consolidated financial statements in accordance with International Financial Reporting Standards( IFRS ), and International Financial Reporting Interpretations Committee ( IFRIC ), endorsed by the European Union and the regulations of Oslo Stock Exchange. As of 31 December 2007, there were no differences between these standards and International Financial Reporting Standards ( IFRS ), as issued by the International Accounting Standards Board, and the policies adopted by the Company. The consolidated financial statements have been prepared under the historical cost convention, as modified by fair value of non-current assets held for sale, and financial assets, including derivative instruments at fair value through profit or loss. The financial statements have been prepared under the assumption that the Company is a going concern. A summary of the principal accounting policies applied in the preparation of these consolidated financial statements is set out below. All figures are in USD thousands unless otherwise clearly stated. USD is the functional currency for the Company. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed under Critical accounting estimates and judgements presented below. Accounting policies The following new standards, amendments to standards and interpretations are mandatory for the financial year ending 31 December IAS 1 (Amendment), Presentation of financial statements Capital disclosures. The amendment requires additional disclosures to enable users of the financial statements to evaluate the Company s objectives, policies and processes for managing capital. IFRS 7, Financial instruments: Disclosures, and the complementary amendment to IAS 1, Presentation of financial statements Capital disclosures, introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuation of the Company s financial instruments, or the disclosures relating to taxation and trade and other payables. IFRIC 8, Scope of IFRS 2, requires consideration of transactions involving the issuance of equity instruments, where the identifiable consideration received is less than the fair value of the equity instruments issued in order to establish whether or not they fall within the scope of IFRS 2. This standard does not have any impact on the Company s financial statements. IFRIC 10, Interim financial reporting and impairment, prohibits the impairment losses recognised in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. This standard does not have any impact on the Company s financial statements. The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after 1 January 2007 but they are not relevant to the company s operations: Revised guidance on implementing IFRS 4, Insurance contracts ; IFRIC 7, Applying the restatement approach under IAS 29, Financial reporting in hyper-inflationary economies ; and IFRIC 9, Re-assessment of embedded derivatives. The following new standards, amendments to standards and interpretations have been issued but are not effective for 2007 and have not been early adopted: IAS 23 (Amendment), Borrowing costs (effective from 1 January 2009). It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Company will apply to IAS 23 (Amended) from 1 January

15 IFRS 8, Operating segments (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, Disclosures about segments of an enterprise and related information. The new standard requires a management approach, under which segment information is presented on the same basis as that used for internal reporting purposes. The group will apply IFRS 8 from 1 January The expected impact is still being assessed in detail by management, but it appears likely that the number of reportable segments, as well as the manner in which the segments are reported, will change in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. IFRIC 11, Group and treasure shares transactions. IFRIC 11 addresses how to apply IFRS 2 Share Based Payments to share-based payments arrangements involving an entity`s own equity instruments or equity instruments of another entity in the same group. The Company will apply IFRIC 11 from annual periods beginning 1 January IFRIC 12, Service Concessions Arrangements. IFRIC 12 addresses how service concession operators should apply existing IFRSs to account for the obligations they undertake and rights they receive in service concession arrangements. No member of the Company is an operator and hence this IFRIC is not applicable to the Company. IFRIC 13, Customer Loyalty Programs. This interpretation becomes effective for annual periods beginning on or after 1 July 2008, and provides requirements for the accounting of customer loyalty credits. The Company does not currently have such schemes and expect there to be no impact on the Company. IFRIC 14, IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The Company will apply IFRIC 14 from 1 January 2008, but it is not expected to have any impact on the Company s accounts. The following interpretations to existing standards have been published and are mandatory for the group s accounting periods beginning on or after 1 January 2008 or later periods but are not relevant for the Company s operations: IFRIC 12, Service concession arrangements (effective from 1 January 2008). IFRIC 12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. IFRIC 12 is not relevant to the company s operations because none of the Company s subsidiaries provide for public sector services. IFRIC 13, Customer loyalty programmes (effective from 1 July 2008). IFRIC 13 clarifies that where goods or services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 13 is not relevant to the Company s operations because none of the Company s subsidiaries operate any loyalty programmes. Consolidation (a) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Company. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Company s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Identifiable assets consist of tangible assets and intangible assets other than goodwill. Inter-company transactions, inter-company balances and unrealized profit between group companies have been eliminated. Unrealized loss is eliminated, but considered an impairment indicator of the asset transferred. The minority interests in equity and in net results are reported separately in the consolidated financial statements. (b) Associated companies Associates are all entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Company s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition. The share of earnings recorded in the consolidated financial statements are based on the after tax earnings of the associates. In the income statement, the share of earnings from associates is shown as a financing item. 15

16 The Company s share of its associates post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been reconciled where necessary to ensure consistency with the policies adopted by the Company. Classification of items in the financial statements Assets designated for long-term ownership or use and receivables falling due later than one year after drawdown have been recorded as long-term assets. Other assets are classified as current assets. Receivables are stated at par value less provision for doubtful accounts. Liabilities which fall due later than one year after the end of the accounting year are posted as long-term liabilities. Other liabilities are classified as current liabilities. The Company s share of its associates post-acquisition profits or losses is recognised in the income statement and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Company s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognise further losses unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Company and its associates are eliminated to the extent of the Company s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been reconciled where necessary to ensure consistency with the policies adopted by the Company. Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and return that are different from those of segments operating in other economic environments. The Company is organized into five different divisions, named Supply/Crew fleet, MRSV, AHTS, Combat Management Systems, and Other, in which the Company operates. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Company s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency ). The consolidated financial statements are presented in USD, which is the Company s functional and presentation currency. All amounts in these financial statements are in USD 1,000 unless otherwise stated. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. The exchange rate used throughout the Company at the balance sheet date, compared to the US dollar, were as follows: Average NOK (Norwegian Krones): 5,8502 5,4308 EUR (Euros): 1,3741 1,4620 GBP (Pound Sterling): 2,0024 1,9909 REAS (Brazilian Reals): 1,9460 1,

17 (c) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and (iii) all resulting exchange differences are recognised as a separate component of equity. In consolidation, exchange differences arising from the translation of the net investment in foreign operations and from borrowings are taken to shareholders equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Fixed assets and maintenance costs Vessels are measured in the consolidated balance sheet at cost less accumulated depreciation and impairment loss. Depreciation is on a straight-line basis and determined by an estimate of the remaining useful economic life of the asset. Estimated scrap value is taken into account and reassessed at 31 December each year. The vessels presently owned by Siem Offshore are considered to have an economic life of 30 years. Other fixed assets are depreciated on a straight-line basis over the anticipated useful life. Each part of a fixed asset that is significant to the total cost of the asset is separately identified and depreciated over that component s useful lifetime. Components with similar useful lives will be included in one component. The Company has identified 5 significant components relating to their different types of vessels. In accordance with IAS 16 and the cost model, dry-dock costs are considered a separate component of the ships cost at purchase with a different pattern of benefits and, therefore, need to be amortised separately. Day-to-day maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations and periodic maintenance of vessels is capitalised and depreciated over the useful lifetime of the parts replaced. The useful life of the regular vessels docking expenses will normally be the period until next docking. The residual value and expected useful lifetime assumptions of fixed-assets are reviewed at each balance sheet date and, where they differ significantly from previous estimates, depreciation charges are changed accordingly. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. Newbuilding contracts Instalments on newbuilding contracts are posted in the balance sheet as non-current assets. Costs related to the on-site supervision and other predelivery construction costs are capitalised per vessel. Impairment of fixed assets Each year non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The asset s cash generating ability either through use or sale is reviewed and compared to the asset s carrying amount in the balance sheet. If the carrying amount is higher, the difference must be written off as an impairment loss. Fair value reduced by estimated sales costs is the amount achievable on sale to an independent third party. The recoverable amount is established individually for all assets. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time and the risk specific to the asset that is considered impaired. A previously recognised impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. Reversal of previously recognised impairment is limited to the amount the carrying value of the asset would have been had the initial impairment charge not taken place. Dry-dock costs Dry-docking costs are capitalised and amortised over the period until the next scheduled dry-dock ranging from 2 to 3 years. The unamortised value of the previous dry-docking is decomposed from the purchase price when ships are acquired and amortized as described above. 17

18 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as a change in accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Intangible assets within indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Financial assets The Company classifies its financial assets in the following categories: Financial assets at fair value, Loans and receivables, and Available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. (a) Financial assets at fair value This category has two sub-categories: financial assets held for trading and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet. (c) Available for sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Purchases and sales of financial assets are recognised on the trade-date, the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within net gains (losses) in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement as part of other income when the Company s right to receive payment is established. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Inventories Lubricating oil and bunkers inventories are valued at the lower of historical cost and market value applying the FIFO (first-in, first-out) principle. The Company makes inventory provisions based on an assessment of excess and obsolete inventories. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Accounts receivable Accounts receivable are reported at amortised cost. The interest factor is ignored if insignificant. In the case of objective evidence of a fall in value, the difference between reported value and the present value of the future cash flow is reported as a loss. 18

19 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When the Company purchases its own shares, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company s equity holders until the shares are cancelled. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Taxation Tax expense/benefit includes current taxes and the change in deferred taxes. Deferred income tax is provided for all temporary differences between the book value and the tax basis of assets and liabilities and for tax losses carried forward. Deferred tax assets made probable through prospective earnings that can be utilized against the tax reducing temporary differences are recognized as intangible assets. Deferred tax asset and deferred tax liability are recognised independently of when the differences will be reversed and, as a rule, at nominal value. Deferred tax asset and tax liability are measured on the basis of estimated future tax rate. Parts of the Company s activities within the Norwegian subsidiaries are structured within the regulations for the Norwegian Tonnage Tax System for shipping companies. The tax cost and deferred tax liability for subsidiaries its organised under this tax regime depend on the subsidiaries dividend policy and future estimated profits. Pension costs and obligations The net present value of the future obligations of Siem Offshore s pension plans is calculated based on certain estimates with regards to interest rates for future salary adjustments etc. Net pension expenses are posted as salary-related expenses in the profit and loss account. The estimated net obligations are included in provisions in the balance sheet. The effect of changes in estimates and differences between estimated and actual return are recognised only when the accumulated effect exceeds 10% of the larger of the pension fund and the pension obligation. The excess amount is amortised over the remaining service life of the employees. Siem Offshore has a defined benefit plan for its employees in Norway. A defined benefit plan defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Contingent liabilities and provisions Provisions are made for uncertain liabilities that are probable and can be relaiable measured. Financial derivatives Siem Offshore enters into derivative instruments, primarily foreign currency contracts, to hedge the foreign currency rates. The criteria for qualifying as a hedge under IFRS are strict. The Company s foreign currency contracts do not qualify as hedging. The fair market value of these contracts is recorded as a receivable or liability and any change in the valuation is recognized in the profit and loss as operating expenses. Revenue recognition The group s activity is mainly hiring out different kind of offshore support vessels, such as PSVs, MRSVs,AHTSs, standby vessels, and crewboats. In addition, the Company holds interest in two limited liability partnerships, owning one scientific core drilling vessel and one well stimulation vessel respectively. In one of the subsidiaries of the Company, revenues are mainly arisen from income from construction contracts. Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Company s activities. Revenue is shown net of value-added tax, withholding tax, returns, rebates and discounts and after eliminated sales within the Company. Revenue is recognised as follows: Charter rate contracts Revenue derived from charterhire contracts or other service contracts is recognised in the period that services are rendered at rates established in the relevant contracts. Certain contracts include mobilisation fees payable at the start of the contract. In cases where the fee covers a general upgrade of a rig or equipment which increases the value of the rig or equipment beyond the contract period, the fee is recognised as revenue over the contract period whereas the investment is depreciated over the remaining lifetime of the asset. In cases where the fee covers specific upgrades or equipment specific to the contract, the mobilisation fees are recognised as revenue over the estimated contract period. The related investment is depreciated over the estimated contract period. In cases where the fee covers specific operating expenses at the start of the contract, the fees are recognised in the same period as the expenses or over the total contract period. 19

20 Vessels without signed contracts in place at discharge have no revenue before a new contract is signed. Charter-related expenses incurred for vessels in the idle time are expensed. Revenues from time charters and bareboat charters accounted for as operating leases are recognised rateably over the rental periods of such charters as service is performed. Construction contracts The Company follows the generally accepted practice of accounting for long-term construction, engineering and project management contracts on the percentage-of-completion basis as costs are incurred. Under this method, revenue and income is recognised as work progresses on the contract. If a contract can be split into subprojects, each subproject is treated separately. For all contracts, no profit is recognised before the outcome of the contract can be measured reliably and, generally, this will mean no profit is recognised until progress has reached at least 20% of completion. The estimated cost used to determine profit at completion reflects all facts or occurrences expected to affect the final cost of the contract; therefore, the entire amount of any estimated contract loss is recognised when it first becomes evident. For contracts which satisfy certain criteria, profit is recognised in accordance with the risk profile of the contract as assessed by management instead of being recognised in accordance with the simple percentage of total costs principle. The pattern of revenue recognition for these contracts will depend on individual contract circumstances and terms but, generally, the application of this policy may result in there being a requirement for a larger percentage-of-completion prior to any profit being recognised, the application of variable profit margins at separately identifiable stages of the contract, and the majority of profit being recognised in the later stages of the contract. For projects that are assumed to result in a loss, the total estimated loss is recognised immediately. Interest income Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised using the original effective interest rate. Dividend income Dividend income is recognised when the right to receive payment is established. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and are accounted for when estimates are changed. Actual results could differ from such estimates. Earnings per share Earnings per share are calculated by dividing the net profit/loss for Siem Offshore by the weighted average number of outstanding shares over the period in question. Diluted earnings per share include the effect of the assumed conversion of potentially dilutive instruments such as stock options. The impact of share equivalents is computed using the treasury stock method for share options. Cash flow statement The statement of cash flow is prepared in accordance with the indirect model. Related party transactions All transactions, agreements and business activities with related parties are set on arm s length basis in a manner similar to transactions with third parties. Events after balance sheet New information regarding the Company s standing on balance sheet date is included in the accounts. Events occurring after balance sheet date which do not impact the Company s standing on the balance sheet date but which have a significant impact on future period are presented in the notes to the accounts. 20

21 Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The preparation of the financial statements in conformity with generally accepted accounting principles under IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and are accounted for when estimates are changed. Actual results could differ from such estimates. The balance sheet value of the Company s vessels, newbuilding contract included, comprises approximately 80% of the total balance sheet. In the current market for supply vessels, the fair value of the Company s vessels is significantly higher than the balance sheet value. The Company makes use of the cost model according to IAS 16, and subsequently depreciates non-current assets over their estimated economic life, regardless of the extent to which there has been a genuine increase in value of the Company s non-current assets. When calculating annual depreciation, the estimated period of use for the vessel and the estimated residual value at the end of the period of use is significant estimates. Tax legislation is subject to varying interpretation. Refer to Note 9. 21

22 NOTE 2 - Segment Reporting (Amounts in USD 1,000) Revenue by business area Supply/crew fleet 129,714 63,166 9,113 MRSV 21,602 4,799 0 Combat Management Systems 7,703 5,364 4,134 Other Total 159,342 73,554 13,233 Depreciation by business area Supply/crew fleet 17,545 10,676 1,616 MRSV 1, Other Total 18,961 10,895 1,972 EBIT by business area Supply/crew fleet 65,707 28, MRSV 5, Combat Management Systems 1, Other 27,625 12,271-4,709 Total 100,259 41,533-4,441 Assets / liabilities by business area / investments Assets Liabilities Capital expenditure Supply/crew fleet 444, , ,695 MRSV 144, ,176 69,287 AHTS 42, ,069 Combat Management Systems 7, Other 261,676 67,818 3,379 Total Group , , ,430 All AHTS vessels to be delivered during 2009 and The Company operates as per year end 2007 in the North Sea, North/South America and in the Far East. The Company don't report its activities into geographical regions in the managment reporting. 22

23 NOTE 3 - Property, Plant & Equipment (Amounts in USD 1,000) Intangible assets Tangible Vessel under construction Vessels and equipment Total Purchase cost per ,762 36, , ,742 Capital expenditure 1, ,567 72, ,430 Vessels delivered in (169,677) 169,677 0 The year's disposal at cost 0 0 (19,046) (19,046) Effect of exchange rate differences 0 0 5,209 5,209 Purchase cost per ,055 79, , ,334 Accumulated depreciation per (823) 0 (8,326) (9,149) The year's ordinary depreciation 0 0 (17,097) (17,097) The year's disposal of acc. depreciation ,257 10,257 Acc. depreciation per (823) 0 (15,165) (15,988) Net book value per ,232 79, , ,346 Economic life years The intangible assets recorded at USD 9,232 per 31 December 2007 is related to Siem WIS AS patented technology for the drilling industry. SIEM WIS is developing a new Drillability technology for complex low/high pressure reservoirs. By combining SIEM WIS technologies, the future potential for extended drilling and methods is enabled. At the same time, the solutions enable a safer, and more efficient, drilling and well maintenance service. Asset under developing are not depreciated. The balance of capitalised project costs was USD 2,910 per 31 December Such expenditures relates to specific contracts for the Brazilian crew/supply fleet. The costs are amortised over the term of the specific charter contracts. Total charter amortisation in 2007 was USD 1,864. NOTE 4 - Investments in Consolidated Subsidiaries (Amounts in USD 1,000) Company Registered office Revenue Share Net income Voting rights Cost price Book value Book equity Siem Offshore AS Kristiansand, Norway 6, % % 1,022 1,022 2,182 Siem Offshore Invest AS Kristiansand, Norway % % 7,396 7,396 9,103 Siem Offshore Rederi AS Kristiansand, Norway 0 100% % 43,045 43,045 53,317 Siem WIS AS Bergen, Norway % -1,960 60% 7,127 6,658 2,166 Siem Consub SA Rio de Janeiro, Brazil 22, % -1, % 16,506 16,506 20,887 Siem Offshore US Inc Delaware, USA 21, % % 0 0 1,040 Siem Supply Inc Cayman Island 0 100% % Siem AHTS Pool Inc Cayman Island 0 100% % DSND Subsea Ltd London, England 0 100% % 18,352 18,352 23,048 Arcade Offshore BV Amsterdam, The Netherlands 0 100% % 1 1-1,660 Total value recorded in the balance sheet of the parent company 92, ,066 In addition to companies directly owned by the parent company, the following subsidiaries from part of the Company: Company Registered office Share and voting rights Norsul Offshore Inc Panama City, Panama 100% Consub Delaware LLC Delaware, USA 100% Aracaju Serviços Auxiliares Ltda Aracaju, Brazil 100% Rovde Supply AS Vanylven, Norway 100% Ocean Commander AS Vanylven, Norway 100% Siem Offshore Crewing AS Vanylven, Norway 100% Siem Shipping AS Kristiansand, Norway 100% Siem Meling Offshore DA Stavanger, Norway 51% 23

24 NOTE 5 - Investments in Associated Companies Figures for associated companies included in the consolidated accounts based on the equity accounting. (Amounts in USD 1,000) Overseas PR Tracer KS Big Ocean Ocean Rovde Luster Mek. Company name Drilling Ltd. Offshore ANS Orange XVIII Commander KS Carrier KS Ind.park AS Ind. AS Total Profit and loss account Operating revenues -2,783 5,706 2,623 6, ,872 17,223 Operating expenses , ,624-12,635 EBITDA -3,260-1,439 2,597 6, ,588 Depreciation and Amortization , ,087 Operating result (EBIT) -3,260-1,439 1,975 4, ,501 Net financial items , ,124 The year's result -2,982-1,476 2,050 2, Siem Offshore s share of net result -1, Adjustments consolidated accounts This year`s share of net result -1, Balance sheet Intangible assets Tangible assets 8, ,879 36,008 3,066 1,118 50,866 Financial assets Current assets 29,277 2,132 3,578 1, ,653 Total assets 38,109 2,132 5,457 37, ,144 2,022 88,556 Equity 11, ,343 10, ,468 Provisions Non-current liabilities 16, ,341 2, ,437 Current liabilities 9,902 2, ,074 14,389 Total liabilities 26,439 2, , ,592 1,552 60,087 Total equity and liabilities 38,109 2,132 5,457 37, ,144 2,022 88,556 Siem Offshore's share of booked equity 5, ,208 3, ,112 Adjustments IFRS and fair value in excess of book value for vessel and goodwill as of , ,606 Net book value in Siem Offshore as of , ,506 5, ,718 Ownership interest 50.00% 41.33% 41.33% 35.00% 20.00% 50.00% 34.20% Specification of changes net book value in Siem Offshore's accounts Net book value as of , ,122 6,160 1, ,724 Investment in associated companies This year's share of net result -1, Adjustments consolidated accounts Dividends ,204-1,971-5,088 Repayment of paid in capital ass. comp Effect of exchange rate differences , ,808 Net book value as of , ,506 5, ,718 Of which: Adjustments IFRS and fair value in excess of book value for vessel and goodwill as of , ,780 Adjustment for depreciation IFRS Amortization of fair value in excess of book value for vessels and goodwill Effect of exchange rate differences Fair value in excess of book value for vessels and goodwill as of , ,606 Company name Registered Consolidated Owner Voting Paid in Issued, not office as interest rights capital paid in capital Overseas Drilling Ltd. Monrovia, Liberia Equity accounting 50.00% 50.00% PR Tracer Offshore ANS Lysaker, Norway Equity accounting 41.33% 41.33% KS Big Orange XVIII Lysaker, Norway Equity accounting 41.33% 41.33% 1,739 2,516 Ocean Commander KS Oslo, Norway Equity accounting 35.00% 35.00% 2, Rovde Industripark AS Vanylven, Norway Equity accounting 50.00% 50.00% Luster Mekaniske Industri AS Gaupne, Norway Equity accounting 34.20% 34.20% 63 0 Kenny Seateam Ltd. London, England Cost accounting 50.00% 50.00% 0 0 Total 5,120 3,163 24

25 NOTE 6 - Pension Costs and Obligations (Amounts in USD 1,000) The amount recognised in the income statement is as follows: Service cost Interest cost Expected return on plan assets Amortisation of net actuarial losses (gains) Net periodic pension cost The movement in the defined benefit obligation over the year is as follows; Beginning of year 4,481 2,724 - Current service cost Interest cost Actuarial losses (gains) Payroll tax of employer contribution, assets Benefits paid End of year 5,126 3,451 - The movement in the fair value of plan assets of the year is as follows; Beginning of year 3,340 2,410 - Expected return on plan assets Actuarial loss (gain) Employer contribution Benefits paid End of year 4,038 2,832 - Present value of funded obligations 5,054 3,451 1,323 Fair value of plan assets -4,038-2, Unrecognised net acturarial loss (gain) Present value of funded obligations Present value of unfunded obligations Liability in the balance sheet Financial assumptions: Discount rate 4.70% 4.50% 5.50% Expected wage adjustment 4.50% 4.00% 3.30% Expected pension increase 2.00% 2.50% 2.50% Adjustm. of the basic National Insur. amount 4.25% 2.50% 2.50% Expected return on funds 5.75% 5.50% 6.50% This is Siem Offshore's figures for the defined benefit plan. 25

26 NOTE 7 - Receivables (Amounts in USD 1,000) Other short-term receivables Prepaid expenses 5,966 1, Unbilled revenue 6,225 6,697 1,963 Outstanding insurance claims Inventories 2,102 1, Prepaid income taxes and other taxes 4,753 3,944 3,050 Outstanding refunds - seamen 2,074 1,430 0 Other short-term receivables Total other short-term receivables 22,293 16,039 7,449 Accounts receivables Up to 1 month 38,110 15,054 7, months 6, More than 4 months 5,634 6,137 6,014 Total accounts receivables 49,793 21,191 13,102 Long-term receivables Seller credit Deposits Loan employees Other Total long-term receivables 2, NOTE 8 - Restricted funds USD 2,381 of the cash balance was restricted funds of which 2,131 was for tax withholdings. 26

27 NOTE 9 - Taxes (Amounts in USD 1,000) Temporary differences Deferred tax Time frame Participation in limited liability companies Long -2,672-2,579-2,673 Operating assets Long -3,389-3,409-3,831 Special tax account Long Pension funds/obligations Long Other short-term differences Short Other long-term differences Long 1, Net temporary differences as of ,535-6,361-7,053 Tax loss carried forward -10,666-7,499-5,082 Basis for deferred tax (tax asset) -17,201-13,861-12,136 Deferred tax (tax asset) (28%) Norway -3,328-2,647-2,429 Deferred tax (tax asset) (34%) Brazil -1,807-1,499-1,177 Deferred tax (tax asset) -5,135-4,145-3,606 Deferred tax asset not recognised in balance sheet 5,135 4,145 3,606 Deferred tax, aquisition subsidiaries 0 7,907 Deferred tax (tax asset) as of ,907 0 Deferred tax liability from acquisition of subsidiaries, relates to acquisition of Rovde Shipping subsidiary, Rovde Supply AS. The Norwegian Government has resolved that a new tonnage tax regime shall be made effective from 1 January 2007 and that the previous deferred tax regime available for ship-owning companies shall end. Ship-owning companies that adopt the new tonnage tax regime, as an alternative to ordinary corporate taxation, must pay any deferred tax in annual instalments during a period of 10 years. 1/3 of such liability can be offset for any qualifying environmental investments in vessels and/or equipment to be made during such 15 year period. The gross deferred tax liability for the Company s Norwegian subsidiaries at 31 December 2007 was NOK 53 million (USD 9.7 million) and the result for fourth quarter 2007 includes a tax charge of USD 0.7 million in order to reflect the change of tax legislation. Deferred tax, aquisition subsidiaries, as of ,907 Tax charge Effect of exchange rate differences 1,112 Total deferred tax liability, aquisition subsidiaries, as of ,739 Change in tax legislation Other tax liabilities Total tax liabilities Long term tax liabilities 8, ,925 Payable taxes ,252 Tax liabilities 9, ,177 Tax payables (USD) Taxes payable -1,170-1, Change in deferred tax/deferred tax asset Over/under provisions in previous year Change in tax legislation Total tax cost for the year -1,937-1, Deferred tax assets are not recognized as intangible assets because it is not made probable through prospective earnings that it can be utilized against the tax reducing temporary differences. 27

28 NOTE 10 - Borrowings (Amounts in USD 1,000) Creditor / Guarantor Currency Amount Total (USD) Interest rate Duration Instalments HSH Nordbank AG USD 220, ,650 (Libor %, effective 7.12%) Quarterly instalments of USD Quarterly instalments of USD HSH Nordbank AG - Working Capital Facility USD 30,000 0 (Libor %, effective 7.12%) 2009 DvB Bank N.V. Nordic Branch GBP 11,210 22,318 (Libor %, effective 6.97%) Semi annual instalments of GBP 520 SpareBank1 SR-Bank NOK 328,000 60,396 (Nibor %, effective 5.49%) Semi annual instalments of NOK Banco Nacional Development Social USD 4,136 4, % (fixed) 2012 Semi annual instalments of USD 460 Eksportfinans (CIRR loan) NOK 507,600 93,467 Fixed 2019 Accrued interest 2,424 Total USD 365,391 Fees and expenses -905 Total long-term debt including fees and expe USD 364,486 Instalments falling due over the next 5 years Mortgageher interest debtearing debt Total ,101 1,004 34, , , , ,305 2,011 36, , and thereafter 218, ,373 Total 361,171 4, ,391 The Company had a further USD 30 million un-drawn under a USD 30 million Working Capital Facility and a USD 37.4 million un-drawn under the USD 220 millionterm Loan Facility The balance sheet value of assets mortgaged for own debt is USD 379 million. CIRR loan 2007 Total CIRR loan commitment 950,415 CIRR loan drawn at ,467 31/12/ ,948 Prior to ordering vessels from Norwegian yards, the Company applied for fixed 12-year interest rate options related to the long-term financing of such vessels. The Company was granted such options by the Norwegian Export Credit Agency. During 2007, the Company sold the right to exercise such options to a first class international bank (the Bank ) in consideration for an up-front payment of USD 23.5 million. If the options for the fixed interest rates are exercised by the Bank, then the Company will draw up to USD 950 million from the Norwegian Export Credit Agency. Any long-term loans drawn from the Norwegian Export Credit Agency will be placed as corresponding deposits in the Bank as financial security for any loans drawn. Recognition of the gain, related to each relevant vessel, shall be recorded over the term of any drawn loans, or in whole if the relevant loan is not drawn. Accordingly, USD 0.1 million of the total up-front payment is recorded in the 2007 profit and loss account. Remaining CIRR loan commitment Total , , ,724 Total 856,948 The gains from the sale of the CIRR options will be recognized over the periods of the commitments and unamortized gain amount related to specific commitments will be recognized when, and if, the buyer elects not to exercise its draw rights related to such commitments. NOTE 11 - Other Current Liabilities (Amounts in USD 1,000) Non-interest-bearing short-term liabilities ODL 2,500 2,500 3,500 Non-interest-bearing short-term liabilities Subsea ,002 Social security etc. 3,428 2, Prepayment from customer 774 4,110 0 Accrued interest 2, Other current liabilities 1, Total other current liabilities 11,015 9,705 5,464 28

29 NOTE 12 - Provisions for Other Liabilities and Changes (Amounts in USD 1,000) Accrued project cost 3,182 3,711 5,084 Other accrued cost, mainly regarding operating expenses, vessels 5,216 3, Total provisions 8,398 7,569 5,399 NOTE 13 - Related Party Transactions At 31 December 2007, the Company held USD 2.5 million as a short-term loan from Overseas Drilling Limited. In 2007 the services of NOK 496 (2006:902, 2005:0) were purchased from an entity where one of the non-executive directors of the Company is holding an ownership interest. Services delivered are based on normal commercial terms and conditions. Siem Offshore's subsidiary, Rovde Supply, entered in November 2007 into a short-term loan agreement with Meling Supply AS of equivalent to USD 2.9 million and at market rate of interest. The loan was repaid in full in January A total of USD 24 was booked as interest income during NOTE 14 - Derivative Financial Instruments (Amounts in USD 1,000) Assets Assets Liabilities Liabilities Forward currency contracts - income Forward currency contracts - cash flow 15,090 9, ,158 Total derivative financial intruments 15,598 9, ,158 NOTE 15 - Guarantees (Amounts in USD 1,000) Contractual guarantees to Brazilian Navy (1) 2,735 3,415 5,097 Contractual guarantees other 3, Total guarantees 6,399 4,167 5,784 Guarantees from Siem Consub SA 29

30 NOTE 16 - Commitments Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows: (Amounts in USD 1,000) Combined contract value per for the vessels 1,261, ,255 99,939 Instalments paid 79,724 36,834 9,897 Unpaid instalments (to be paid in 2008 or later) 1,181, ,421 90,042 Instalments falling due over the next 3 years (Amounts in USD 1,000) NOK USD ,368, , ,913, , ,134, ,119 Total 6,417,266 1,181,643 The Company has entered into contracts with Kleven verft AS for the building of 10 large Anchor Handling Tug Supply vessels (AHTS), 2 large-size PSV of MT 6017 Mk II design and 1 Multi Functional Field & ROV support vessel of MT 6016 L design. The Company has also, through its 51% JV Siem Meling Offshore DA, entered into a shipbuilding contract with Eidsvik Skipsbyggeri AS for a PSV of VS 485 design. The Companys subsidiary, Siem Consub SA, has entered into a contract for the building of two fast Supply Vessels of GPA 150 design. NOTE 17 - Operating Expenses (Amounts in USD 1,000) Crew expenses vessels 35,294 12,958 3,258 Other operating expenses vessels 32,364 31,860 2,464 General and administration 11,884 8,256 6,895 Total operating expenses 79,543 53,074 12,617 30

31 NOTE 18 - Salaries and Wages, Number of Employees. (Amounts in USD 1,000) Personnel expenses Salaries and wages 3,119 17,572 3,444 Payroll tax 3,119 2,579 1,199 Pension costs, see Note Other benefit 4,041 2,120 1,369 Total personnel expenses 11,040 22,662 6,045 The average number of employees in 2007 was 600 in the Group which includes land based and offshore workers. Total payroll registered to the CEO in 2007 is USD 384, to the CFO USD 168 and to the COO USD 210. CEO held 1,474,000 shares in the Company at Loans advanced to 5 employees of the Company in 2007 equal NOK 5,414 (USD 997) (2006: NOK 2,615 (USD 340) and 2005: NOK 0). No interests are charged on the loans to the employees. The loans are repayable for the employee when the employee's shares in the company are realized or if the employee leaves the Company. No provision has been required in 2007 for loans made to the employees. Remuneration to the Directors in 2007 is USD 183. Auditor's remuneration The Group is charged with auditor's remuneration of USD 404. This includes USD 244 in audit fees and USD 160 in fees for other services. NOTE 19 - Operating Lease as Lessee (Amounts in USD 1,000) Annual lease payment on operational leases 6,206 5,529 As of 31 December 2007 the group had some commitments relating to lease agreements. Operating lease , , and thereafter 4,019 Total 12,036 Net present value of future commitments relating to lease agreements are calculated at a value of USD 10,927. The discount rate in the calculation of net present value is 5%. 31

32 NOTE 20 - Financial Items (Amounts in USD 1,000) Financial income Interest income 3, Total financial income 3, Financial expenses Interest expenses -12,939-4, Other financial expenses Total financial expenses -13,756-5, Net currency gain(loss) 8, Results from associated companies -35 8,151 3,242 Net financial items -1,287 4,214 3,281 NOTE 21 - Earnings per Share (Amounts in USD 1,000) Earnings per share Average number of shares outstanding 194, , ,463 Result for the year 98,368 45,012-2,057 Earnings per share to the parent company's shareholders The average number of shares outstanding is calculated as a weighted average of outstanding shares during the year. There have not been issued options for shares. 32

33 NOTE 22 - Contracts in Progress (Amounts in USD 1,000) Actual 2007 Existing at Total project Revenue 7,703 16,710 31,873 Cost 6,194 12,092 24,004 Total 1,509 4,618 7,870 Assets / liabilities Accrued project cost Unbilled revenue Due from customer Revenue 0 4,822 0 Cost 2, Total 2,726 4,822 0 The Company follows the generally accepted practice of reporting for long-term construction, engineering and project management contracts on the percentage-of-completion basis. Under this method, revenue and income is recognised as work progresses on the contract. Such progress is measured on a cost incurred basis. No profit is recognised before the progress has reached 20% of completion. NOTE 23 - Non-current Asset held for sale (Amounts in USD 1,000) Fixed assets Purchase cost per Capital expenditure 0 The year's disposal at cost 0 Effect of exchange rate differences 0 Purchase cost per The non-current asset held for sale comprise equipment related to a past cable project in Brazil. NOTE 24 - Other Gains/(Losses) (Amounts in USD 1,000) Gain on sale of assets 2,360 11,160 0 Provisions for loss on debtor -2, Total ,

34 NOTE 25 - Listing of the 20 largest shareholders as of 31 December 2007 Shareholder Number of shares Owner interest SIEM INDUSTRIES INC. 85,504, % ACE CROWN INTERNATIONAL LIMITED 30,000, % ROVDEFRAKT AS 11,098, % ROVDE INVEST AS 8,979, % KNARDAL INVEST AS 6,395, % MP PENSJON 6,383, % DNB NOR MARKETS, AKSJEHAND/ANALYSE 4,500, % OJADA AS 3,818, % STAVANGER OFFSHORE AS 3,532, % WELLIS AS 3,066, % PUMPØS A/S 2,879, % NORDEA BANK NORGE ASA 2,788, % SIDDIS MARINER KS 2,466, % REM OFFSHORE ASA 2,140, % JP MORGAN CHASE BANK 2,053, % JØKUL AS 1,826, % GUNNAR HVAMMEN 1,760, % NORDEA BANK SWEDEN AB (PUBL) 1,730, % ELIN-INVEST AS 1,720, % IVAR OPSAHL 1,612, % Total 20 largest shareholders 184,255, % Other shareholders 69,636, % Total number of outstanding shares 253,891, % Siem Industries Inc and subsidiaries held 85,504,538 shares in the Company at 31 December Siem Industries Inc is the main shareholder of and is controlled by trusts where certain members of Kristian Siem's family are potential beneficiaries. Kristian Siem, who is Chairman of the Company, is also the chairman of Siem Industries Inc. 34

35 NOTE 26 - Financial Risk Management Lack of historical financial information. (the Company) was incorporated in October 2004 and has limited operating history. The historical financial statements included herein are thus limited and may therefore not be useful in estimating the Company s future financial results. Potential investors are therefore urged to make their own assessment of the Company s future financial results, by comparing the Company to similar companies with longer operating histories. Financial leverage The companies in. are financed by debt and equity. If the Company fails to repay or refinance its loan facilities, additional equity financing may be required. There can be no assurance that the Company will be able to repay its debts or extend their re-payment schedule through re-financing of the loan agreements or not experience net cash flow shortfalls exceeding the Company s available funding sources or to comply with a minimum cash requirements, nor can there be any assurance that the Company will be able to raise new equity, or arrange new borrowing facilities, on favourable terms and in amounts necessary to conduct its ongoing and future operations, should this be required. In the event of insolvency, liquidation or similar event relating to a subsidiary of the Company, all creditors of such subsidiary would be entitled to payment in full out of the assets of such subsidiary before the Company, as a shareholder, would be entitled to any payments. Defaults by, or the insolvency of, a subsidiary of the Company could result in the obligation of the Company to make payments under parent company guarantees issued in favour of such subsidiary. Interest rates and currency fluctuations For the Company, USD is the functional and reporting currency. Purchase from sub-contractors and deliveries to customers are to some extent performed in currencies other than USD. The Company is exposed to foreign exchange risk of its subsidiaries, including the development of the Brazilian real. The Shares listed on the Oslo Børs are quoted in NOK. There is a foreign exchange risk associated with conversion from the reporting currency to NOK. The Company is moreover exposed to changes in interest rates, which may affect the Company s financial results significantly. (Amounts in USD 1,000) Carrying amount Interest rate risk (IR) Foreign exchange risk rate (10) -1% 1% -10% 10% Movements in Equity Movements in Equity Movements in Equity Movements in Equity Profit Profit Profit Profit Financial Asset Cash and cash equivalent 188,308 (1,883) 1,883 15,081 1,764 (15,081) (1,764) Derivates 15,598 21, (19,023) (502) Accounts receivable 49,793 2, (2,672) (317) Impact on finacial asset before tax 253,699 (1,883) 1,883 38,796 2,602 (36,776) (2,583) Financial Liablities Accounts payable 9,478 (636) (146) Borrowings 362,967 3,630 (3,630) (11,016) (6,710) 8,998 5,490 Impact on finacial liabilities before tax 372,445 3,630 - (3,630) - (11,652) (6,856) 9,634 5,636 Total increase/decrease before tax 1,747 - (1,747) - 27,144 (4,254) (27,142) 3,054 The table shows the impact in Profit and Equity when interest rate and foreign exchange rate are assumed. Currency exchange rates per USD / NOK USD / GBP USD / EUR Risks related to loan agreements, restrictions on dividends and distribution The Company s current and future loan agreements may include terms, conditions and covenants which impose restrictions on the operations of the the Company. These restrictions may negatively affect the Company s operations, hereunder, but not limited to, the Company s ability to meet the fierce competition in the market in which it operates. 35

36 Additional capital requirements The Company may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of business opportunities. There can be no assurance that Company will be able to obtain necessary financing in a timely manner on acceptable terms. Future share issues may result in the existing shareholders of Siem Offshore sustaining dilution to their relative proportion of the equity in the Company. Yard instalments falling due over the next 5 years (Amounts in USD 1,000) USD % of total Yard instalments falling due 0-3 months 61,804 5% 4-12 months 190,235 16% 1-5 years 929,604 79% Total 1,181, % Risks related to possible tax liabilities The Company will seek to optimise its tax structure to minimise withholding taxes when operating vessels abroad, avoiding double taxation, and minimising corporate tax paid by optimally making use of the shipping taxation rules that applies. It is, however, a challenging task to optimise taxation, and there is always a risk that the Company may end up paying more taxes than the theoretical minimum, which may in turn affect the financial results negatively. Concentration risk The Company trades only with recognised, creditworthy third parties. Receivable balances are monitored on an ongoing basis with the result that the Company s exposure to bad debt is not significant. Below, we present a table showing the concentration risks for 2006 and 2007 (Amounts in USD 1,000) USD % of total Receivables at to 5 largest 35,343 71% 6 to 10 largest 7,664 15% Others 6,787 14% Total accounts receivables 49, % (Amounts in USD 1,000) USD % of total Receivables at to 5 largest 12,698 60% 6 to 10 largest 5,668 27% Others 2,825 13% Total accounts receivables 21, % 36

37 Trade and receivables: Below, we show an aging analyses of the outstanding receivables by year end 2007 of which none are impaired; (Amounts in USD 1,000) USD % of total Aging at Up to 1 month 38,110 77% 1-4 months 6,048 12% More than 4 months 5,634 11% Total accounts receivables 49, % (Amounts in USD 1,000) USD % of total Aging at Up to 1 month 15,054 71% 1-4 months 0 0% More than 4 months 6,137 29% Total accounts receivables 21, % NOTE 27 - Subsequent Events 21 January 2008 Acquisition of Shipbuilding Contract has, through its 51% owned subsidiary Siem Meling Offshore DA, entered into an agreement to acquire a shipbuilding contract for a large-size platform supply vessel (PSV). The contract price is approximately NOK 315 million and the vessel is scheduled for delivery in first quarter 2009 from Eidsvik yard in Norway. 24 January Termination of Charterparty Siem Meling Offshore DA, a 51% owned subsidiary of, has terminated the 5 years contract for the large-size platform supply vessel MV Siem Sailor that was announced on 15 May 2007 and scheduled to commence during first quarter 2008, as the contract partner has not complied with its contractual obligations. 25 January - Increase of Brazilian Fleet Siem Consub SA, a 100% owned subsidiary of, has entered into an agreement with Petrobras,the major Brazilian Oil & Gas company, to built two Fast Supply Vessels for years time charter contracts. The accumulated contract value for the two vessels is approximately USD 45 million for the firm period, and both vessels shall commence operation in first quarter of The vessels are to be built at yards in Brazil. 37

38 NOTE 28 - Other Gains / (Losses) - Currency Exchange Forward Contracts (Amounts in USD 1,000) Unrealised gain 5,830 14,418-1,238 Realised gain 33,788 6,371-1,847 Total 39,618 20,789-3,085 Such currency exchange contracts have been entered into in order to fix the NOK commitment in relation to the vessels under construction at Norwegian yards. As of 31 December 2007, the Company has sold forward approximately USD 186 million, equivalent to NOK 1.1 billion, of the total future yard instalments of NOK 6.4 billion. NOTE 29 - Share Capital and Premium Reserves Number of Share Share prem. Other Retained Shareholders' Minority Total (Amounts in USD 1,000) shares Capital reserves reserves earnings equity interest equity At 1 January ,498,900 1, ,650-24,585 43, ,009 10, ,115 Share issues 86,392, ,798-2, , ,308 Minority interest arising on business combinations 0 4,418 4,418 Other items The year's result 98,368 98,368-1,333 97,035 Effect of exchange rate differences 9,267 9, ,012 At 31 December ,891,866 2, ,448-17, , ,964 13, ,859 The total authorised numbers of ordinary shares is 335,000,000 shares (2006: 300,000,000 shares) with a par value of $ 0.01 per share (2006: $ 0.01 per share). All issued shares are fully paid. NOTE 30 - Cash Flow Reconciliation of result for the financial year to cash flow from operations (Amounts in USD 1,000) Result for the Financial year 97,035 44,527-2,057 Interest expenses 12,939 4, Interest income -3, Tax expense 1,937 1, Profit before taxes, excluding interest 108,244 49,915-1,294 38

39 AUDITOR S REPORT 39

40 BOARD OF DIRECTORS Pursuant to the Company s Articles of Association, the Board of Directors of Siem Offshore shall have from three to seven shareholder-elected members. Kristian Siem (born 1949), Chairman of the Board Mr. Siem is the chairman of Siem Offshore, and is also chairman of Siem Industries Inc, Subsea 7 Inc, Star Reefers Inc, Siem Industrikapital AB, and a director of Transocean Inc and North Atlantic Smaller Companies Investment Trust PLC. Mr. Siem is a Norwegian citizen and resident in Switzerland. Richard England (born 1931), Board member Mr. England was a professional officer in the Royal Navy, specialising in submarines including command. Subsequently he has had wide experience in the offshore industry, including Managing Director designate of Overseas Towage Salvage Co, CEO of both International Offshore Services Ltd and OSA Ltd; followed by, as Managing Director of Vickers Offshore Engineering Group, a member of Vickers Ltd Executive Committee. Mr. England is a UK citizen and resident in France. Bjørn Johansen (born 1932), Board member Mr. Johansen is an educated business economist and has been employed at Fred. Olsen & Co., Oslo, for about 50 years. He has had central positions in Fred. Olsen s tanker engagement and in the offshore sector from the start in 1971 up to his retirement. He has served as chairman and board member of several Olsen companies and also as a board member of ASO/Norwegian Shipowners association for about 12 years. From 1998 to 2003 he was appointed expert judge by Stavanger City Court in the Balder case between Norsk Esso and Smedvig. He is a Norwegian citizen and resident in Norway. Ulf Sørdal (born 1960), Board member Mr Sørdal is a business lawyer with main focus area various tax matters. He works both with national and international tax matters, corporate law, company transactions, transfer pricing and restructurings and general contract law. He has specialized knowledge about the fishing, fish farming and shipping industries, as well as international trade and use of Intangibles. He is educated both from the Norwegian School of Economics and Administration, and Candidate of Jurisprudence from the University of Bergen. He has served been Head of Department at the local tax administration in Bergen and served as lawyer the last 8 years. Six of these within the large accounting firms and the latter two joining the international DLA Nordic law firm as tax partner. He is a Norwegian citizen and resident in Norway. Michael Delouche (born 1957), Board member Mr. Delouche is the President and the Secretary of Siem Industries Inc and is responsible for the financial and corporate management function. He is in charge of the Company s operations at the head office in George Town, Cayman Islands. Mr. Delouche received degrees in civil engineering (structural) and business and was previously an audit manager with KPMG Peat Marwick LLP. He is a US citizen and resident in the U.S.A. The remuneration of the Board for 2007 is proposed as USD 209,000. Remuneration for the services of the chairman and Mr. Delouche is included to the fixed fee of USD 100,000 p.a. to Siem Industries. This fee also covers office and administrative costs. The remuneration is subject to approval by the shareholders at the annual general meeting of the Company to be held on July 8,

41 CORPORATE GOVERNANCE Corporate Governance Policy of Siem Offshore The principles for corporate governance adopted by the Company is based on the Norwegian Recommendation for Corporate Governance issued on the 28th November 2006, which is a revised version of the recommendation issued on the 7th December 2004, and good common sense. As a Company incorporated in the Cayman Islands,. is subject to Cayman Island Laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English Law. In addition, due to the Company s listing on the Oslo Stock Exchange, certain aspects of Norwegian Securities law apply to the Company and there is a requirement to adhere to the Norwegian Code of Practice for Corporate Governance. The Company endeavours to maintain high standards of corporate governance and is committed to ensure that all shareholders of the Company are treated equally and the same information is communicated to all shareholders at the same time. It is the opinion of the Board of Directors that the Company complies with the Norwegian Code of Practice for Corporate Governance, but would like to comment on the following: Business As stated,. is subject to Cayman Islands laws and regulations which do not require the objects clause of the Companies Memorandum and Articles of Association to be clearly defined. The Company has however adopted clear objectives and strategies for its business. Siem Offshore aims to grow the company within offshore support vessels, both organically and through combination with other operators, in order to achieve economies of scale and stronger presence in the market. Siem Offshore aims to become a preferred supplier of marine services to the oil & gas industries based on quality and reliability and provide cost efficient solutions for its customers by understanding their operation and applying technology and experience. The Company build its business around a motivated workforce with the appropriate technical solutions and creating sustainable value to all shareholders. Equity and Dividends The priorities of the use of Company funds are firstly the investment opportunities in the business, secondly the repayment of debt and thirdly the return of capital to the shareholders in form of dividends or share buy-back. The Board s mandate to increase the Company s share capital is limited only to the extent of the authorised share capital of the Company but with preemption rights for shareholders and in accordance with the Company s Memorandum and Articles of Association which comply with Cayman Island law. Under the Articles of Association, the Board can issue new shares, convertible bonds or warrants at any time within the limits of the authorised capital without the consent of the general meeting but with pre-emption rights for shareholders. A General Meeting has further authorised the Board to issue new shares without pre-emption rights to all shareholders up to a limit of 50% of Siem Offshore shares at the time the authorisation was given. The Board holds authorisation from General Meeting 10 July 2007 to issue a further 81,108,134 new shares. The authority gives the Board flexibility to finance investments, acquisitions and other business combinations on short notice through the issue of shares or certain other equity instruments in the Company. Furthermore the Board considers the granting of a new standing authority at the time of holding an Annual General Meeting rather than convening an Extraordinary General Meeting at some future time to be in the best interests of the Company, as this will result in cost savings and more effective time management for both the Company s senior management and its Shareholders. Equal Treatment of Shareholders, Freely Tradable Shares and Transactions with Related Parties The Company is committed to ensuring that all shareholders of the Company are treated equally and all the issued shares in Siem Offshore are freely tradable and carry the same rights with no restrictions on voting. Siem Industries which owns 33.68% of Siem Offshore is represented by its Chairman Kristian Siem and President Michael Delouche on the Board of Siem Offshore. The Company pays an annual fee to Siem Industries as compensation for directorships, provision of an office and presence in the Cayman Islands, and other services. The fee is adopted by the annual general meeting based on a recommendation from the independent Board Members. Related part transactions are disclosed in the notes to the accounts. General Meetings The annual general meeting of the Company will be held at the George Town office of the Company on July 8, 2008 and Shareholders can be present in person or by proxy. 41

42 Board of Directors The appointment of a nomination committee is not a requirement under Cayman Islands Law. In the appointment of board of directors, the Board consults with the Company s major shareholders and ensures that the board is constituted by directors with the necessary expertise and capacity. In addition, there is no requirement under Cayman Islands Law for the Company to establish a corporate assembly. Siem Industries, the company s largest shareholder, is represented on the Board through its chairman, Kristian Siem, and its president, Michael Delouche. The Board of Directors as a group have extensive experience in areas which are important to Siem Offshore, including offshore services, international shipping, ship broking, financing and corporate governance and restructuring. Work of the Board of Directors The Board monitors the performance of management through regular meetings and reporting. The Company has a Compensation Committee and an Audit Committee. Remuneration of Board of Directors The remuneration of the Board members reflect their experience and is adopted by the annual general meeting based on the recommendation from the Board. The Board members do not have options or profit-based remuneration. Remuneration of Leading Employees The Company has a Compensation Committee which reviews and approves the compensation of the CEO and the bonuses to all leading employees. The Articles of Association of the Company permit the board to approve the granting of share options to employees. Currently there are no option programs in force. The remuneration and pension scheme of the CEO is disclosed in the notes to the accounts. Information and Communication The Company has a policy of treating all its shareholders equally and keeping them properly updated of significant developments which impact on the Company. It does this through notices to the Oslo Stock Exchange, which are also published on the company s website ( Take-over Situations The shares in the Company are freely tradable and the Articles of Association of the Company does not hold specific defence mechanisms against take-over situations. Auditor The Auditor of the Company is elected at the annual general meeting which also approves its remuneration. The auditor reports on internal controls, risk areas and improvement potential in control systems once a year to the Audit Committee and Chairman. The audit process is planned in detail and the findings of the auditors are discussed with management and potential bigger issues are brought to the attention of the Audit Committee. 42

43 FINANCIAL CALENDAR Quarterly results The company will release its financial figures on the following dates: Thursday, 24 April 2008 Result first quarter 2008 Thursday, 24 July 2008 Result second quarter 2008 Thursday, 23 October 2007 Result third quarter 2008 February 2009 Result fourth quarter 2008 and preliminary full year result The Annual General Meeting The Annual General Meeting of the shareholders of Siem Offshore will be held on 8 July 2008, at the offices of the Company located at Harbour Place, 5th floor, 103 South Church Street, George Town, Grand Cayman, Cayman Island, British West Indies. 43

44 FLEET LIST Mid-Size PSV Siem Sasha PSV Design: VS 470 Mk II Aker Langsten Year of construction: 2005 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUT FIFI 1 LFL Cargo deck area: 680m3 Current employment: On contract with EMGS until March Large-Size PSV Siem Carrier PSV Design: VS 483 Ferguson, Glasgow Year of construction: 1996 Lloyds + 100A1 offshore supply vessel + LMC UMS Cargo deck area: 900m3 Current employment: On 3 years contract for Five Oceans from [November] Sophie Siem Siem Danis Siem Louisa PSV Design: VS 470 Mk II Aker Langsten Year of construction: 2006 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUTR LFL Cargo deck area: 680m3 Current employment: On contract with Peterson until July 2008 with 1 year extension option for charterers. PSV Design: VS 470 Mk II Aker Aukra Year of construction: 2006 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUTR LFL Cargo deck area: 680m3 Current employment: Spot PSV Design: VS 470 Mk II Aker Aukra Year of construction: 2006 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUTR LFL Cargo deck area: 680m3 Current employment: Spot Siem Mariner Siem Supplier Siem Sailor PSV Design: MT 6000 Kleven Verft Year of construction: 2006 DnV X 1A1 Supply vessel, SF, E0 DYNPOS-AUTR, LFL*, Clean, Comf-V(3), Helideck (S), Oil Rec, Naut-OSV, dk(+), hl (2,8) Cargo deck area: 932m3 Current employment: On contract to Venture until January 2008 and thereafter 5 years bareboat charter to Seabird Exploration Inc with purchase option. PSV / ROV Support Design: MT 6000 YVC Ysselwerf B.V, Year of construction: 1999 DnV X 1A1 Supply vessel, SF, E0, DYNPOS-AUT, LFL*, DK(+), HL 2,8, CLEAN, COMFORT rate 3 Cargo deck area: 912m3 Current employment: Spot PSV Design: VS 485 Karmsund, Norway Year of construction: 2007 DnV X 1A1, Supply vessel, SF, E0, DYNPOS-AUTR, LFL*, Oil Rec, Clean Design, Comf-V(3), Naut-OSV, dk(+), hl(p), ICE-C. Cargo deck area: 1,005m3 Siem Meling Offshore DA Current employment: Five year contract with Pemex from delivery from yard. Siem Mollie PSV Design: VS 470 Mk II Aker Aukra Year of construction: 2007 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUTR LFL Cargo deck area: 680m3 Delivery: Current employment: On contract with EMGS from delivery from yard until March Ocean Commander MRSV, PSV, OCV, ROV support vessel Design: UT 745 MMV build no 20 Year of construction: 1999 ABS A1, AMS, ACCU, DPS-2 Cargo deck area: 900m3 Ocean Commander KS Current employment: On contract with ADAMS until August 2008 with option for charterer. Siem Hanne Siddis Skipper PSV Design: VS 470 Mk II Aker Aukra Year of construction: 2007 DnV X 1A1 Supply vessel, SF E0 DYNPOS-AUTR LFL Cargo deck area: 680m3 Delivery: Current employment: Spot PSV Design: VS 470 Mk II Kleven Yard, Norway Year of construction: 2004 DnV X 1A1 Supply vessel, SF, E0, DYNPOS-AUT, Standby Vessel (S), FIFI 1 Cargo deck area: 680m3 Siem Meling Offshore DA Current employment: On contract with MLS until January 2008 and thereafter 3 year contract with StatoilHydro. TBN Hull 75 PSV Design: VS 485 MPSV "Eidsvik Skipsbyggeri AS". DnV+1A1, Ice-C, SF, Clean Design, E0, AUTR, SF, Oil Rec, dk+, hl(p) LFL NAUT OSV, (A), CLEAN, Comfort V(3), C(3). Cargo deck area: 1,005m3 Delivery: Februar 2009 Current employment: Not fixed Siem TBN Hull 84 PSV Design: MT 6009 MkII Solstrand, Norway DnV +1A1, E0, SF, DK(+),AUTR, HL(2.5), LFL*, CLEAN, COMFORT rate3, Worldwide operation, IMOA469. Cargo deck area: 684m3 Delivery: Contract price: NOK 219 million Current employment: Not fixed 44

45 MRSV MRSV Siem Swordfish MRSV Design: MT 6016L Kleven Verft Year of construction: 2007 DnV X 1A1, ICE C, Supply vessel, SF, E0,DYNPOS-AUTR, Comf- V(3),Naut OSV (A), Clean Design, DK(+), Helideck-S, Cargo deck area: 1,150m3 Current employment: On time charter to Veolia from 30 September 2007 for 5 year with purchase option. Siem TBN Hull 331 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed Seven Sister MRSV Design: MT 6016L Kleven Verft DnV X 1A1, ICE C, Supply vessel, SF, E0,DYNPOS-AUTR, Comf- V(3),Naut OSV (A), Clean Design, DK(+), Helideck-S, Cargo deck area: 1,150m3 Delivery: Current employment: On time charter to Subsea 7 from delivery from yard for 5 years with 5x1 year extension options. Siem TBN Hull 332 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. Siem TBN Hull 323 MRSV Design: MT 6017 Kleven Verft DnV X 1A1, ICE C, Supply vessel, SF, E0,DYNPOS-AUTR, Comf- V(3),Naut OSV (A), Clean Design, DK(+), Helideck-S, OIL REC, hl(2,5/2,8) Cargo deck area: 1046m3 Delivery: Current employment: Not fixed Siem TBN Hull 333 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. Siem TBN Hull 326 MRSV Design: MT 6017 Kleven Verft DnV X 1A1, ICE C, Supply vessel, SF, E0,DYNPOS-AUTR, Comf- V(3),Naut OSV (A), Clean Design, DK(+), Helideck-S, OIL REC, hl(2,5/2,8) Cargo deck area: 1046m3 Delivery: Current employment: Not fixed. Siem TBN Hull 334 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. AHTS Siem TBN Hull 327 Siem TBN Hull 328 Siem TBN Hull 329 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon, Cargo deck area: 800m3 Delivery: Current employment: Not fixed. AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon, Cargo deck area: 800m3 Delivery: Current employment: Not fixed. AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon, Cargo deck area: 800m3 Delivery: Current employment: Not fixed. Siem TBN Hull 335 Siem TBN Hull 336 OTHER Brazil fleet of 11 vessels (including 2 newbuildings) Joides Resolution AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. EERV / PSV / CREW Scientific Core Drilling Vessel ( SCDV ) 50% Owned Siem TBN Hull 330 AHTS Design: VS 491 CD Kleven Verft DnV X 1A1, ICE C, TUG, Supply vessel, SF, E0,DYNPOS-AUTR, Comf-V(3),Oil Rec, Naut OSV (A), Clean Design, DK(+), HL(2,8), T-mon Cargo deck area: 800m3 Delivery: Current employment: Not fixed. Big Orange XVIII Well Stimulation Vessel ( WSV ) 41,33% Owned 45

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