ANNUAL REPORT ODFJELL DRILLING ANNUAL REPORT 2013

Transcription

1 ANNUAL REPORT 2013 ODFJELL DRILLING ANNUAL REPORT

2 Content Odfjell Drilling in brief 4 Key Figures 7 CEO Letter 10 The Fleet 12 Management Team 15 FEATURE ARTICLES CHOSEN FOR EXPERIENCE AND EXPERTISE How to avoid dropping objects 18 Deepsea Bergen yardstay 20 Wearing the platform shoes 22 Eastbound for growth 24 BUSINESS SEGMENTS Mobile Offshore Drilling Units 26 Drilling & Technology 30 Well Services 34 QHSE 38 Corporate Governance 40 Corporate Social Responsibility Report 44 Board of Directors 46 Board of Directors Report 48 ACCOUNTS & NOTES Consolidated Financial Statements 54 Parent Company Financial Statements 94 Auditors Report ODFJELL DRILLING ANNUAL REPORT

3 Odfjell Drilling in brief: An integrated partner for high quality drilling and well services Norway UK The Netherlands Romania Bermuda THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY: Gulf of Mexico Dubai Philippines Mobile Offshore Drilling Units Drilling & Technology Well Services Brazil Angola Tanzania 3200 employees operating in more than 20 countries Highly specialised engineers supporting all business segments Operates six highly advanced offshore drilling rigs and drillships Modern fleet with four stateof-the-art sixth generation drilling units 40 years of experience from worldwide operations Multiple revenue sources Solid financial profile Drilling operations in Norway, Angola, Tanzania and Brazil. New sixth generation semisubmersible Deepsea Aberdeen will in early 2015 start drilling operations in deep water west of Shetland. Co-owner and manager of three ultra deep water drillships under construction for Brazilian drilling operations starting from Modern fleet of UDW and harsh environment drilling units Extensive drilling experience Provision of integrated management services for drilling units Integrated drilling and engineering services on twenty production installations offshore Norway and the UK. Engineering and project management services, expertise in upgrades and modifications, subsea and well management and well control from offices in Bergen, Stavanger, Stjørdal, Aberdeen and Manila. Providing integrated platform drilling services on 20 installations in the North Sea Conceptual engineering and engineering design Construction and commissioning support, modifications and upgrades Compliance assurance and maintenance management Marine and operational support Casing and tubular running, rental of well and drilling equipment in more than 20 countries. Casing and tubular running services Drill tool and tubular rental Services in more than twenty countries from 11 bases in Europe, the Middle East and Asia Revenue EBITDA Revenue EBITDA Revenue EBITDA 57 % 72 % 26 % 6 % 17 % % One newbuild to be delivered in 2014 In depth, see pages In depth, see pages In depth, see pages ODFJELL DRILLING ANNUAL REPORT

4 Key Figures PROFIT AND LOSS ACCOUNT ( USD MILLION) Operating revenue Operating profit before depreciation (EBITDA) Operating profit (EBIT) Net profit before tax Net profit BALANCE SHEET (USD MILLION) Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total equity and liabilities KEY RATIOS Equity to asset ratio (as a percentage of total capital) 41.3 % 41.2 % 37.7 % EBITDA margin 33.5 % 30.3 % 36.2 % EBIT margin 21.1 % 16.8 % 22.5 % Profit margin (pre-tax) 14.6 % 13.5 % 14.5 % Profit margin (after-tax) 5.8 % 10.7 % 11.5 % Earnings per share (USD) Number of shares Earnings per share is based on the issued number of shares in Odfjell Drilling Ltd., which were shares as per 31 December Comparative figures (EPS) are presented retrospectively based on number of issued shares as at 31 December Earnings per share is based on profit after tax attributable to the owners of the parent. 6 ODFJELL DRILLING ANNUAL REPORT

5 2013 Key Events 1 7 MAR Stepped up technology development in well services 9 MAY Extended drilling contract for Deepsea Metro I 3 24 OCT Deepsea Bergen completed yard stay ahead of schedule 6 FEB Grane voted Rig of the Year Grane was voted Rig of the Year in platform drilling in Odfjell Drilling has drilling services contracts on a total of 20 platforms, and the best-run platform is honoured every year. 7 FEB Drilling at record water depths Odfjell Drilling set a company record for drilling in ultra deep waters when Deepsea Metro II drilled its second well at a water depth of 2,845 metres off the Sergipe coast in Brazil. The drillship Deepsea Metro II is on a three-year contract with Petrobras, with an option for three more years. 8 FEB Celebrated 40 years Odfjell Drilling celebrated the company s 40th anniversary in the medieval Håkon s Hall in Bergen. In an anniversary interview, the founder of Odfjell Drilling, Mr Abraham Odfjell, said: As owners, we depend on having a management team and an organisation with capable people who know the business, the technology, market and customers. The company would not be where it is today had it not been for its capable employees. Odfjell Well Services acquired Dubai-based Zenon Well Technology LLC. The company has developed a range of solutions for wellbore clean-up tools. The acquisition is important to Odfjell Well Services in-house technology development, and the product solutions are now in use. 8 MAR Engineering services for Lundin Norway Lundin Norway AS awarded Odfjell Drilling a frame agreement for engineering services. The frame agreement has a duration of two years, with possibilities for extensions. Lundin Norway has become a major player in the North Sea, with an important role in the Johan Sverdrup field, one of the largest oil discoveries ever made on the Norwegian shelf APR Platform drilling on Statoil s Mariner platform Statoil awarded Odfjell Drilling the contract for drilling services on the Mariner platform on the UK continental shelf. The platform is under construction and drilling is scheduled to start up in Together with the establishment of the new onshore and offshore organisation for Deepsea Aberdeen, this strengthens Odfjell Drilling s position in the UK. In total, Odfjell Drilling will recruit 600 employees in the UK over the next four years. 18 APR Deep Sea Mooring sold to HitecVision Odfjell Drilling agreed to sell Deep Sea Mooring to HitecVision. Deep Sea Mooring was established by Odfjell Drilling in It has been developed from an in-house mooring service provider into one of three providers of mooring services for E&P companies and rig owners in Norway. BG Group and Ophir Energy extended the drilling contract for Deepsea Metro I in Tanzania. The extension is for a 540-day period from June The agreement also included an additional 18-month option. 14 MAY First steel cut for Brazilian drillships The NS Guarapari is the first of three drillships to be owned and operated by Odfjell Galvão. The ship is expected to be delivered from the shipyard in Aracruz in Brazil in Delivery of the next drillships is scheduled for 2017 and MAY Deepsea Aberdeen launch successfully completed Deepsea Aberdeen was successfully launched from the load-out barge at Daewoo Shipbuilding and Marine Engineering (DSME) in Korea. The semisubmersible sixthgeneration rig will operate on a contract with BP off the coast of Shetland. 3 JUNE Deepsea Stavanger contract extension BP exercised a one-year option for Deepsea Stavanger. The extension will keep the rig with BP in Angola until at least November The contract has two further one-year options. 7 AUG Statoil extended contract with Deepsea Atlantic Statoil exercised a one-year option for its use of Deepsea Atlantic. Deepsea Atlantic has been drilling for Statoil in the North Sea since In addition to the one-year option being exercised, the contract includes a further two-year option. 27 AUG Island Innovator received AoC As manager for Island Innovator, Odfjell Drilling received the Acknowledgement of Compliance (AoC) from the Norwegian Petroleum Authority. In September, Island Innovator started to perform drilling services on the Johan Sverdrup field under contract to Lundin Norway. 13 SEPT Upgraded the Veslefrikk drilling system with new control technology After two and a half years of intensive work, Drilling Technology delivered its first EPC(I) project to Statoil. The main objectives of the project were to upgrade the drilling system on Statoil s Veslefrikk platform with new control technology and to improve the working environment on the drill floor. 25 SEP Major contracts with Shell Odfjell Well Services was awarded a contract for Tool Rental Services for Shell operated activities in Northern Europe. The contract will run for four years and includes two options for two-year extensions. Earlier in 2013, Odfjell Well Services was awarded two contracts for Tubular Running Services for different parts of Shell s activities in Northern Europe. 27 SEP Listed on Oslo stock exchange CEO Simen Lieungh rang the bell to mark the stock exchange listing of Odfjell Drilling Ltd. The interest and feedback we have received from the investors and the listing of the shares in Odfjell Drilling Ltd open new perspectives and opportunities for the company, said Mr Lieungh. 1 OCT 4 Wintershall new client through Brage operatorship In 2012, Odfjell Drilling was awarded a contract for integrated drilling services on eight of Statoil s production installations on the Norwegian continental shelf, including Brage. The German company Wintershall officially took over operating responsibility for Brage on 1 October, thereby becoming a new client of Odfjell Drilling. 3 OCT Two years without lost-time incidents The drillship Deepsea Metro I, which is on contract to BG in Tanzania, celebrated two years without lost-time incidents. Our crew have made HSE a focus in all our day-to-day operations, said Rig Manager Bjarte Fadnes. The rig Deepsea Bergen underwent a client funded yard stay at Coast Center Base, Bergen, in order to meet requirements from the client, Statoil. The rig modifications were completed in 26 days, two days ahead of schedule. Deepsea Bergen is on a long-term contract with Statoil. 10 DEC Calling all wellheads in Scotland An advertising campaign at Aberdeen airport was used to attract senior personnel to the new onshore and offshore organisation for Deepsea Aberdeen. The aim was to get experienced people to apply for the senior positions as driller, toolpusher and subsea engineers. The campaign was met with a positive response and resulted in an increase in applications. 28 DEC Incident with Deepsea Aberdeen at yard The semisubmersible rig Deepsea Aberdeen, currently under construction in Korea, experienced water ingress in pontoon while moored at the yard s quay. Immediate evacuation was commenced and the rig was stabilised on the seabed. No personnel were injured in the incident. The rig was later recovered and the work resumed. 8 ODFJELL DRILLING ANNUAL REPORT

6 Simen Lieungh President & CEO, Odfjell Drilling High ambitions Odfjell Drilling entered the North Sea with a pioneering rig concept more than 40 years ago. In the decades that have passed, this company has demonstrated its ability to successfully negotiate the toughest challenges, in the harshest natural environments, building a strong reputation for delivering on ambitious targets. During 2013 I had the pleasure of meeting several hundred professional investors in Europe and the U.S, telling them the story of our company and of our capabilities. Each individual listened and reacted in a similar way, with respect: Respect for our experience, expertise and ability to manage risks; respect for our delivery of high quality services and value creation over four decades; and respect for the competence of our people and our strategy as an integrated service provider. There was a clear and solid belief in Odfjell Drilling and its success as an organisation. In our first year as a listed company, all our mobile drilling units have been in on-going operation. We have developed an international organisation and operational base, while maintaining a strong focus on safe and reliable operations. During 2013 we have also managed to continue the positive development of important HSE parameters. We have demonstrated that it is possible to mobilise and start up new drilling units for international deepwater operations without compromising the robust HSE culture and performance Odfjell Drilling has always been renowned for. Our primary operational targets are to reduce the number of dropped objects on both fixed and mobile units, and to ensure a high level of reliability in all our drilling operations. Committed to a leading role Due to the systematic training of personnel, and our on-going focus on improvement, we have achieved a significant reduction in the number of dropped objects on our mobile drilling units over recent years. Nevertheless, we still acknowledge that we face a challenge to curb an increasing number of dropped objects in our platform drilling activities. However, we have a firm belief that implementing the same methodology will provide similar results as those we have achieved throughout our fleet of semis and drillships. Odfjell Drilling is currently drilling in ultra deepwater regions in both Africa and Brazil. We are now qualifying one of our drillships to allow it to conduct drilling operations down to water depths of 3200 meters. Ensuring outstanding safety standards and high operational availability in our deepwater operations is top of our agenda. We have been at the forefront of the development of new technology and competence for safe drilling operations in harsh environments and deepwater since the 1970s. We are now channelling our industry expertise to ensure that we, alongside our clients and suppliers, can close any existing technological, organisational and competence gaps to achieve the optimum in performance for our ultra deepwater drilling units. In keeping with our values and our history, Odfjell Drilling is committed to playing a leading role in establishing the industry benchmark for harsh environment and ultra deepwater operations. Our integrated service portfolio forms the foundation for our strategic development. Our ambition is to bring our joint competence and experience to the selected international regions we operate in. The presence of our mobile drilling units steers the direction for our strategic development. Odfjell Drilling s Well Services and our engineering services are already serving our own international activities and external clients in international markets. We are also focused on establishing platform drilling in a new region outside the North Sea. Maintaining high quality The strong development of Well Services continues. We are experiencing increasing demand in both existing and new markets, and are dedicated to maintaining high quality in all our well service operations and deliveries. We will continue to enhance our organisational capacity in order to support and develop the well service activities in all our selected markets. In addition, we have increased our efforts to further develop our portfolio of proprietary tools and equipment. The introduction of the new well clean-up product line is a milestone in developing proprietary well technology. Odfjell Drilling is proud of its past, pleased with its present performance and confident of fulfilling its exciting future potential. In 2013 the company maintained its position at the forefront of the international offshore drilling and well service industry, producing a satisfying set of results. In the future we know we can do even better. Every day we strive to strengthen our industry reputation, consolidating our position as a service provider chosen for our experience and expertise. 10 ODFJELL DRILLING ANNUAL REPORT

7 A modern fleet of advanced offshore drilling rigs and drillships Contract Option Construction DEEPSEA BERGEN Ownership: 100 % The semisubmersible drilling rig Deepsea Bergen is a self propelled semisubmersible unit of enhanced Aker H-3.2, commissioned in February 1983 and has since launch operated mainly in the Norwegian sector of the North Sea. Deepsea Bergen is currently on long-term contract with Statoil on the Norwegian continental shelf. Operational area: Owner: Design: Location and contract: Midwater, harsh environment Odfjell Drilling Aker H-3.2 modified Norway for Statoil DEEPSEA METRO II Ownership: 40 % Deepsea Metro II is an ultra deepwater drillship of Gusto Design and was delivered by Hyundai Heavy Industries (HHI) in South Korea in November Deepsea Metro II is operating for Petrobras in Brazil. Operational area: Owner: Design: Location and contract: Ultra deepwater Chloe Marine Corporation Ltd. Gusto P10000 Brazil for Petrobras DEEPSEA ATLANTIC Ownership: 100 % Deepsea Atlantic is a sixth generation ultra deepwater and harsh environment semisubmersible. This unit, along with its sister rig Deepsea Stavanger, is a state of the art dual derrick, dynamic-positioned unit of enhanced GVA 7500 design. Deepsea Atlantic is on a contract for Statoil. Operational area: Ultra deepwater, harsh environment Owner: Odfjell Drilling Design: Enhanced GVA 7500 Location and contract: Norway for Statoil ISLAND INNOVATOR Ownership: 0 % Island Innovator is a midwater, harsh environment semisubmersible of GM4000-WI design. The rig is managed by Odfjell Drilling under a management agreement with Maracc ASA. The rig is drilling for Lundin Petroleum on the Norwegian continental shelf. Operational area: Midwater, harsh environment Owner: Design: Location and contract: Maracc ASA Global Maritime GM4000-WI Norway for Lundin Petroleum DEEPSEA STAVANGER Ownership: 100 % Deepsea Stavanger is a sixth generation ultra deepwater and harsh environment semisubmersible. This unit, along with its sister rig Deepsea Atlantic, is a state of the art dual derrick, dynamic-positioned unit of enhanced GVA 7500 design. Deepsea Stavanger is operating for BP in Angola. Operational area: Ultra deepwater, harsh environment Owner: Odfjell Drilling Design: Enhanced GVA 7500 Location and contract: Angola for BP GUARAPARI Ownership: 10 % Guarapari is an ultra deepwater drillship of Jurong Espadon design built by Sete Brasil and Odfjell Galvao. Odfjell Galvao (Odfjell Drilling 50% ownership) is the manager for construction and operations of the drillships. The drillship will perform drilling services in Brazil under a 15+5 years contract with Petrobras. Operational area: Owner: Design: Location and contract: Ultra Deepwater Guarapari drilling BV Jurong Espadon Brazil for Petrobras DEEPSEA ABERDEEN Ownership: 100 % Deepsea Aberdeen is of the enhanced GVA7500 harsh environment design and will be a sister rig to the Deepsea Atlantic and Deepsea Stavanger previously delivered from DSME. The semisubmersible is expected to be delivered from the yard in October/ November 2014 and will subsequently start drilling operations under a 7-year contract with BP in UK. Operational area: Owner: Ultra deepwater, harsh environment Odfjell Drilling Design: Enhanced GVA 7500 Location and contract: UK for BP SIRI Ownership: 10 % Siri is an ultra deepwater drillship of Jurong Espadon design built by Sete Brasil and Odfjell Galvao. Odfjell Galvao (Odfjell Drilling 50% ownership) is the manager for construction and operations of the drillships. The drillship will perform drilling services in Brazil under a 15+5 years contract with Petrobras. Operational area: Owner: Design: Location and contract: Ultra Deepwater Siri drilling BV Jurong Espadon Brazil for Petrobras DEEPSEA METRO I Ownership: 40 % Deepsea Metro I is an ultra deepwater drillship of Gusto Design. The vessel was delivered by Hyundai Heavy Industries in South Korea in June Deepsea Metro I is operating for the BG Group in Tanzania. Operational area: Ultra deepwater Owner: Golden Close Maritime Corp. Ltd. Design: Gusto P10000 Location and contract: Tanzania/Kenya for BG Group/Ophir ITAOCA Ownership: 10 % Itaoca is an ultra deepwater drillship of Jurong Espadon design built by Sete Brasil and Odfjell Galvao. Odfjell Galvao (Odfjell Drilling 50% ownership) is the manager for construction and operations of the drillships. The drillship will perform drilling services in Brazil under a 15+5 years contract with Petrobras. Operational area: Owner: Design: Location and contract: Ultra Deepwater Itaoca drilling BV Jurong Espadon Brazil for Petrobras ODFJELL DRILLING ANNUAL REPORT

8 Our Management Team SIMEN LIEUNGH, PRESIDENT AND CHIEF EXECUTIVE OFFICER Mr. Lieungh was appointed CEO of Odfjell Drilling in He holds a Msc in Mechanical Engineering from the University of Trondheim. He has held various management positions in the oil and gas industry and was previously CEO of Aker Solutions. PER LUND, EVP WELL SERVICES Per Lund holds a Master of Marine Technology from the Norwegian University of Science and Technology. Mr. Lund has 16 years of experience in the oil and gas industry and has held various managerial positions in several oilfield companies before joining Odfjell Drilling in April 2013, including the CEO of Oceaneering NCA AS from 2011 to JONE TORSTENSEN, EVP CHIEF OF STAFF Mr. Torstensen is educated in business economics/ administration at Stavanger University College and the University of Bergen. During 18 years in Aker Kværner and Aker Solutions Mr. Torstensen has held various management positions in finance, project management and business development. Mr. Torstensen joined Odfjell Drilling in ATLE SÆBØ, CFO Mr. Sæbø holds a Master of Science in Business Administration from the Norwegian School of Economics (NHH). He has previous held leading positions with Fred. Olsen Offshore, Geco and Nevi Corporate. Mr. Sæbø has been working with Odfjell Drilling since OLE FREDRIK MAIER, EVP PLATFORM DRILLING Mr. Maier holds a Bachelor degree in engineering and finance/administration from Vestfold University College (Horten ingeniørskole). He held various offshore postions in the drilling industry before he joined Odfjell Drilling in He has been regional manager for the UK since BENGT A. OLSEN, SVP HR & ORGANISATION Mr. Olsen holds a degree in personnel administration and marketing management from the Norwegian School of Management and Business Administration (NHH). He has more than 35 years experience from the shipping and offshore markets. Mr. Olsen has been with Odfjell Drilling since TOMMY JOHNSEN, EVP MOBILE OFFSHORE DRILLING UNITS Mr. Johnsen has 16 years experience in drilling and oilfield services. He was regional manager for Odfjell Drilling in the Middle East for the period 2006 to Mr Johnsen was General Manager for Malm Orstad between 2004 and JANIKE A. MYRE, SVP QHSE Mrs. Myre is a business graduate from the Norwegian Business School (BI), and has completed master programs as well as executive management courses at BI. Mrs. Myre has more than 28 years experience from leading positions in Gulf, Chevron, Sonat Offshore and Transocean. Mrs. Myre has been with Odfjell Drilling since GISLE JOHANSON, SVP COMMUNICATIONS Mr. Johanson holds a Master`s degree in business economics from the Norwegian School of Economics (NHH). Mr. Johanson has been working in the Ministry of Petroleum and Energy, financial media. He has held various communication positions in Saga Petroleum, Hydro and Statoil before he joined Odfjell Drilling in KURT MEINERT FJELL, EVP ODFJELL DRILLING TECHNOLOGY Mr. Fjell holds a Bachelor degree in Mechanical Engineering from Bergen University College and has further studied project management and leadership. He has 15 years of experience from the offshore industry and has been working in Odfjell Drilling since ERIK ASKVIK, PRESIDENT ODFJELL OFFSHORE MANAGEMENT Mr. Askvik holds a bachelor degree in Drilling and Petroleum engineering from the University of Stavanger. He has held several management positions since he was employed by Odfjell Drilling in He has previuously beean head of the Corporate Business development the MODU business area. 14 ODFJELL DRILLING ANNUAL REPORT

9 Integrating operational experience and technological competence 16 ODFJELL DRILLING ANNUAL REPORT

10 INSIGHT: HOW TO AVOID DROPPING OBJECTS Background: When we improve our focus on one area, we also improve our focus on other areas. We note that 2013 was the best year ever for Deepsea Atlantic. The mobile drilling rig Deepsea Atlantic was put into operation in It is on contract to Statoil for drilling on the Norwegian continental shelf in the North Sea. From the outset, the rig had a high number of incidents involving dropped objects. It saw a marked improvement in After February, no more incidents were registered that year. Per Arne Skare, Quality Manager Mobile Offshore Drilling Units Per Arne Skare and Lars Morten Tveit emphasise the following keywords as important in the work of improving the statistics: How to avoid dropping objects Creativity look at the problem from a new angle Precision in analyses and measures Involvement create ownership to the problem Accountability awareness of leadership Per Arne Skare is Quality Leader in MODU (Mobile Offshore Drilling Units). Lars Morten Tveit started as Rig Manager on Deepsea Atlantic in January Before that, he was Rig Manager on Deepsea Bergen. From 14 January 2014, he is head of MODU North Sea. Analysing incidents: Per Arne Skare (left) and Lars Morten Tveit. In 2013, Deepsea Atlantic went from worst to best performer in terms of incidents involving dropped objects. Systematic analyses and increased awareness of management responsibility are behind this good result. There is no magic formula for the results we have achieved, says Lars Morten Tveit, Rig Manager on Deepsea Atlantic for the whole of 2013, and Per Arne Skare, Quality Leader in MODU. They have played a key role in creating this positive trend, but they are quick to point out that they do not want to take the credit alone: It is the people on board who have done the work, they underline. The semisubmersible rig Deepsea Atlantic was put into operation in From the outset, the number of incidents involving dropped objects was high. Reports are submitted for incidents with an impact force of more than 40 joules, in other words with the potential to kill someone. And there were far too many such incidents, fortunately without personal injuries. Although the number of dropped objects was high, there was a culture for respecting cordons and barriers, says Tveit. Dropped objects can be any number of things. They can be pieces of fixed equipment that are blown out of place, but they are often loose objects, such as tools and materials, he says, and adds: And it is not exactly common or garden hand drills we use. One nut can easily weigh a kilo. Tveit became Rig Manager for Deepsea Atlantic in January The incidents on the rig were discussed as a separate item at a board meeting in early February, and Tveit was asked whether he was in control. I answered like a politician: I m in control as long as nothing falls down. And that is the same as saying that you are not in control. That did something to my motivation; I wanted to put an end to the problem. He teamed up with Per Arne Skare. They had collaborated successfully a few years before on stopping discharges to sea from Deepsea Bergen. The issue was different, but it involved some of the same problems and methods, says Skare. A fresh pair of eyes Together, they analysed each of the incidents to find similarities between them. This had also been done before, without result. They looked at the figures with fresh eyes. We looked at every single incident, including the ones below 40 joules. We analysed both direct and indirect causes. We also included new parameters that had not been looked at before: the type of operation, the area on the rig, the time of day and the time of year, says Per Arne Skare. They also involved the personnel on board. They asked all senior managers and safety delegates to provide feedback on three areas that needed working on, and to propose measures. Based on the analyses, they concluded that nine out of ten incidents involving dropped objects were caused by human error. But why did they occur? I think there was a perception that, since this was such a new and big rig, with a lot of equipment and a double derrick, this was no more than could be expected. In addition, the rig was in the North Sea, working in rough conditions and a lot of bad weather. In a sense, this was seen as a fair reason for things falling down and it was used as an explanation for why the number of incidents was so high on Deepsea Atlantic, says Tveit. Then the explanation turned out not to be correct. If it had been correct, the investigation would have shown a preponderance of incidents in winter, when the wind was at its worst. But that was not the case. The incidents were evenly distributed, in summer and winter alike, says Skare. It was often the case that one object was dropped, then another. This was followed by a period without incidents. And then it happened again. Incidents followed a regular pattern. It is a bit like fires. When there is no fire, you do not pay enough attention to the risk of fire, he adds. Management responsibility The findings were a major breakthrough. They were followed up by determined efforts to change attitudes and behaviour, and by management meetings at which the results were presented. We responded to arguments about weather conditions and it being a new rig with facts, and pointed out where the problem lay. After all, nine out of ten incidents were caused by human errors. It was important to create an understanding of the role of leader that the management is responsible for what goes on on board at all times. You cannot go to bed at night unless you know that the people assigned a task have understood how to do it. And, even though you are indoors at a meeting, you are nonetheless responsible for everything that goes on on the drill floor, says Tveit. Fixed objects that blew away or came loose account for the last ten per cent of the incidents. This could be because of screws that had not been tightened, or faults that had not been identified during an inspection. It has to do with focus: that every time you are up in a derrick or a crane, you are aware of the risk. If you have your head stuck in a checklist all the time, you only see that checklist, says Skare. The results of the work were quick to materialise. Things stopped falling down. It is that simple, and that difficult. We carried out the analyses in March and presented the results at the end of April. Very few physical changes were made. Almost everything we did was a matter of training, motivation and organisation. In addition, the focus was high throughout the period, so after February, we had no incidents, says Tveit. Per Arne Skare adds: And when we increase focus on one area, we also focus more on other areas. We note that 2013 was the best year ever for Deepsea Atlantic. We saw the same thing on Deepsea Bergen: We managed to gain control of the discharges, and this focus led to better results in general. So, can this experience be applied to other parts of Odfjell Drilling? There are definitely elements of the work that was done that could produce good results elsewhere. At the same time, it is difficult to come up with a simple magic formula. What it boils down to is systematic work on making managers aware of their responsibility and focusing on HSE management and quality. And, not least: that every member of the organisation is part of the effort. Results: DROPPED OBJECTS ON DEEPSEA ATLANTIC (Total: 15) (Total: 11) 7 6 Total: Below 40 joules Above 40 joules 18 ODFJELL DRILLING ANNUAL REPORT

11 INSIGHT: DEEPSEA BERGEN YARDSTAY Background: Some companies primarily focus on the operation of the rigs offshore. We intend to be just as good at yard stays. Stein Harald Nielsen, Rig manager, Deepsea Bergen The mobile drilling rig Deepsea Bergen is on a contract with Statoil for drilling on the Norwegian continental shelf in the North Sea. During the client funded yard stay in 2013, the following modifications and alterations were carried out. Four new blisters installed to increase the variable deck capacity New office module Change of cementing unit, completion unit and other third party equipment New BOP (Blow Out Preventer) crane Local electrical room for new facilities Stein Harald Nielsen is rig manager on Deepsea Bergen and was responsible for the project on the part of MODU during the modification work on the rig. Ahead of plan Stig Waage manages MODU projects in Drilling & Technology. Drilling & Technology is Odfjell Drilling s department for engineering services and project management. Drilling & Technology comprises 420 people employed worldwide. Yard stays for Odfjell s drilling rigs in the North Sea are planned and engineered here. Ahead of schedule: Stig Waage (left) and Stein Harald Nielsen. Yard stays completed in recent years When Deepsea Bergen was to undergo a yard stay for modifications, the client Statoil hoped to get the job done in less than 50 days. The Odfjell Drilling team set a target of 28 days. And did it in 26. This is the result of thorough planning and excellent cooperation between all the involved parties, Stein Harald Nielsen and Stig Waage sum up. Nielsen is Rig Manager on Deepsea Bergen and was responsible for the project on the part of MODU (Mobile offshore Drilling Units). Stig Waage works in Drilling & Technology, where he manages MODU projects. It was no small modification that Deepsea Bergen underwent. The rig was to be prepared for new drilling operations on the Åsgård field. This meant that the variable deck capacity had to be increased by 1,000 tonnes. The solution was to install four huge flotation elements, called blisters, with a combined weight of approximately 250 tonnes. The modifications also included a new BOP crane, an office module, a new electrical control room and a change to the cementing and completion units on board. Closely involved in rig operations The order was drafted by MODU following negotiations with Statoil, and Drilling & Technology was responsible for planning and engineering the modifications. Experience from corresponding projects indicated a yard stay of at least 40 days, and the client Statoil had initially set a time frame of 50 days. Drilling & Technology s response was a target of 28 days for completion of the whole project. We set ourselves a goal that was definitely ambitious, says Stig Waage. And it was really an extreme project already, in terms of how short a planning phase we were given, adds Stein Harald Nielsen. Usually, the planning of Special Periodic Surveys, the main inspections of the rigs that are carried out every five years, begins two years before. In this case, the team only had a few months in which to plan the project. Drilling & Technology started planning at the end of June, and the rig was expected to start the yard stay already in late September. The advantage for us as an engineering organisation is that we are so closely involved in rig operations. We have many experienced employees who feel ownership to the rigs and know each and every one of them. Together with MODU, we put together a team of capable and motivated people who put in an outstanding effort, says Stig Waage. We really had to make use of all our core values to be able to do it and then some. A lot to build on Many of those involved also had a great deal of experience from earlier yard stays. Deepsea Atlantic was in dock in 2011 and Deepsea Bergen had a successful yard stay in Especially with Deepsea Bergen in 2012, we gained useful experience during both the planning and engineering phases and during the actual yard stay. The result was a well-coordinated team with a lot of good practice to build on, Waage points out. Stein Harald Nielsen emphasises the advantage of having engineering services and planning resources in house. In terms of communication, it is much easier. We work close together and have a shared understanding of the tasks involved. We would never have been able to do this if we had used external engineering companies, he emphasises. On 28 September, Deepsea Bergen arrived at the CCB yard at Ågotnes. A month of intensive work followed for all the crew involved. With a workforce numbering almost 300 from the yard and hired contractors, good planning was important. All the contractors were taught Odfjell Drilling s procedures, and the regular rig crew were part of the process. This was one of the success factors behind the successful yard stays in 2011 and 2012, and that experience was incorporated into this operation. More than 60 rig workers were on board at all times, each with their own area responsibility. The regular crew members were a very important resource and vital for us to be able to complete the project by the deadline, says Nielsen. They know all the details on board, were available to provide assistance and helped to ensure that the work operations were carried out more safely and more efficiently. The feedback we have received afterwards from the yard and the contractors on how this worked is very good. Good dialogue Another key success factor was ensuring a close dialogue between the project team and the people carrying out the work. Many of the 30 team members from Odfjell Drilling moved their offices to the yard for the month during which the work took place. To give one example: Tor Olav Jørgensen of Drilling & Technology, who was responsible for engineering and designing the four blisters, was at CCB the whole time to complete the job together with the yard. When the people who are to perform the work are in direct contact with the people who have planned it, things go a lot more smoothly, says Waage. After intensive work that involved more than five kilometres of welding electrodes and demanding lifts, the blisters were installed in the course of the first few days. And on 24 October, the whole modification job on Deepsea Bergen was completed two days ahead of schedule. Yard stays are a necessary part of any rig s life. In recent years, we have raised our level of expertise in relation to both engineering and execution. We see that we manage to do the job better and quicker every time. This expertise enables us to deliver spot on, at the agreed time and cost, says Stein Harald Nielsen. Many analysts worry about yard stays because they often take longer than expected. And extra time in dock means lost revenues. Some companies do not have sufficient control in this phase; they primarily focus on operating the rigs offshore. We intend to be just as good at yard stays, Stig Waage concludes Deepsea Bergen Modifications Project for Statoil at CCB, Norway Island Innovator Rig Intake for Maracc at Hanøytangen, Norway 2012 Deepsea Bergen Modifications Project for Statoil at Ølen, Norway Songa Trym SPS and new client mobilization project for Songa and Statoil at CCB, Norway Deepsea Metro II new client mobilization project for Odfjell Drilling and Petrobras at Cape Town, South Africa 2011 Songa Delta SPS and modification project for Songa at CCB, Norway Deepsea Stavanger new client mobilization project for Odfjell Drilling and BP at Port Elisabeth, South Africa Deepsea Atlantic Modifications project for Odfjell Drilling at Hanøytangen, Norway 2010 Deepsea Atlantic BOP modifications project for Odfjell Drilling at Hanøytangen, Norway Deepsea Bergen SPS and modifications project for Odfjell Drilling at CCB, Norway 20 ODFJELL DRILLING ANNUAL REPORT

12 INSIGHT: WEARING THE PLATFORM SHOES Background: Our strength lies in acting as and being seen as an integrated company by the client. Heidi Klaveness, Project & Modification Manager Odfjell Drilling provides engineering and project management services for a number of modification pojects on the production installations where the company is responsible for platform drilling services. In several of the projects, Odfjell Drilling s engineering departments in Bergen, Stjørdal and Manila cooperate with each other. The value of the contracts varies from around NOK 1 million to NOK 150 million. The modification of the cement room on Snorre A is currently the biggest project. Wearing the platform shoes The cement room The cement is mixed and pumped down into the borehole. The cement is used to cement the casing that is run down into the completed well. Once the casing is in place and cemented, the well is completed and ready for production. Heidi Klaveness is Project & Modification Manager for the three Statoil-operated platforms where drilling and maintenance is managed from Odfjell Drilling in Stavanger: Snorre A, Snorre B and Sleipner. Geir Håbesland is Operations Manager for the platform drilling on Snorre A. We can work it out: Geir Håbesland and Heidi Klaveness. The new cement room on the Snorre A platform is the biggest of around 40 engineering projects for Odfjell Drilling. Maintaining a close dialogue between platform operations and the engineers is a key factor, both in terms of generating new projects and implementing them. The people on the platform know what the problems are. It is vital that they are involved right from the start when we develop new solutions, says Heidi Klaveness, Project & Modification Manager in Drilling & Technology. Klaveness is responsible for the engineering services that are an integrated part of the contract for platform drilling on Snorre A, Snorre B and Sleipner A. The drilling operations on these three Statoil-operated platforms are managed from Odfjell Drilling in Stavanger, where both Drilling & Technology and Odfjell Well Services are gathered under one roof. Geir Håbesland is Operations Manager for Snorre A. He manages the drilling from the operations room in Stavanger. He is also strongly involved in the work of upgrading the cement room and cooperates closely with Heidi Klaveness on the project. There are many examples of people spending months designing a project for use on a platform where the result proves to be completely wrong, precisely because the users experience hasn t been taken into consideration. In Odfjell Drilling, we have managed to create an environment whereby operations people and engineers involve each other, share information and ask each other for advice, he says. Klaveness adds: It s probably often a case of differences in culture. You have to understand each other s way of thinking and speak the same language. Necessary upgrades There are still big resources in the reservoirs on the Snorre and Sleipner fields, but the platforms have been there for a long time now. Modifications and upgrades are important, both to ensure efficient drilling operations and for health, safety and environment reasons. The operations and maintenance personnel on board are often the ones who take the initiative. It can be about HSE issues relating to ergonomics and noise, old equipment or a lack of parts which makes maintenance difficult, says Klaveness. That was also the case as regards the cement room on Snorre A. The platform started production in 1992, and the working environment requirements have changed since then. The budget for the cement room assignment is NOK 150 million, and many modifications are needed. The control cabin will be replaced. The old one was only one metre broad, so there was hardly enough room for anyone in it, says Håbesland. In addition, the gearbox and machines will be overhauled and the whole cement unit will be replaced. In the past, people had to stand on the unit itself when mixing the cement, which led to noise problems and poor working conditions. Now, everything will be operated from the control cabin. Operating experience Heidi Klaveness mentions some important measures that were implemented to ensure that the project got off to a good start. First of all, we appointed a coordinator who was in charge of managing the interfaces with the different parties involved: Statoil, Halliburton, the engineers and platform people. Rune Næss, who was assigned that role, is an engineer who has long experience as a drilling supervisor offshore. He speaks both languages. He became a key resource since he was able to draw on his operational experience in his work with the engineering team. Different users were also involved from the outset. They know the work situation and know what they want from the new solutions. They are concerned with the details, such as individual tasks and the working positions involved in carrying them out. They attended all the meetings and were able to share their experience directly. This resulted in very good collaboration and a feeling of ownership of the project, says Klaveness and gives an example: When the engineering team came out to Snorre A for an inspection, the people from the cement room were there to welcome them on the helideck. That s how eager they were to show them around and talk about the problems that needed solving. After the engineering phase, the new cement room will be installed in The installation itself is perhaps the most demanding part of the project, but we feel confident that we will succeed. We have established a shared understanding of what we want and need, and everyone wants to succeed with the job. And, last, but not least: We act as a single unit in dialogue with the client, she says. A close-knit team For Klaveness and the rest of the engineering team in Drilling & Technology, close collaboration with the platform operations team is important both in terms of implementing the projects and in relation to generating new ones. We have a framework agreement for engineering projects, but Statoil can choose to put projects out to tender on an individual basis. When they choose us and select Odfjell Well Services for equipment hire and casing services, it is probably precisely because we are an integrated and close-knit team. That makes it easier. It is difficult to think outside the box when working with different disciplines and when people are busy working on their own projects without talking to each other, says Geir Håbesland and gives the following illustration: In some places, the glass walls are like concrete barriers, and moving one floor down is like going from here to Houston. We have managed to tear down those walls and create a more vibrant and pulsating working environment. We are a mixed team where people from operating backgrounds and consulting engineers work side by side. People feel that they can pop in if they have any questions. This way, problems and misunderstandings are cleared up very quickly, says Heidi Klaveness and sums up: It s about looking at the big picture and making sure that all the units are working together. Our strength lies in acting as and being seen as an integrated company by the client. Platform drilling clients Norway Statoil Grane Heidrun Njord Sleipner A Visund Snorre A Snorre B Wintershall Norge Brage UK Talisman Sinopec Energy Claymore Clyde Saltire Piper Tartan Fulmar BP Clair Andrew Bruce Magnus Clair Ridge TAQA Harding Statoil Mariner Bressay (option) 22 ODFJELL DRILLING ANNUAL REPORT

13 INSIGHT: EASTBOUND FOR GROWTH Eastbound for growth Quality and the ability to deliver has been our trump card over our competitors. John Thomson, VP Odfjell Well Services, Middle East, Asia & Africa Background: John Thomson is VP Odfjell Well Services Middle East, Asia & Africa. Odfjell Well Services is part of Odfjell Drilling and provides a range of well services, casing running services and rental of well equipment. Odfjell Well Services provides its services in more than 20 countries worldwide. The company has offices and workshops in Norway, the UK, the Netherlands, Romania, the United Arab Emirates, Saudi Arabia, Turkmenistan, Kurdistan, Thailand and Tanzania. Range of Services Odfjell Well Services has succeeded in entering new markets in the Middle East, Asia and Africa in recent years. Pursuing a strategy based on innovation, quality and thinking outside the box has paid off. I guess you could say we re the pioneers of the company, says John Thomson, VP of Odfjell Well Service Middle East, Asia & Africa. In the eleven years that have elapsed since Odfjell Well Services set up business in the Middle East, the business has reached far beyond the confines of its head office in Dubai. Saudi Arabia, Kuwait, Oman, Kurdistan, Thailand and Turkmenistan are some of the markets in which Odfjell Well Services now operates. And 2013 was one of the best years since it started up, Thomson tells us. By the year s end, our organisation had almost doubled in size to cope with the work we have. We were able to expand our business activity on all fronts, through new clients and contracts awards, he says. Odfjell Well Services started up in Dubai through the acquisition of a small United Arabic Emirates-based rental and casing company, for which John Thompson worked and was one of the owners. Thompson came on board and has been part of the development of the business since. We started from nothing, really. At that time, we were less than 20 employees working for a handful of clients. From there, steady investment and head office confidence in the region have allowed us to build an extremely successful business unit. From left: Ronaldo Claridad, Ian Balansag (engineers) and Simon Leiper (Region Manager Wellbore Clean-Up) Raising the bar One important reason for Odfjell Well Services success is a conscious strategy of standing out from the competition. What we tried to do was to think outside the box and not follow the crowd. If you look back more than ten years, there was not much innovation or standards in the casing and rental companies working in this area. The market was a bit low end and the clients in the region were not demanding enough of their suppliers to come up with new ideas, says John Thomson. I would like to think that Odfjell Well Services has raised the bar and improved the quality of equipment and services. We have always endeavoured to be a solution provider rather than a company that just meets the minimum service requirements. This meant applying new and better technology standards, in both rental and casing services. For instance, drill pipe and downhole tools with traceability and manufactured to NS-1 spec, DS1-CAT 5 or NS-2 inspection criteria were criteria that we were working to long before our competitors. In recent years, we have successfully introduced the CRTi top drive casing running tool as the preferred solution for casing running operations. We now have CRTi tools in operation throughout the Middle East, Asia and Africa. The market has also changed over time. Over the years, we have witnessed a shift from a lowest bidder wins mentality with little regard for service quality, to a quality-driven one that requires good service support, Thomson says. Success in Kurdistan The business in Iraqi Kurdistan is an example of the success Odfjell Well Services has enjoyed in new markets. Kurdistan has big oil and gas resources and many oilfield majors now have a presence in the region. Odfjell Well Services established an office in Erbil in Kurdistan in 2012, and its turnover is growing rapidly. We have contracts in place with the majority of operators for our top drive casing running and fishing services, and Kurdistan now accounts for a quarter of our regional revenue. Quality and the ability to deliver have been our trump card over our competitors, and we are currently sitting with the majority market share for our product lines, says Thomson. Thompson sees being part of Odfjell Drilling as a big advantage when Odfjell Well Services enters new markets. Being part of Odfjell Drilling is an important door opener for us. It creates new opportunities. Both the drilling and the well service segments in Odfjell Drilling have a massive client list, and both can benefit from each other. We strengthen our business together. Expanding to new areas: John Thomson, VP Odfjell Well Services Middle East, Asia & Africa Valuable cleanup tools In recent years, Odfjell Well Services has started to build up an internal technology development unit. Early in 2013, Odfjell Well Services acquired Dubai-based Zenon Well Technology LLC. The company has developed a range of solutions for wellbore cleanup tools. In December 2013, Odfjell Well Services Abu Dhabi operations successfully completed their second BOP jetting run for a local offshore operator using these tools. These tools effectively remove debris from the well and reduce loss of rig time and costs. They represent a complementary and valuable range of services in our total portfolio, says Thomson. He believes that Odfjell Well Services will continue to develop positively: Already this year, we were awarded significant contracts in Turkmenistan for casing, fishing and rental for a three offshore rig operation in the Caspian Sea. Closer to home, we were awarded one of the region s largest wellbore cleanup contracts for an oilfield major in the Emirates, he says. We certainly achieved our goals for growth last year and managed to build a good platform for future growth and opportunities at the same time. Client expectations are increasing all the time and we feel that we are wellpositioned to exceed them, concludes an optimistic John Thomson. TUBULAR RUNNING SERVICES Remote radio controlled and conventional equipment Top Drive Casing running Remote operated and conventional power tongs Casing and tubing running and recovery Casing drilling RENTAL SERVICES Drill pipe Tubing Jars / shock tools HW/ drill collars Non magnetic equipment Flexweight, Drill Collars, Stabilizers, X-Overs Steel Stabilizers / roller reamers Steel Valves / x-overs Fishing and abandonment tools Well bore clean out tools Hole Openers Both Single and Two Stage Types WELL INTERVENTION SERVICES Fishing Services Casing Exit Services Well Abandonment Services Wellbore Clean Out Services 24 ODFJELL DRILLING ANNUAL REPORT

14 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Business Segment: Mobile Offshore Drilling Units 26 ODFJELL DRILLING ANNUAL REPORT

15 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Key Figures MOBILE OFFSHORE DRILLING UNITS Through the joint venture company Odfjell Galvão (50/50 with Galvão Enghenaria) Odfjell Drilling participates as owner and manager for three ultra deepwater drillships. In 2012 Odfjell Galvão and Brazilian SETE entered into a contract for construction and management for three ultra deepwater drillships under a long term drilling service contract with Petrobras. Construction work for the first drillship Guarapari begun in Singapore in On contract to BG in Tanzania since December The contract with BG will expire in November 2014 and the drillship is presently being marketed for other contracts worldwide. Deepsea Metro I achieved an efficiency rate of 98.7% financial uptime in DEEPSEA METRO II An ultra deepwater drillship of the same design as Deepsea Metro I, delivered in November The drillship is owned by Chloe Marine Corporation Ltd, a subsidiary of Deep Sea Metro Ltd, a joint venture by Metro Exploration (60%) and Odfjell Drilling (40%). Odfjell Drilling operates the drillship. Commenced operations for Petrobras in May The contract expires in May The drillship achieved an efficiency rate of 78.7% financial uptime in Operating REVENUE (USD MILLION) Mobile Offshore Drilling Units DEEPSEA BERGEN A harsh environment semisubmersible, Aker H3.2 design delivered in On contract with Statoil on the Norwegian continental shelf until 2017 plus a 1 year option. Upgraded both in 2012 and 2013 to increase variable deck load and operational capacities In 2013 Deepsea Bergen achieved an efficiency rate of 97.9% financial uptime. DEEPSEA ATLANTIC A sixth generation ultra deepwater and harsh environment semisubmersible of enhanced GVA 7500 design delivered early The rig is equipped with a dual derrick and is optimised for production drilling and completion activities. On contract to Statoil, it is presently drilling in the Gullfaks area on the Norwegian continental shelf. Statoil exercised in 2013 an option to use the rig for additionally one year until august The contract has an additional two-year priced option. Deepsea Atlantic achieved an efficiency rate of 98.7% financial uptime in 2013 and is consistently ranked high on Statoil s drilling efficiency benchmark. DEEPSEA STAVANGER A sixth generation ultra deepwater and harsh environment semisubmersible unit of the same design as the Deepsea Atlantic and was delivered summer Currently operating for BP in Angola under a contract that expires in November The contract has in addition two unpriced one-year options. Deepsea Stavanger achieved in 2013 an efficiency rate of 87.1% financial uptime. MANAGED DRILLING UNITS During its 40-year-long history, Odfjell Drilling has provided management services for owners of semisubmersibles, drillships and jack-up drilling units worldwide. The services include project management and follow-up during the construction phase, management of regulatory requirements, marketing and client relations, preparations for operation and operations. Odfjell Drilling is currently manager for the semisubmersible rig Island Innovator owned by Maracc ASA. The rig which was originally designed for well interventions has been modified for drilling operations on the Norwegian Continental Shelf. The owner has a 12 well drilling contract with Lundin Petroleum Norway. In 2013 Odfjell Drilling had responsibility for achieving AoC (Acknowledgement of Compliance) from the Norwegian Petroleum Safety Authority. Drilling operations with the semisubmersible started in September EBITDA (USD MILLION) EBIT (USD MILLION) MOBILE DRILLING UNITS Since its foundation in 1973 Odfjell Drilling has been involved in design and construction of more than 30 offshore drilling units and operation of more than 50 fixed and mobile installations. Since 2006, Odfjell Drilling has developed a modern fleet of ultra deepwater and harsh environment drilling units. The Group presently operates five mobile drilling units on contract in Norway, Angola, Tanzania and Brazil. The fleet consists of two ultra deepwater and harsh environment semisubmersibles, one mid water harsh environment semisubmersible and two modern ultra deepwater drillships. The Group is manager for one mobile drilling unit Island Innovator. Since 2011 Odfjell Drilling has mobilised three mobile drilling units in Africa and Brazil. All the Group s mobile drilling units are operating under contracts with major international E&P companies. The semisubmersible Island Innovator started drilling services for Lundin Petroleum in Norway in September Odfjell Drilling is well positioned in attractive offshore drilling markets. The Group s strategy is to increase its presence with several mobile drilling units in selected international regions to realise financial and operational synergies. The Deepsea Aberdeen newbuild presently under construction at Daewoo Shipbuilding & Marine Engineering (DSME) in South Korea, is scheduled for delivery during the autumn The newbuild represents the next step in the Group s fleet development. Deepsea Aberdeen is of the same design as the Deepsea Atlantic and Deepsea Stavanger. DEEPSEA METRO I An ultra deepwater drillship of Gusto P design delivered by Hyundai Heavy Industries in South Korea in June The drillship is owned by Golden Close Maritime Corp. Ltd, a subsidiary of Deep Sea Metro Ltd, a joint venture between Metro Exploration (60%) and Odfjell Drilling (40%). Odfjell Drilling operates the drillship. 28 ODFJELL DRILLING ANNUAL REPORT

16 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Business Segment: Drilling & Technology 30 ODFJELL DRILLING ANNUAL REPORT

17 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Key Figures DRILLING & TECHNOLOGY Operating REVENUE (USD MILLION) In October the operatorship for the Brage platform was transferred from Statoil to Wintershall. Odfjell Drilling s contract for drilling services has been transferred to the new operator. In April 2013 Statoil awarded Odfjell Drilling a new four year contract for platform drilling services on the Mariner platform under development on the UK continental shelf. Odfjell Drilling will also provide engineering and commissioning services to Statoil under the construction and start-up phase of the field development. The contract includes options for 3x2 years and an option for similar scope of work for the future Bressay platform. The outlook for the activity level on the UK continental shelf is good and Odfjell Drilling currently has contracts with both BP, Talisman Sinopec Energy and Taqa Bratani which took over as operator of the Harding platform in June Demand for platform drilling services is steady in the North Sea market and elsewhere. Odfjell Drilling s strategy is to develop platform drilling in a new region outside the Norwegian and UK market. The main risk elements in relation to further developing the platform drilling activities are related to delivery of the targeted rig uptime. Odfjell Drilling s team of professionals has extensive experience and expertise in maintenance planning which is a key factor in delivering high rig uptime on mature offshore drilling facilities. In all, Odfjell Drilling is well positioned as an employer. The Group benefits from a 35 year long experience of platform drilling, a sound contract portfolio with reputable clients and a good reputation for people development. During 2013 the two most important projects in Drilling Technology s portfolio has been project management services for the mobilisation of the semisubmersible rig Island Innovator and planning and execution of the yard stay project for Deepsea Bergen. Drilling Technology is also responsible for project management for Odfjell Drilling s newbuild project Deepsea Aberdeen and the periodic survey for Deepsea Atlantic during the spring Odfjell Drilling also provides engineering and project management services for E&P companies under integrated platform drilling contracts. During 2013 Drilling Technology has been involved in several projects related to maintenance and modfications of drilling facilities on production facilities in the North Sea. Project services for the Heidrun well intervention tower was finalised in Drilling Technology has during 2013 developed and implemented a new Project execution model to improve risk management and reduce quality costs in project execution. A revised Technology strategy is adopted supporting the Group s ambition to be in the technology forefront in the international offshore drilling industry. In 2007 Odfjell Drilling established an engineering department in Manila in the Philippines to support its global engineering activities. The goal is to develop the Manila office further in order to increase overall engineering capacity and to realise operational and financial synergies EBITDA (USD MILLION) EBIT (USD MILLION) Odfjell Drilling s business segment Drilling & Technology consists of two business areas: Platform Drilling Drilling Technology PLATFORM DRILLING SERVICES Odfjell Drilling is a leading provider of drilling services on oil and gas production facilities for international E&P companies in the North Sea. The Platform Drilling business area provides integrated drilling services Drilling & Technology including onshore support, production drilling and completion, well maintenance, facility maintenance planning and project management for maintenance and modifications. The business area is currently responsible for drilling services on 20 installations operated from Bergen, Stavanger and Stjørdal in Norway and Aberdeen in the UK. During 2013 Odfjell Drilling started up drilling services under the new Statoil contract for integrated platform drilling services on eight installations on the Norwegian continental shelf. During the autumn 2013 Statoil has informed Odfjell Drilling that drilling activities on the Njord and Snorre A platforms will be temporarily halted due to modification projects. The contract comprises integrated drilling services on Grane, Visund, Heidrun, Njord, Snorre A, Snorre B and Sleipner A The contract expires by the end of 2016 plus options for 3x2 years. ENGINEERING AND PROJECT MANAGEMENT SERVICES The Drilling Technology business area provides a wide range of engineering, technology support and project management services to the company s other business areas and external clients. Odfjell Drilling aims to be the preferred supplier of drilling and well-related competence through projects, products and services. During its 40-year-long history the company has been a pioneer in the development and implementation of innovative technology solutions for offshore drilling facilities and services. Drilling Technology provides engineering and project management services both to MODU (mobile offshore drilling units) and fixed installations. 32 ODFJELL DRILLING ANNUAL REPORT

18 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Business Segment: Well Services 34 ODFJELL DRILLING ANNUAL REPORT

19 THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Key Figures WELL SERVICES NORWAY: Rental services with Repsol and Baker Hughes Casing services with the Borgland Dolphin consortium, Repsol and Centrica EUROPE: Tool Rental with Shell (Netherland, UK and Norway) Tubular Running Services with Shell (Netherlands, UK and Norway), Dong/ Hess, Lane Energy/ ConocoPhillips (Poland), ADTI (Netherlands) Operating REVENUE (USD MILLION) MIDDLE EAST: Casing services and fishing with Repsol, (Kurdistan) Casing services and Tool rental with Wintershall Wintershall Casing and rental, UAE Talisman Casing Running (Kurdistan) Tullow Casing running (Ethiopia) PVD Casing running (Vietnam) During 2013 Well Services has established its market presence in Tanzania, Angola, Vietnam and Thailand. The business segment is well positioned to serve existing and new clients from its operational bases in Europe and Middle East EBITDA (USD MILLION) EBIT (USD MILLION) Well Services The business segment Well Services was established in 1982 on the basis of rental activities dating back to the mid-1970 s. Today the business segment is a leading well service company in Europe and selected international regions. The business segment s services are marketed under the brand Odfjell Well Services and its product and service portfolio is divided in two areas: Casing Services and Rental Services. Casing Services provides casing and tubular running and handling services. The business unit offers a range of remote operated tongs and handling equipment that it has developed itself or has developed in close cooperation with collaborating vendors. The services are provided to E&P companies and to rig owners. Rental Services offers a wide range of drilling tubular and related equipment to the rental market. The business unit is capable of everything from delivering an individual item of stock to taking full responsibility for a complete drill string, including all equipment necessary for running and handling the string. The activity level has been high in all product and services areas and regions. The business segment entered into several new contracts in Norway, rest of Europe, Middle East and South East Asia. 36 ODFJELL DRILLING ANNUAL REPORT

20 A safe choice THREE BUSINESS SEGMENTS ONE INTEGRATED COMPANY Lost Time Incident Frequency (H1) As per 1 mill working hours Quality, Health, Safety & Environment Total Recordable Incident Frequency (H2) As per 1 mill working hours Sickness Absence Percentage As an integrated drilling contractor Odfjell Drilling s ability to provide safe and reliable services is crucial to the Group s future development. The Group works continually to improve its health, safety, security and environment efforts and the main objective is to achieve zero faults through continuous improvement. Odfjell Drilling works continuously to develop a company culture, governing documents, organisational competence, capacity and a leadership culture that promote the objective of maintaining the highest safety standards. Through this approach the Group aims to safeguard the health of all people involved in its operations, reduce environmental risks through effective risk management and develop a quality culture in which tasks are performed right the first time and in which the goal is to constantly strive to add value for clients. The highest priorities in all QHSE efforts are to manage risks and prevent high potential incidents and injuries to personnel. Improved risk management and the strengthening of safety barrier management are important measures in order to ensure a high safety level and prevent major accidents. Odfjell Drilling endeavours to foster a culture in which focus is on the individual s responsibility and the ability to assess and manage risks. The level of risk has improved in Odfjell Drilling in recent years. All HSE parameters related to personnel injuries showed a positive development in 2013 and there were no serious injuries to any personnel involved in the Group s activities. During 2013 the incident rates for both lost time incidents (H1) and medical treatment injuries (H2), were reduced. The number of lost time injuries was reduced from 7 to 4 from 2012 to The Group focus particularly to avoid high potential incidents (HIPO). The HIPO frequency was reduced from 2.2 in 2012 to 1.2 in The Group is increasing its efforts to reduce the number of incidents involving dropped objects. In spite of a positive development on several mobile drilling units, the overall incident rate for dropped objects has increased. The efforts to implement the DROPS programme on all fixed installations and throughout other parts of our operational activities, is already intensified. In recent years, Odfjell Drilling has developed and implemented a Safety Leadership & Compliance programme to support the management and teams in all business areas. This has been undertaken in order to ensure a high level of QHSE performance during a period of increased activity and mobilization of several new drilling units and startup in new regions. The objective has been to achieve a shared QHSE and leadership culture in all of Odfjell Drilling s operations based on openness, dialogue, the reporting of incidents and sharing of best practices. In 2013 there has been a specific focus on optimization of training and competence assurance of offshore crews including the Deepsea Aberdeen onshore and offshore organization. Focus on training and competence assurance will continue in 2014 in all business areas. The Group s ambitions is to provide high quality drilling, engineering and well services that meet the clients expectations. All Odfjell Drilling s business areas are individually certified in accordance with the ISO 9001 Quality Management standard, and in the end of 2013 all the business areas underwent the ISO certification process for Environmental Management. The Company s management system (CMS) is a vital tool to ensure a common practice based on experience gained through the Group s 40-year-long history. The web based CMS is continuously evaluated and improved based on new experiences and feedback from employees and partners. Goal < 3 % Dropped Objects Frequency As per 1 mill working hours Frequency > 40 joule 38 ODFJELL DRILLING ANNUAL REPORT

21 CORPORATE GOVERNANCE Corporate Governance Through good governance of the business, Odfjell Drilling intends to create profitability and increased shareholder value. ODFJELL DRILLING LTD. ( Odfjell Drilling or the Company ) is incorporated in Bermuda and is subject to Bermuda law. The Company seeks to comply with the applicable legal framework for companies listed on Oslo Børs, and endorses the Code of Practice for Corporate Governance (Norwegian: Norsk anbefaling for eierstyring og selskapsledelse ) issued by the Norwegian Corporate Governance Board, most recently revised 23 October 2012 (the Code ). This review is prepared in accordance with section 1 of the Code, and any deviations from the recommendations set out in the Code are described in the following. On 3 September 2013, the Board of Directors of the Company (the Board of Directors or the Board ) adopted this corporate governance policy (the Corporate Governance Policy ) for and on behalf of the Company to reflect the Company s commitment to good corporate governance. Through good governance of the business, the Company intends to create profitability and increased shareholder value. This Corporate Governance Policy contains the measures that are, and will be, implemented to ensure effective management and control over the Company s activities. The primary objective is to have systems for communication, monitoring and allocation of responsibility, as well as appropriate incentives, which contribute to increasing and maximising the Company s financial results, long-term success and returns to shareholders on their investments in the Company. The Company aims to have good control and governance procedures to ensure equal treatment of all shareholders, thereby providing a foundation for trust and positive development of values. A description of the most important corporate governance principles of the Company, as well as its core values, is also made available on THE COMPANY S BUSINESS ACTIVITIES In accordance with common practice for Bermuda incorporated companies, the Company s objects as set out in its memorandum of association are wider and more extensive than recommended by the Code. Accordingly, this represents a deviation from section 2 of the Code. However, the Company s and its subsidiaries (collectively, the Odfjell Drilling Group or the Group ) objectives and strategy are further described in the following: The Odfjell Drilling Group is a Bermuda based drilling contractor with 40 years of operational experience on the harsh environment Norwegian Continental Shelf (NCS), which has gradually expanded internationally by offering a state-of-the-art fleet of mobile offshore drilling units to the harsh environment and ultradeepwater markets along with prudent engineering services, well services and platform operations. Odfjell Drilling Group s vision is to become a leading supplier of drilling units and drilling services designed to the highest environmental and safety standards in the offshore oil and gas industry, mainly for the ultradeepwater and for the harsh environment markets. The Odfjell Drilling Group has a zero fault philosophy and shall be the trusted and leading partner for its blue chip customers. By utilising its substantial 40-year track record of experience from operations in harsh environment and deepwater areas and its ability to implement best practices based on experience and lessons learned, the Odfjell Drilling Group shall become a preferred partner for drilling operations, engineering projects and well services in its selected business regions. EQUITY AND DIVIDENDS The Company had book equity of USD 1,130 million and a book equity ratio of 41% as of 31 December The Company regards the Group s present capital structure as appropriate and tailored to its objectives, strategy and risk profile. The Company s long-term objective is to make distributions of net income in the form of dividends, and targets a long-term annual pay-out representing 30-40% of its net profit on a consolidated basis. The payment of any dividends will depend on a number of factors, including the market outlook, contract backlog, cash flow generation, capital expenditure plans and funding requirements whilst maintaining adequate financial flexibility, as well as restrictions on the payment of dividends under Bermuda law and financial covenants, along with other factors the Board may consider relevant. Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board has wide powers to issue any authorised unissued shares in the Company on such terms and conditions as it may decide, and any shares or class of shares may be issued with preferred, deferred or other special rights or such restrictions, whether with regard to dividend, voting, return on capital, or otherwise as the Company may, by resolution of the shareholders, prescribe. Accordingly, this represents a deviation from section 3 of the Code. However, such issuance of shares by the Company from the authorised, but unissued, share capital is subject to prior approval given by resolution of the general meeting of shareholders. Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board is also authorised to purchase the Company s own shares. These authorisations are neither limited to specific purposes nor to a specified period as recommended in the Code. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSELY-RELATED PARTIES The Company has only one class of shares. Each share in the Company carries one vote, and all shares carry equal rights, including the right to participate in general meetings. All shareholders shall be treated on an equal basis, unless there is just cause for treating them differently. In the event of not insignificant transactions between the Company and its shareholders, a shareholder s parent company, members of the Board of Directors, executive personnel or closely-related parties of any such parties, the Board of Directors shall arrange for a valuation to be obtained from an independent third party. An independent valuation shall also be carried out in the event of transactions between companies within the same group where any of the companies involved have minority shareholders. Members of the Board of Directors and employees must notify the Board of Directors if they have a significant, direct or indirect, interest in a transaction carried out by the Company. Any transactions the Company carries out in its own shares shall be carried out either through Oslo Børs or at prevailing stock exchange prices if carried out in another way. If there is limited liquidity in the Company s shares, the Company shall consider other ways to ensure equal treatment of all shareholders. The Company does not deviate from section 4 of the Code. FREELY NEGOTIABLE SHARES The Company s constituting documents do not impose any transfer restrictions on the Company s common shares and the Company s common shares are freely transferable in Norway, provided, however that the Byelaws include a right for the Board to decline to register a transfer of any share in the register of members, or if required, refuse to direct any registrar appointed by the Company to transfer any interest in a share where such transfer would result in 50% or more of the shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or, alternatively, such shares or votes being effectively connected to a Norwegian business activity. The purpose of this provision is to avoid the Company being deemed a Controlled Foreign Company pursuant to Norwegian tax rules. This represents a deviation from section 5 of the Code, but the Company does not foresee that this provision will impact on the free transferability of its shares. GENERAL MEETINGS The Board of Directors will ensure that the greatest possible number of shareholders can exercise their voting rights in the Company s general meetings and that the general meetings are an effective forum for the views of shareholders and the Board. Among other things, the Board of Directors will ensure that: - the notice and the supporting documents and information on the resolutions to be considered at the general meeting are available on the Company s website no later than 21 days before the general meeting is held; - the resolutions and supporting documentation, if any, are detailed enough to allow shareholders to understand and form a view on matters that are to be considered at the general meeting; - the registration deadline, if any, for shareholders to participate at the general meeting is set as closely as practically possible to the date of the general meeting and pursuant to the provisions in the Byelaws; - the Board of Directors and the person who chairs the meeting shall ensure that the shareholders have the opportunity to vote separately on each candidate nominated for election to the Company s Board of Directors and committees, if applicable; - the members of the Board of Directors, the nomination committee and the auditor must attend the general meeting; and 40 ODFJELL DRILLING ANNUAL REPORT

22 CORPORATE GOVERNANCE - there are routines to ensure the independent chairing of the general meeting. The Chairman of the Board of Directors will, in principle, chair the Company s general meetings. This is mainly due to the fact that the Bye-laws of the Company provides, as is common under Bermuda law, that the Chairman of the Board shall, as a general rule, chair the general meetings. Accordingly, in this respect the Company deviates from section 6 of the Code. Shareholders who cannot be present at the general meeting will be given the opportunity to vote using proxies. The Company will in this respect: - provide information about the procedure for attending via proxy; - nominate a person who will be available to vote on behalf of a shareholder as their proxy; and - prepare a proxy form which shall, insofar as this is possible, be formulated in such a manner that the shareholder can vote on each item that is to be addressed and vote for each of the candidates that are nominated for election. NOMINATION COMMITTEE The Company s bye-laws sets out that the Company shall have a nomination committee comprising such number of persons as determined by the general meeting of the Company from time to time, and which members shall be appointed by a resolution of the general meeting, including the chairman of the committee. The general meeting shall determine the remuneration of the nomination committee and shall stipulate guidelines for the duties of the nomination committee. The members of the nomination committee shall be elected to take into account the interests of the shareholders in general. At least one member of the nomination committee shall be independent of the main shareholder of the Company. The nomination committee shall not include the Chief Executive Officer or any other executive personnel. The nomination committee s duties are to propose candidates for election to the Board of Directors and to propose fees to be paid to such members. The nomination committee shall justify its recommendations. The Company shall provide information of the nomination committee and any deadlines for submitting proposals to the committee. As of 31 December 2013, the Company had not established a nomination committee as the current Directors of the Board all are elected for a two years period up until the annual general meeting of the Company in Currently, this represents a deviation from section 7 of the Code. However, the Company intends to arrange for a nomination committee to be elected and the code of conduct for the nomination committee to be approved at its annual general meeting in THE BOARD OF DIRECTORS COMPOSITION AND INDEPENDENCE The composition of the Board of Directors shall ensure that it can act independently of any special interests. A majority of the shareholder-elected members of the Board of Directors must be independent of the Company s executive personnel and material business connections of the Company. In addition, at least two of the members of the Board of Directors must be independent of the Company s major shareholder(s). For the purposes of this Corporate Governance Policy, a major shareholder shall mean a shareholder that owns 10% or more of the Company s common shares or votes, and independence shall entail that there are no circumstances or relations that may be expected to be able to influence independent assessments of the person in question. The chairman of the Board of Directors shall be elected by the general meeting so long as the applicable laws do not require that the chairman must be appointed by the Board of Directors. The term of office for members of the Board of Directors shall not be longer than two years at a time. As of 31 December 2013, the Board of Directors consisted of five members, possessing the required expertise, capacity and diversity. The Board can act independently of the executive management of the Company and exercise proper supervision of the management of the Company and its operations. All of the members of the Board of Directors have participated in each of the board meetings held since the date of the listing at Oslo Børs. All of the members of the Board of Directors are independent of the management and material business connections of the Company. Further, all of the members of the Board of Directors (except for Helene Odfjell) are independent of the main shareholders of the Company. The Company does not deviate from section 8 of the Code. THE WORK OF THE BOARD OF DIRECTORS The Board seeks to schedule in advance physical meetings seven to nine times per calendar year, depending on the level of activity of the Company. Interim meetings may be convened if a Director so requires. The Board meetings are chaired by the Chairman unless otherwise agreed by a majority of the Directors attending. If the Chairman is not present, the Directors shall elect among themselves a Chair for the Board meeting. The Board of Directors issues instructions for its own work, as well as for the executive personnel, with particular emphasis on clear internal allocation of responsibilities and duties. The Board of Directors works under an annual plan with particular emphasis on objectives, strategy and implementation, with tasks including, amongst others: - identifying and establishing the Company s overriding goals, objectives and strategies, including approval and endorsement of plans and budgets; - determining policies, monitoring and supervising the day-to-day management of the Company and the business carried out by the Company; - ensuring that the business of the Company, the accounts and the management of the assets of the Company are subject to adequate supervision and are conducted in accordance with applicable legislation; - monitoring and reviewing the annual and interim financial reporting, assessing the performance of internal control and external auditors and overseeing legal and regulatory compliance; - taking decisions, endorsing decisions or authorising decisions to be taken, as appropriate, in matters that are of an unusual nature or of importance to the Company; - assessing the effectiveness of the Company s policies on ethics, conflicts of interest and compliance with competition law; approving various decision guidelines for the Board and any other such manuals as the Board from time to time may adopt. The Board has established an Audit Committee whose duties include supervising and reviewing the Company s annual and interim financial reporting. This committee consists of two Board members. The Company has not established a Remu neration Committee, but it should in this respect be noted that no member of the executive management is represented at the Board of Directors and all of the members of the Board of Directors are independent of the management of the Company. Accordingly, the Board of Directors has not considered such committee to be necessary. The Board of Directors annually evaluates its performance and expertise. The Company does not deviate from section 9 of the Code. RISK MANAGEMENT AND INTERNAL CONTROLS The Board recognises its responsibility to secure appropriate risk management systems and internal controls. The Company has comprehensive relevant corporate manuals and procedures, which provide detailed descriptions of procedures for all aspects of managing the operational business. The procedures and manuals are continuously revised to incorporate best practice derived from experience or adopted through regulations. Routines have been established to secure frequent and relevant management reporting on operational matters, in order to ensure adequate information for decisionmaking and to respond quickly to changing conditions and requirements. Similarly, the Board receives frequent and relevant reports on financial matters, and management reports covering both operational and financial matters are pro vided to the Board on a monthly basis. This ensures that the Board is continuously updated on both the capital and liquidity situation and the scope of the activities, and able to immediately take any action deemed necessary. The Board s also recognises the responsibilities with regards to the Company s values and guidelines for ethics and corporate responsibilities. The core values reflect the Company s focus on commitment, safety conscious ness, creativity, competency and result orientation, and guidelines for the behaviour of Company representatives are described in detail in the Company s Code of Business Conduct. The core values and Code of Business Conduct are available on The Company does not deviate from section 10 of the Code. REMUNERATION OF THE BOARD OF DIRECTORS The remuneration of the Board is to be decided by the shareholders at the annual general meeting of the Company. The level of compensation to the members of the Board shall reflect the responsibility of the Board, its expertise and the level of activity in both the Board and any Board committees. The remuneration shall not be linked to the Company s performance. The Company shall not grant share options to members of the Board of Directors.None of the members of the Board of Directors and/or companies with whom the members are associated have taken on specific assignments for the Group in addition to their appointments as members of the Board of Directors with the exemption of management and accounting services agreements between Pin High Limited (controlled by Kirk Davis) and Odfjell Drilling Services Ltd. and Odfjell Offshore Ltd., respectively, under which Pin High Limited performs certain management and account services for Odfjell Drilling Services Ltd and Odfjell Offshore Ltd. The annual fee for the services provided under each agreement is USD 20,000. The remuneration to the members of the Board of Directors will be specifically identified in the annual report. Except for the above mentioned agreements with Pin High Limited, the Group does not deviate from section 11 of the Code. REMUNERATION OF THE EXECUTIVE MANAGEMENT The Board of Directors shall prepare guidelines for the remuneration of the executive personnel of the Company. These guidelines shall be communicated to the annual general meeting. Performance-related remuneration of the executive personnel in the form of share options, bonus programmes or the like shall be linked to value creation for the shareholders or the Company s earnings performance over time. The remuneration of the Company s Chief Executive Officer and Chief Financial Officer will be specifically identified in the annual report. The Company does not deviate from section 12 of the Code. INFORMATION AND COMMUNICATION The Company has established guidelines for reporting to the market, and is committed to provide timely and precise information to its shareholders, Oslo Børs and the financial markets in general (through Oslo Børs information system). Such information will be given in the form of annual reports, quarterly reports, press releases, notices to the stock exchange and investor presentations in accordance with what is deemed most suitable. The Company will attempt to clarify its long-term potential, including strategies, value drivers and risk factors. The Company will maintain an open and proactive policy for investor relations. The Company is publishing an annual, electronic finance calendar with an overview of the dates of important events such as the annual general meeting, publishing of interim reports, open presentations and payment of dividends. Unless exceptions apply and are invoked, the Company will disclose all inside information. In all circumstances, the Company will provide information about certain events, e.g. by the Board of Directors and general meeting(s) concerning dividends, amalgamations, mergers/demergers or changes to the share capital, the issuing of subscription rights, convertible loans and all agreements of major importance that are entered into by the Company and related parties. The Company shall have procedures for establishing discussions with important shareholders to enable the Board of Directors to develop a balanced understanding of the circumstances and focus of such shareholders. However, such discussions must be done in compliance with the provisions of applicable laws and regulations. Information to the Company s shareholders is posted on the Company s website at the same time that it is sent to the shareholders. The Company does not deviate from section 13 of the Code. TAKE-OVERS The Company has established key principles for how to act in the event of a take-over offer. In the event of a take-over process, the Board of Directors will ensure that the Company s shareholders are treated equally and that the Company s activities are not unnecessarily interrupted. The Board of Directors will also ensure that the shareholders have sufficient information and time to assess the offer. In the event of a take-over process, the Board of Directors will abide by the principles of the Code, and also ensure that the following take place: - the Board of Directors shall ensure that the offer is made to all shareholders, and on the same terms; - the Board of Directors shall not undertake any actions intended to give shareholders or others an unreasonable advantage at the expense of other shareholders or the Company; - the Board of Directors shall strive to be completely open about the take-over situation; - the Board of Directors shall not institute measures which have the intention of protecting the personal interests of its members at the expense of the interests of the shareholders; and - the Board of Directors must be aware of the particular duty the Board of Directors carries for ensuring that the values and interests of the shareholders are safeguarded. The Board of Directors shall not attempt to prevent or impede the take-over bid unless this has been decided by the general meeting in accordance with applicable laws. The main underlying principles shall be that the Company s common shares shall be kept freely transferable and that the Company shall not establish any mechanisms which can prevent or deter take-over offers unless this has been decided by the general meeting in accordance with applicable law. If an offer is made for the Company s common shares, the Board of Directors shall issue a statement evaluating the offer and making a recommendation as to whether or not the shareholders should accept the offer. If the Board of Directors finds itself unable to give a recommendation to the shareholders on whether or not to accept the offer, it should explain the reasons for this. In the statement, the Board of Directors should make it clear whether the views expressed are unanimous, and if this is not the case, explain the reasons why specific members of the Board of Directors have excluded themselves from the statement. The Board of Directors shall consider whether to arrange a valuation from an independent expert. If any member of the Board of Directors, or close associates of such member, or anyone who has recently held a position but has ceased to hold such a position as a member of the Board of Directors, is either the bidder or has a particular personal interest in the bid, the Board of Directors shall arrange an independent valuation. This shall also apply if the bidder is a major shareholder (as defined herein). Any such valuation should either be enclosed with the Board of Directors statement, or reproduced or referred to in the statement. The Company does not deviate from section 14 of the Code. AUDITOR The Company s auditor is elected by the shareholders at the general meeting and the shareholders shall authorise the Board of Directors or the audit committee to fix the auditor s remuneration. The auditor will annually submit the main features of the plan for the audit of the Company to the Board of Directors, or, if relevant, the audit committee. The auditor will participate in meeting(s) of the Board of Directors that deal with the annual accounts, accounting principles, assess any important accounting estimates and matters of importance on which there has been disagreement between the auditor and the executive personnel of the Company and/or the audit committee. The auditor will at least once a year present to the Board of Directors, or the audit committee, a review of the Company s internal control procedures, including identified weaknesses and proposed improvements. The Board of Directors will hold a meeting with the auditor at least once a year at which no representative of the executive personnel of the Company is present. The Board of Directors will specify the right of the executive personnel to use the auditor for purposes other than auditing. The Board of Directors will inform the shareholders at the annual general meeting of the remuneration paid to the auditor, including details of the fee paid for auditing work and any fees paid for other specific assignments. The Company does not deviate from section 15 of the Code. 42 ODFJELL DRILLING ANNUAL REPORT

23 CORPORATE SOCIAL RESPONSIBILITY Corporate Social Responsibility Report Our key principles of our Corporate Social Responsibility Policy are as follows: Odfjell Drilling is committed to ethical, safe and sustainable value creation for our shareholders, employees and other stakeholders, as well as the communities in which we operate. The constituting documents for our core values are our Code of Business Conduct and our Corporate Social Responsibility Policy. The Corporate Social Responsibility Policy was adopted by the Group on December 1st Through our Company Management System, Code of Business Conduct and our Corporate Social Responsibility Policy, we also adhere to the UN Global Compact Principles. HEALTH AND SAFETY Odfjell Drilling shall maintain the highest safety standard and protect the health of our employees and others associated with our operations. ENVIRONMENT AND SUSTAINABLE DEVELOPMENT Respect for the environment is fundamental to assuring a sustainable future. Odfjell Drilling aims to minimise harmful effects whenever we can and will work through a continuous improvement process. INTEGRITY AND ANTI-CORRUPTION Odfjell Drilling shall maintain high standards of integrity, and conduct our operations with honesty, fairness and transparency. Corruption or bribery is not tolerated in our business or with our business partners. DIVERSITY AND LABOUR STANDARDS Odfjell Drilling will not discriminate on the basis of gender, religion, race, national or ethnic origin, cultural background, social group, disability, sexual orientation, marital status, age or political opinion. Odfjell Drilling will not use any form of forced labour or child labour. The Group will maintain the freedom of association and the right to collective bargaining. The Group shall comply with internationally recognised labour standards covering the following areas: wages, working hours, disciplinary practices, employment contracts and working conditions. The same applies for any suppliers, business partners, agents working with Odfjell Drilling. RESPECTING HUMAN RIGHTS AND CONTRIBUTION TO LOCAL COMMUNITIES Odfjell Drilling s commitment to respecting human rights wherever we operate is embodied in our Corporate Management System and our Code of Business Conduct. We believe that Odfjell Drilling has a responsibility to respect human rights and that we are able to play a positive role in the communities we operate. Our global operations are consistent with the spirit and intent of the United Nations Universal Declaration of Human Rights; the International Labor Organization (ILO) Declaration on Fundamental Principles and Rights at Work, where applicable to our business; and other applicable international principles. Odfjell Drilling aims to play a part in the progress and development of local communities through focusing on local content by developing skills and opportunities in the communities which we operate. Our Corporate Social Responsibility principles are sought to be promoted by: a) Communicating and monitoring our principles within our organisation and in our operations. The Corporate Social Responsibility Policy was adopted on December 1st 2013, and is currently in the process of being implemented in our Corporate Management System. An internal and external communication plan is being developed to ensure that Odfjell Drilling s commitments in the area are communicated internally and externally. Our Code of Business Conduct is currently implemented in our Company Management System and is the main reference document in the ethics domain. All new employees receive a copy of the Code of Business Conduct, and an e-learning course has been established. Furthermore, ethics and business conducts has been an important issue on the agenda of all Leadership Training and Business Management courses for the last decade, covering several hundred people over the last years. An expanded Business Management toolbox is currently being launced Our intranet, Pulse, is also serving as an important channel of communication regarding our values towards our employees. Overall, Odfjell Drilling is working continuously on raising awareness of our values. All Business Areas in Odfjell Drilling underwent ISO certification audit in December 2013.In order to monitor that the principles are followed, KPI s (Key Performance Indicators) regarding QHSE has been established for each Business Area. The KPI s are reported on a monthly basis. Corporate Risk Committee meetings are held to ensure satisfactory risk analysis on new material projects and / or countries, including integrity checks on agents and contractual partners. b) Assess the social and environmental impact of our operations and be attentive to any internal or external reports indicating that our principles have not been requested. All Business Areas within Odfjell Drilling underwent the DnV ISO certification audit in December Environmental principles supporting the HSE Policy are defined and communicated. c) Designate persons within our organisation with a special responsibility for promoting and monitoring our principles. In order to ensure that our principles are being promoted and adhered to, Odfjell Drilling has designated persons throughout our organisation with responsibility to promote and monitor the principles. This has been done both with regards to HR, QHSE, legal and finance issues. Odfjell Drilling also has a Compliance Officer and a Case handling portal to handle questions or reports related to board positions, closely related parties, facilitation payment or notification of infringement. d) Look to contribute to organisations that are making remarkable efforts to promote the principles in the communities we operate. Odfjell Drilling contributes financially to Red Cross Norway. Additionally Odfjell Drilling s local branches supports activities for children and youth in their local communities. As an overall assessment of Odfjell Drilling s CSR related work in 2013, we are confident that a good platform for further development has been established. We believe that the introduction of our CSR policy will have a further positive effect on our contribution in the area of Corporate Social Responsibility. In 2014 we will focus on communicating our new policy and implementing initiatives to ensure that our goals in this area are put into practice. 44 ODFJELL DRILLING ANNUAL REPORT

24 Carl-Erik Haavaldsen Chairman, Odfjell Drilling The Board of Directors CARL-ERIK HAAVALDSEN CHAIRMAN BENGT LIE HANSEN DIRECTOR Carl-Erik Haavaldsen has a Master of Business Administration from the Norwegian School of Economics (NHH) and a Master of Business Administration from UCLA (University of California, Los Angeles). Mr. Haavaldsen has held executive positions in companies within the commercial banking, investment banking and shipping industries. He has served as CEO for an Oslo securities firm as well as for a tanker shipping company previously listed on the Oslo Stock Exchange. Mr. Haavaldsen has further extensive experience from previous and current board positions and is an experienced business advisor. Bengt Lie Hansen has a Master of Business Administration from the Norwegian School of Economics (NHH) and a Master of Law from the University in Oslo (UiO). Mr. Lie Hansen has 38 years of experience in the oil, gas and offshore industry. He has been head of division in the Ministry of Petroleum and Energy, Vice President of Deminex Norway, Senior Vice President of Norsk Hydro, in charge of Finance, Commercial, Natural Gas and the Ormen Lange project. He has also served as President of Statoil Russia. He is currently a non-equity partner in the Norwegian law firm Selmer. He is a Directors of TGS and Chairman of the Board of RN Nordic Oil AS. HELENE ODFJELL DIRECTOR HENRY H. HAMILTON III DIRECTOR 2013 In 2013 Odfjell Drilling celebrated its 40th anniversary. Since placing the very first order for the Aker H3 rig in 1973, the Company has over the span of four decades grown into a significant, diversified oil service group with operations in a large number of different locations around the world. Applied persistently, and always with a long term perspective, key factors in the Company s successful development have been a firm commitment to investments in skilled personnel and new, efficient equipment as well as a willingness and ability to consider additional areas of business both with regard to products/technology and geography. And into this, always; at all levels operational focus on safety for everyone involved and on a clean environment. The autumn of 2013 marked the start of a new era in the history of Odfjell Drilling. The Company launched in September its first public offering and was listed on the Oslo Stock Exchange. The most important issue for the Board of Directors is of course to grow financially and otherwise the strength of the Company. High quality operations by dedicated and satisfied employees, strong cost consiousness and a continuous improvement of customer relationship and sales efforts, are all important factors in our strategy for achieving this. Financial strength and size is increasingly important in our highly capital intensive and cyclical industry. We shall continue to improve our overall position as we keep going forward. Helene Odfjell has a Master of Business Administration from the Norwegian School of Economics (NHH), a Master of Business Administration from London Business School and is a Chartered Financial Analyst. Mrs. Odfjell has many years of experience in business and management and holds many board positions in the affiliates of the Company. KIRK L. DAVIS DIRECTOR Kirk L. Davis has a degree in accounting from Mt. Allison University, and is a Chartered Accountant of Bermuda and a Chartered Professional Accountant of Ontario. He is currently the President and a Director of Pin High Limited, a company providing private client financial services. Mr. Davis has extensive experience from previous and current board positions. Henry H. Hamilton III is currently Chairman of TGS-NOPEC Geophysical Company ASA (TGS). He served as CEO of TGS from 1995 to June Mr. Hamilton began his career as a geophysicist with Shell Offshore ( ) before he moved to Schlumberger ( ), where he ultimately held the position of Vice President and General Manager for all seismic product lines in North and South America. He joined TGS as its CEO in 1995 and remained in the position following the 1998 merger with NOPEC International that led to the initial public listing for TGS. He was first elected as a Director of TGS in 1998 and its Chairman in He served as a director of Odfjell Offshore Ltd., a subsidiary of the Company, from April 2011 to September ODFJELL DRILLING ANNUAL REPORT

25 BOARD OF DIRECTORS REPORT The Board of Directors Report Odfjell Drilling Ltd. ( Odfjell Drilling or the Company ) is an integrated offshore drilling and oil service company with more than 40 years experience, which in addition to owning and operating a fleet of high quality harsh and ultra-deepwater mobile offshore drilling units, has substantial presence in platform drilling, engineering and well services. The Company was listed on the Oslo Stock Exchange on 27 September 2013 and has close to 3,200 employees. Odfjell Drilling is present in several regions worldwide supporting a client base primarily consisting of major oil and gas companies. The Odfjell Drilling Group generated revenues of USD 1.2 billion in 2013 and a net profit of USD 69 million. 48 ODFJELL DRILLING ANNUAL REPORT

26 BOARD OF DIRECTORS REPORT GROUP STRUCTURE Odfjell Drilling Ltd. is the parent company of the Odfjell Drilling Group. The Company was incorporated in Hamilton, Bermuda in November 2005 and the Group has 40 years experience in the offshore drilling industry. The operating entities in the Group are based in Norway, the UK, the Netherlands, Brazil, UAE, Romania, Singapore, Thailand, Saudi Arabia, Angola, Tanzania and the Philippines as wholly or partly owned subsidiaries or joint ventures. Odfjell Drilling has organised its activities into three business segments: Mobile Offshore Drilling Units (MODU) Drilling & Technology Well Services IMPORTANT DEVELOPMENTS IN 2013 In recent years the MODU business segment has grown considerably, with three mobile drilling units mobilised for international operations in Angola, Tanzania and Brazil. In 2013 the activities in the MODU business segment were further strengthened by the commencement of drilling operations of the semisubmersible rig Island Innovator, which is managed by Odfjell Drilling on behalf of Marine Accurate Well ASA (Maracc), on the Norwegian continental shelf. Following the water ingress incident at the DSME yard in South Korea ultimo December 2013, the semisubmersible rig under construction, Deepsea Aberdeen, has been recovered and Odfjell Drilling will take delivery of the rig in October / November 2014 with the objective to commence drilling operations during Q Project activities and operational preparations for the newbuild semisubmersible Deepsea Aberdeen continued in 2013 and have been revised in accordance with rescheduled delivery and commencement of the rig. In addition to the Deepsea Aberdeen project, MODU activities are destined to grow further as a result of new activities under the auspices of Odfjell Galvão, a 50/50 joint venture between Odfjell Drilling and Galvão Enghenaria in Brazil. In 2013, construction work for the newbuild drillship Guarapari started in Singapore. In 2013, the ownership jurisdiction of Deepsea Stavanger and Deepsea Atlantic was transferred to Singapore, with the objective to secure the Group s competitiveness long-term. In the Drilling & Technology business segment, the Group was awarded a contract with Statoil in 2013 for platform drilling and project services on the Mariner field on the UK continental shelf. Odfjell Drilling will perform drilling services, maintenance of the drilling facility and drill pipe logistics on the Mariner platform. The Mariner platform is currently under construction and commencement of drilling is expected during the fourth quarter of The contract duration is four years plus three 2 year options. In addition, Statoil has an option to award the same services to Odfjell Drilling on the Bressay field in the UK. Drilling & Technology has in 2013 delivered project management and engineering services for the mobilization of Island Innovator and the client funded yard stay of Deepsea Bergen. It also performed project management services for the Group s Deepsea Aberdeen newbuild project in addition to delivering project management and engineering services in connection with major modification projects on offshore production facilities. The Well Services business segment is experiencing high demand in all regional markets for their range of products and services. In 2013 Well Services entered into several new contracts in Norway, UK, mainland Europe, the Middle East and South East Asia with both new and existing clients. In 2013 Odfjell Drilling divested its mooring rental business unit. Due to the negative outcome of the court trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities, the Group changed its estimate regarding the expected amount to be paid as a consequence of this tax court case. Odfjell Rig Ltd. still disputes the Norwegian Tax Authority s view that Odfjell Rig Ltd., is taxable for its participation in Deep Sea Drilling Company II KS. The case has been appealed through the court system. For further information, please refer to note 15 of the financial 2013 statement for more information related to the tax court case. GOING CONCERN ASSUMPTION The financial statements have been prepared on the basis of the going concern assumption and in accordance with Norwegian Accounting Act Section 3-3 the Directors have confirmed that this was realistic at the time the accounts were approved. The basis for the assumption is the positive status of the Company s equity, debt funding and secured contract portfolio. The parent company and the Group are in good financial position for future growth in each of their respective business areas. CONSOLIDATED ACCOUNTS (Comparable figures in brackets) The below discussion covers the major items in the Odfjell Drilling Group financial statements for INCOME STATEMENT Odfjell Drilling generated operating income of USD 1,173.6 million in 2013, an increase of 7.3 percent over The operating profit (EBIT) amounted to USD million in 2013, (2012: USD million). EBIT in 2013 included a USD 19.6 million gain relating to the sale of the Mooring business unit. EBIT was affected by profit from joint ventures which were USD 0.4 million in 2013 (2012: a loss of USD 13.4 million). The improved result from joint ventures was primarily caused by reduced losses in the joint venture Deep Sea Metro Ltd, Group. Net financial costs amounted to USD 76.8 million in 2013 (2012: USD 35.7 million). Net financial costs included interest income of USD 9.8 million (2012: USD 7.4 million), borrowing costs of USD 65.5 million (2012: USD 64.0 million) and net other financial expenses totalling USD 21.1 million (2012: a profit of USD 20.9 million). The change in other financial items is primarily the result of increased currency exchange loss and other financial expenses related to the listing of Odfjell Drilling Ltd, on the Oslo Stock Exchange. Pre-tax profit amounted to USD million in 2013 (2012: USD million). The tax expenses amounted to USD million in 2013, (2012: USD 31.2 million) and the net profit for the Group declined to USD 68.6 million (2012: USD million). The increased tax expense is mainly caused by change in estimates for the outcome of the court case against the Norwegian Tax Authorities, as a result of the outcome of the trial in Additional tax expense caused by change in estimates related to the tax court case in 2013 is USD 68.6 million. USD 67.3 million of the net profit was attributable to the owners of the parent company (2012: USD million) while USD 1.3 million was attributable to non-controlling interests (2012: USD 14.3 million). The latter is profit for non-controlling interests in the Deepsea Bergen structure. Total comprehensive income in 2013 was USD 48.9 million (2012: USD million). BALANCE SHEET Consolidated total assets amounted to USD 2,736.2 million on 31 December 2013 (2012: USD 2,804.4 million). Total non-current assets amounted to USD 2,239.4 million (2012: USD 2,323.4 million), and the decrease is mainly caused by depreciations of fixed assets during the year, but is partly offset by an increase in sub-ordinated loan to Deep Sea Metro Ltd. in Current assets amounted to USD million (2012: USD million), USD million of which was cash and cash equivalents (2012: USD million). Total equity amounted to USD 1,130.3 million (2012: USD 1,154.3 million), of which equity attributable to the owners of the parent company amounted to USD 1,130.3 million (2012: USD 1,125.5 million). The equity ratio was 41.3 percent at the end of 2013 (2012: 41.2 percent). Total liabilities amounted to USD 1,605.8 million at the end of 2013 (2012: USD 1,650.1 million), reflecting a decrease in net interest-bearing debt of USD 48.3 million, a decrease in derivative financial instruments of USD 9.6 million, which were partly offset by an increase in deferred tax liability of USD 17.9 million. Total current liabilities decreased from USD million to USD million, mainly reflecting a decrease in short term interest-bearing debt, an increase in current income tax and an increase in other current liabilities. Net interest bearing debt amounted to USD 1,071.4 million (2012: USD 1,151.2 million). CASH FLOW Cash flow from operating activities amounted to USD million (2012: USD million). The decrease was mainly due to increase in paid income tax. The cash outflow from investing activities amounted to USD 81.4 million (2012: USD million). The main investments in 2013 being in well services equipment, increase in subordinated loan to the joint venture company; Deep Sea Metro Ltd. and investments in joint venture companies. The proceeds from sale of fixed assets is mainly explained by the sale of the Mooring business line and related equipment. The cash outflow from financing activities amounted to USD million (2012: USD 61.0 million). This mainly reflected the net repayment of debt to financial institutions of USD 85.6 million (2012: net increase USD 44.3 million) and acquisition of non-controlling interests of USD 64.3 million. PARENT COMPANY ACCOUNTS The business of the parent company; Odfjell Drilling Ltd, is as a holding company for investments in both wholly and partly owned subsidiaries and joint ventures. The parent company reported a loss of USD 2.5 million, (2012: a profit of USD 5.4 million). This result primarily reflected that the net interest income from subsidiaries was offset by other financial expenses related to the listing of the company on the Oslo Stock Exchange. There were no dividends from subsidiaries in Total assets in the parent company amounted to USD 1,356.0 million, as of 31 December 2013 (2012: USD 1,376.1 million). The reduction mainly reflected a decrease of USD 15.9 million in loans to related parties, as well as a decrease in current assets of USD 7.1 million. Equity in the parent company stood at USD million (2012: USD million), corresponding to an equity ratio of 70.6 percent (2012: 70.4 percent). Cash outflow from operating activities was USD 1.5 million (2012: cash inflow of USD 4.9 million). The change was mainly a reflection of the decrease in result from 2012 to 2013 and change in working capital. Cash flow from investing activities was USD 15.9 million in 2013 (2012: a cash outflow of USD 0.4 million). The change mainly reflected payment of a long term receivable from related parties. Cash outflow from financing activities was USD 16.1 million (2012: a cash outflow of USD 41.0 million). This change mainly reflected a net increase in long-term loans from subsidiaries and payment of a dividend in ALLOCATION OF PROFITS The Board of Directors proposes the following allocation of the loss of the year of USD 2.5 million in 2013: Transferred from other equity: USD 2,536,023. Total allocated: USD 2,536,023. Equity and shares The Company had book equity of USD 1,130 million and a book equity ratio of 41% as of 31 December The Company has only one class of shares. Each share in the Company carries one vote, and all shares carry equal rights, including the right to participate in general meetings. All shareholders shall be treated on an equal basis, unless there is just cause for treating them differently. The Company s constituting documents do not impose any transfer restrictions on the Company s common shares and the Company s common shares are freely transferable in Norway, provided, however that the Byelaws include a right for the Board to decline to register a transfer of any share in the register of members, or if required, refuse to direct any registrar appointed by the Company to transfer any interest in a share where such transfer would result in 50% or more of the shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or, alternatively, such shares or votes being effectively connected to a Norwegian business activity. The purpose of this provision is to avoid the Company being deemed a Controlled Foreign Company pursuant to Norwegian tax rules. This represents a deviation from section 5 of the Code, but the Company does not foresee that this provision will impact on the free transferability of its shares. The company has not established any share purchase program for employees as per The company is not aware of any shareholder agreements or any other agreements which limits trading of the company s shares or voting rights as per SEGMENT REPORTING Odfjell Drilling has organised its activities into three main business segments: Mobile Offshore Drilling Units (MODU) Drilling & Technology Well Services MOBILE OFFSHORE DRILLING UNITS (MODU) Odfjell Drilling has more than 40 years of experience in design, ownership and operational management of semisubmersible rigs, drillships, jack-ups and modular drilling units. In recent years, the Group has invested in a renewal of the fleet with state-of-the-art sixth generation deepwater drilling units, three of which also feature harsh environment capabilities. The total revenue for the MODU segment was USD 762 million (2012: USD 693 million), an increase of USD 69 million, or 10 %. The increase was primarily attributable to the management agreement with Island Innovator and an increase in financial utilisation for Deepsea Atlantic and Deepsea Stavanger. In addition Deepsea Metro I entered into a new contract with a higher day rate in June 2013, and Deepsea Metro II was in operation for the full year 2013 compared with 7 months in EBITDA increased by USD 53 million in 2013 to USD 338 million. MODU was responsible for the operation of five owned and partly owned mobile drilling units in addition to one unit under a management agreement with Maracc ASA. Deepsea Atlantic is a sixth generation ultra deepwater and harsh environment semisubmersible on a longterm contract for Statoil on the Gullfaks-field on the Norwegian continental shelf. In August 2013 Statoil exercised a one-year option for use of the rig until August The contract has an additional priced twoyear option. Deepsea Stavanger is a sixth generation ultra deepwater and harsh environment semisubmersible delivered by the DSME yard in July The rig is on contract to BP for drilling operations off the coast of Angola. In June 2013 BP exercised a one-year option for use of the rig until November The contract has in addition two unpriced one-year options. Deepsea Bergen drilled for Statoil on the Norwegian continental shelf in The drilling contract with Statoil expires in July The contract includes a one year priced option. In January 2013 Odfjell Drilling increased its ownership from 71.5 percent to 100 percent of Deepsea Bergen. In the autumn 2013 Deepsea Bergen underwent a client covered yard stay to increase variable deck load and improve operational capacities. The yard stay lasted 26 days and the rig was on zero rate for five days, which was two days less than originally planned. Deepsea Metro I is an ultra deepwater drillship of Gusto P design delivered by Hyundai Heavy Industries in South Korea in June Deepsea Metro I currently operates off the coast of Tanzania for the BG Group. In May 2013, the contact period was extended by 18 months from June Deepsea Metro II is an ultra deepwater drillship of Gusto P design, delivered by Hyundai Heavy Industries in South Korea in November Deepsea Metro II currently operates on a three year contract, with Petrobras in Brazil, which expires in May Deepsea Metro I and Deepsea Metro II are both owned by the Deep Sea Metro Group, a joint venture between Odfjell Drilling (40 percent) and Metro Exploration Holding Corp. (60 percent). Odfjell Drilling operates the vessels under individual management agreements. Deepsea Aberdeen is a semisubmersible under construction at the DSME yard in South Korea, with expected delivery in Q This sixth generation rig will be a sister rig to Deepsea Atlantic and Deepsea Stavanger, built to the enhanced GVA 7500 ultra deepwater and harsh environment design. A seven-year contract was signed with BP in the first quarter of MANAGED DRILLING UNITS In addition to the wholly and partly owned units, the Group manages the rig Island Innovator on behalf of Maracc. The management agreement comprises project management, marketing and operation of the rig, including crewing, quality systems and technical operation. Rig owner Maracc has a contract for 12 wells with Lundin Norway AS to be drilled over a period of approximately two years. Odfjell Drilling received the acknowledgement of compliance (AOC) for the rig from the Norwegian Petroleum Safety Authority in August and commenced operations for Lundin Petroleum Norway on the Norwegian continental shelf in September. The Odfjell Galvão drillship projects comprise three drillships to be built by Jurong in Singapore and Estaleiro Jurong Aracruz in Brazil, scheduled for delivery from 2016 onwards. Odfjell Drilling s indirect ownership percentage is 10% in the vessels. DRILLING & TECHNOLOGY The Drilling & Technology business segment is responsible for platform drilling, project management and engineering services. This business unit is a leading company in platform drilling in the North Sea region and is responsible for integrated drilling services on 20 fixed and floating production drilling platforms off the coast of Norway and the UK. The business area provides production drilling, completion, work-overs, slot recovery, plugging and abandonment, maintenance and modification. The business segment is providing engineering services towards mobile drilling units, fixed platforms, core business support services and project management. Drilling & Technology operates from offices in Bergen, Stavanger, Aberdeen and Stjørdal. Operating revenue in Drilling & Technology segment increased by USD 36 million to USD million in The increase in revenue was mainly caused by increased activity related to Statoil/Wintershall platform drilling contract in Norway (two new platforms in 2013; Brage and Njord), and increased activity on the UK Continental Shelf in the period. The activity has also increased within engineering services related to yard stays and new builds. EBITDA of USD 25 million was unchanged from 2012 to The Drilling & Technology business segment offers a broad range of project management and engineering services for both owners of mobile drilling units and drilling facilities on production facilities. The broad range of services provided for mobile drilling units include design, engineering, building supervision, classification, authorities compliance, yard stays, technical support, 50 ODFJELL DRILLING ANNUAL REPORT

27 BOARD OF DIRECTORS REPORT marine operations, lifting operations, subsea services, project support, supply chain management, maintenance systems, and drilling technology. The business segment offers its services to both internal and external clients. The business segment provides engineering services for drilling facilities on production installations. The services include drilling modules, specific drilling support modules and associated drilling equipment, concept studies, FEED, detailed engineering, purchasing, construction, supervision, installation, commissioning (EPCI), operation/p&a, project support and maintenance systems. In 2013 the Engineering Norway unit has delivered project management and engineering services to several mobile drilling units. Project services related to the mobilization of Island Innovator for drilling services in Norway represented the most important project in The Drilling & Technology business segment has contracts for platform drilling operations for Statoil, BP, Talisman Sinopec Energy, Taqa and Wintershall on a total of 20 platforms in Norway and the UK. In addition Odfjell Drilling was in 2013 awarded a four year contract with Statoil for platform drilling services to the Mariner platform on the UK continental shelf. The contract includes 3x2 years options and an option for similar service scope on the Bressay platform. The Mariner platform is currently under construction and drilling start up is scheduled to Odfjell Drilling will provide engineering and commissioning services to Statoil under the construction and start-up phase of the field development. In October 2013 the operatorship for the Brage platform on the Norwegian continental shelf was transferred from Statoil to Wintershall. Odfjell Drilling s contract for drilling services on the field has been transferred to Wintershall. In 2013 Statoil informed Odfjell Drilling that drilling activities on the Njord and Snorre A platforms on the Norwegian continental shelf will be temporarily stopped due to modification projects. Odfjell Drilling has managed to employ personnel internally in other operations and projects. WELL SERVICES Well Services provides a wide range of services to the oil industry, including drill tool and tubular rental, tubular running services, and fishing and wellbore cleanout services. During 2013 the mooring rental business Deep Sea Mooring AS was sold. Well Services currently operates out of 13 bases in 12 countries, and performs operations in more than 25 countries worldwide. Operating revenue for the Well Services segment for 2013 was USD 227 million, an increase of USD 19 million or 9% from The increase was mainly due to increased demand in general. This growth in operating revenue has been achieved despite the divestment of the Mooring business unit in EBITDA for the Well Services segment for 2013 was USD 105 million, an increase of USD 10 million, or 10% compared with In 2013 Well Services entered into several new contracts in Norway, rest of Europe, Middle East and South East Asia. The activity level and demand in all of Well Services markets have been on a high level throughout The business segment aims at maintaining a sustainable growth through continuous improvement of existing service areas, expansion into new service areas and continued penetration into new geographical markets. In the future Well Services sees interesting market potential in Eastern Europe, Africa, Brazil and South East Asia. ORGANISATION, HEALTH, SAFETY AND ENVIRONMENT The Group s operational activities are carried out in a number of wholly or partially owned subsidiaries and joint ventures in Norway, the UK, the Netherlands, Brazil, UAE, Romania, Singapore, Thailand, Saudi Arabia, Angola, Tanzania and the Philippines. Odfjell Drilling s vision is to become a recognised leader within the global offshore drilling market, aiming for leadership in QHSE, operational efficiency, technological achievements, and profitable growth. Odfjell Drilling had a total of 3,167 employees at the end of WORKING ENVIRONMENT AND PERSONNEL The working environment in Odfjell Drilling is considered to be good and sustaining a healthy working environment is seen as crucial to achieving continuous improvements in all aspects of the Group s operations. The Group has conducted annual working environment and organisational surveys since These surveys provide the Group with valuable information about the workings of the organisation and they are important tools for promoting and developing the working environment. In 2013, the working environmental and organization survey shows a response rate of 86 %. The job satisfaction is considered to be very good and the average score shows a factor of approximately 5 on a scale from 0 to 6. Odfjell Drilling had a personnel turnover of 8.6 % in 2013 which was a slight reduction compared to the previous year. The high turnover can be explained partly by a generally tight Labour market, in particular in the international oil and gas industry. While the turnover in the North Sea is relatively stable, it has been more challenging to establish a stable workforce in the new areas of operation. At Group level, sickness absence was reported at 3 percent ( hours) in Measures are being implemented to maintain a low sick absence rate. Odfjell Drilling is a competence intensive company that is dependent on a high level of expertise and technological know-how amongst its employees. The Group offers extensive training to ensure that this expertise is continuously updated and to promote career development for individual employees. In 2013 total training days at Group level amounted to nearly 11,500 days. During 2013, Odfjell Drilling has continued focusing on training within the QHSE Safety Leadership Development programme, the Business Management program and local courses in different regions. At Group level, approximately 200 employees have participated in different management development program in The Group will in 2014 continue its management development programs and established specific training programs for securing critical competence related to subsea equipment in ultra deepwater drilling operations. MEASURES TO PROMOTE EQUALITY AND PREVENT DISCRIMINATION Odfjell Drilling emphasizes that all activities, irrespective of country of operation, shall comply with the applicable legislation and the Group s Code of Business Conduct. Its Personnel policy states that the Odfjell Drilling Group shall recruit and develop staff based on merit and equal opportunities, regardless of ethnicity, religion, national origin, gender, age, sexual orientation, marital status or disability. Equality is an integral part of the Group s Personnel Policy that ensures that all employees are given the same opportunities for employment, pay, as well as professional development in terms of training and promotion. The Group works actively and systematically through internal Governing documents, employee training and various other measures to prevent any form of discrimination. Such measures include recruitment policies and practice, salary- and working conditions, personal development opportunities, promotions and shelter against harassment. Although it is emphasized that equality and nondiscrimination are ultimately the management s responsibility, all parties in the enterprise have a responsibility for ensuring and safeguarding equality. All employees have access to the Group s governing documents through Odfjell Drilling s intranet, which includes information about the ethics and business culture in Odfjell Drilling, the Group s management system, managers guide, employee handbook etc. The governing documents also confirm the Group`s commitment to freedom of association and the right to collective bargaining, which is continuously followed up in all activities. The Group complies with internationally recognized labour standards covering areas such as wages, working hours, disciplinary practices, employment contracts and working conditions. The above requirements are also enforced in contracts with suppliers, business partners, agents etc. The Group employs people from a diverse range of ethnic backgrounds and 60 different nationalities. Odfjell Drilling s employees also have a wide age distribution, ranging from 18 to 67 years with an average age of approximately 41 years. Of a total of 3,167 employees at the end of 2013, there were 2,834 male (89 %) and 333 female (10.5 %) employees. This represents a 1.5 % increase for female compared to previous year. The onshore organization employs 29.9 % females compared with 1.2 % in the offshore organization. The Corporate Management Group consists of ten persons, of whom one is female. One of the five board members is female. There are elected employees representatives on the boards of five of the major management companies in the Group. The employees of these companies represent nearly 70 per cent of the total number of employees in the Group. HEALTH, SAFETY AND ENVIRONMENT Odfjell Drilling works continually to improve quality, health, safety and security towards a zero fault target and to minimise the impact of its activities on the environment. In 2013 Odfjell Drilling has focused on the following main QHSE topics: Quality improvements Dropped objects Major accident risk Safety Leadership & Compliance ISO certification The level of risk has decreased in Odfjell Drilling over the last years, and most HSE trends show a positive trend. Both the lost time incident frequency (H1), the total recordable incident frequency (H2) and the high potential incident frequency (HIPO) has improved steadily the last couple of years, including There were 4 lost time incidents in 2013, none of which caused serious incidents. The injuries were one hand/finger injury, one foot injury, one incident with broken ribs and one caught between incidents. Unfortunately the dropped object frequency >40 joule has increased in Preventive and corrective programs have been initiated and implemented and we have registered improvements within some of our business areas. Strong focus and specific programs on reduction of dropped objects will continue in Leadership and compliance are fundamental elements in building and maintaining a strong QHSE culture. In 2014 Odfjell Drilling will have a special focus on: Compliance & leadership Training & competence Dropped objects Barrier management HSE culture internationally Environmental awareness and stewardship ENVIRONMENTAL REPORTING Odfjell Drilling has a «zero fault philosophy» related to QHSE. This concept includes prevention of pollution of the environment. All business areas in Odfjell Drilling underwent the ISO certification process in December 2013 and will continue to focus on environmental awareness and stewardship in The HSE Policy and Company Management System for the environment, based on ISO 14001, defines requirements and expectations in order to prevent negative influences on the environment. Odfjell Drilling has established environmental principles supporting the HSE policy. R&D ACTIVITIES The Group s activities are based on high competence and experience in offshore drilling activities. Odfjell Drilling shall develop and implement technological know-how and solutions to achieve its strategic objective of becoming a leading and preferred drilling services contractor and engineering and well service provider. Carl-Erik Haavaldsen Chairman Helene Odfjell Director The Group s technology strategy for focuses on four core technological areas: Conceptual development Effective operations Availability of machinery Asset traceability The technology strategy also supports the zero fault objectives and aims to improve the HSE level of the Group s operations, as well as reducing the impact on the environment. RISK FACTORS OPERATIONAL AND INDUSTRIAL RISK FACTORS Odfjell Drilling provides drilling and maintenance services for the oil and gas industry, which historically has been cyclical in its development. The level of activity in the offshore oil and gas industry will depend, among other things, on the general climate in the global economy, oil and gas prices, investment level for oil and gas exploration, production and drilling and regulatory issues relating to operational safety and environmental hazards. Financial performance will also depend on the balance of supply and demand for mobile drilling units. The Group seeks to mitigate these risks by securing longterm contracts, for its main assets and services, with reputable customers. However, all offshore contracts are associated with considerable risk and responsibilities, including technical, operational, commercial and political risks. The Group will take out the insurance coverage deemed adequate to limit these risks. The Group s activities also entail risks related to its new-builds, including construction risks, the risk of cost overruns, risk of delays, etc. These risks will be minimized through construction contracts, active participation plus monitoring and insurance. FINANCIAL RISK FACTORS The Group is exposed to currency risks, particularly since charter contracts are typically denominated in USD whereas operating expenses are primarily incurred in local currencies. The Group seeks to minimise these risks through currency hedging via financial instruments or by off-setting local currency elements in charter contracts. The Group may also be exposed to currency risk relating to debt financing in foreign currencies and it may also seek to mitigate these risks through currency swaps, hedges or other derivatives. The Group is exposed to The Board of Odfjell Drilling Ltd 1 April 2014, Hamilton, Bermuda Kirk Davis Director interest rate risk relating to its debt financing and its holding of interest bearing assets and cash and cash equivalents. None of the Group s borrowings are at fixed interest rates and interest rate risks are mitigated by using financial instruments such as interest rate swap agreements. The Group s commercial counterparts are primarily large international E&P companies, and the credit risk is limited. Provisions for bad debt amounted to 2.0 percent of accounts receivable in the balance sheet at year end Odfjell Drilling held cash and cash equivalents amounting to USD million at the end of 2013 and unused credit lines of USD 530 million related to delivery of Deepsea Aberdeen in This is deemed to be sufficient funding for the Group s current activity levels and committed capital expenditures. OUTLOOK Demand for the Group s services is satisfactory in all our markets but market conditions are expected to be somewhat softer in the near term. In the medium- to long-term, the Board is of the opinion that the oil industry s demand for drilling services will continue to be supported by the need for reserves replacement and by continued spending on exploration and fielddevelopment in the main offshore regions. For the MODU segment the Board sees a somewhat softer near term deep- and ultra deepwater market evidenced by shorter lead-times and lack of new long-term tenders. This is caused by a slowdown of oil companies growth in E&P spending and the increase in UDW rig supply, putting pressure on near term day rates. This will mainly have an effect on the lower spec deepwater units and midwater units. Odfjell Drilling has an UDW fleet of high spec 6th generation units, and as such should be less impacted by the market fluctuations. The harsh environment market, especially in the North Sea, will remain in better balance than the ultra deepwater market near term. The Board expects that the Well Services segment will continue its long-term growth in its selected regions. The slowdown in oil companies E&P growth result in a more volatile market for the Group s engineering services near- to medium term due to potential postponement of projects. The Board of directors will emphasize that there will always be uncertainty related to future development and future market conditions. Henry Hamilton III Director Bengt Lie Hansen Director 52 ODFJELL DRILLING ANNUAL REPORT

28 Consolidated Income Statement Consolidated Statement of Comprehensive Income USD thousands Note USD thousands Note Operating revenue Total operating income Other gains/losses 16, Share of profit / (loss) from joint ventures (13 399) Total other items (9 961) PROFIT FOR THE YEAR Other comprehensive income: Items that will not be reclassified to profit or loss: Actuarial gain / loss on post employment benefit obligations 13 (9 444) (9 444) Personnel expenses 17 ( ) ( ) Depreciation and impairments 5, 6 ( ) ( ) Other operating expenses 16 ( ) ( ) Total operating expenses ( ) ( ) Items that are or may be reclassified to profit or loss: Cash flow hedges (1 707) Currency translation differences 11 (14 475) (10 338) Operating profit (EBIT) Other comprehensive income, net of tax (19 782) Interest income Borrowing cost 16 (65 513) (63 955) Other financial items 16 (21 112) Financial income / (expenses) (76 801) (35 650) Profit / (loss) before tax Income tax (expense) 15 ( ) (31 176) Profit / (loss) for the period Total comprehensive income Attributable to: Owners of the parent Non- controlling interests Total comprehensive income for the period Of which attributable to the owners of the parent Of which attributable to non-controlling interests Basic earnings per share (USD) 19 0,34 0,51 Diluted earnings per share (USD) 19 0,34 0,51 Items in the statement above are disclosed net of tax. The income tax relating to each item of other comprehensive income is disclosed in note 15. The accompanying notes are an integral part of these financial statements The accompanying notes are an integral part of these financial statements 54 GROUP FINANCIAL STATEMENTS

29 Consolidated Statement of Financial Position USD thousands Note USD thousands Note ASSETS Goodwill Deferred income tax asset Property, plant and equipment Investments in joint ventures Available-for-sale financial assets Subordinated loan to related parties 24, Derivative financial instruments Other non current assets Total non current assets Spare parts Trade receivables Other receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Share capital Other contributed capital Other reserves 11 (75 354) (30 896) Retained earnings Total equity attributable to owners of the parent Non-controlling interests Total equity Borrowings Derivative financial instruments Post employment benefits Deferred income tax liability Other non current liabilities Total non current liabilites Borrowings Trade payables Current income tax Social security and other taxes Other current liabilities Total current liabilities Total liabilities Total equity and liabilities The accompanying notes are an integral part of these financial statements The Board of Odfjell Drilling Ltd Hamilton, Bermuda, 1 April 2014 Carl-Erik Haavaldsen Chairman Helene Odfjell Director Kirk Davis Director Henry Hamilton III Director Bengt Lie Hansen Director 56 GROUP FINANCIAL STATEMENTS

30 Consolidated Statement of Cash Flows USD thousands USD thousands CASH FLOWS FROM OPERATING ACTIVITIES: Profit before income tax Adjustments for: Depreciation and impairment Unrealised (gain) / loss on interest rate swaps (9 063) (1 616) Interest expense - net Borrowing cost Share of (profit) / loss from joint ventures (436) Net (gain) / loss on sale of shares (2 457) - Net (gain) / loss on sale of tangible fixed assets (19 831) (2 629) Post-employment benefit expenses less post-employment benefit payments (6 518) Unrealised foreign exchange losses / (gains) on operating activities (21 907) Profit owner period for disposed subsidary 79 - Impairment of investments in shares Changes in working capital: Spare parts (706) 710 Trade receivables (5 738) Trade payables (2 540) Other accruals (5 230) Cash generated from operations Interest paid (56 140) (55 672) Income tax paid (37 457) (14 476) Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment ( ) ( ) Proceeds from sale of property, plant and equipment Loans granted to employees Sub-ordinated loan to related parties (26 667) (80 000) Other long term receivables (21 244) Purchase of shares incl. joint ventures (8 228) - Proceeds from sale of shares and bonds Net cash used in investing activities (81 383) ( ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from debt to financial institutions Repayments of debt to financial institutions ( ) (99 928) Acquisition shares non-controlling interests (64 259) - Dividends paid to owners of the parent (14 847) (1 765) Dividends paid to non-controlling interests - (8 698) Net cash from financing activities ( ) (60 983) Net change in cash and cash equivalents (920) (99 688) Cash and cash equivalents Exchange gains/ losses on cash and cash equivalents (2 813) Cash and cash equivalents at The accompanying notes are an integral part of these financial statements 58 GROUP FINANCIAL STATEMENTS

31 Consolidated Statement of Changes in Equity Notes (all figures in USD thousands) USD thousands Share capital Other contributed capital Attributable to owners of the parent Other reserves Retained earnings Total Noncontrolling interest Balance at 1 January (35 982) Profit / (loss) for the period Other comprehensive income for the year 1 (7 301) Total comprehensive income for the year 1 (7 301) Dividends paid (7 943) (7 943) (8 698) (16 640) Transactions with owners (7 943) (7 943) (8 698) (16 640) Balance at 31 December (30 896) Profit / (loss) for the period Other comprehensive income for the period (9 962) (9 444) (19 407) (376) (19 782) Total comprehensive income for the period (9 962) Acquisition non-controlling interests*) (34 496) (34 496) (29 764) (64 259) Dividends paid (8 561) (8 561) (8 561) Restructuring of par value/number of shares (1 985) Transactions with owners (1 985) (34 496) (8 561) (43 057) (29 764) (72 820) Balance at 31 December (75 354) The accompanying notes are an integral part of these financial statements *) On 29 January 2013, the subsidiary Odfjell Rig AS acquired the following shares from non-controlling interests: % of the shares in the subsidiary Deep Sea Drilling Company KS; charter party for drilling contract with Statoil % of the shares in the subsidiary Deep Sea Drilling Company II KS, former rig owner of Deepsea Bergen % of the shares in the subsidiary KS AS Bergen Drillpart; holding company and co-owner shares in Deep Sea Drilling Company KS and Deep Sea Drilling Company II KS. The shares were acquired for a total of USD 64.3 million resulting in a decrease in equity of the same amount. Total equity 1 Accounting Principles GENERAL INFORMATION Odfjell Drilling Ltd., and its subsidiaries (together the Group ) operates mobile offshore drilling units in addition to well services and drilling & technology in Norway and around the world. Odfjell Drilling Ltd., is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. BASIS OF PREPARATION The consolidated financial statements of the Group for the year ended 31 December 2013 comply with IFRS. The consolidated financial statements ended 31 December 2013, comprise the income statement, statement of comprehensive income, statement of financial position, statement of cash flow, statement of changes in equity and disclosures. GOING CONCERN The Group has adopted the going concern basis in preparing its consolidated financial statements. When assessing this assumption, management has assessed all available information about the future. This comprises information about net cash flows from existing time charter contracts, drilling management contracts, other service contracts, debt service and obligations under existing newbuilding contracts. Forecasts take into consideration expected future net income from assets under construction. After making such assessments, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. BASIS OF MEASUREMENT The consolidated financial statements have been prepared under the historical cost convention, except for availablefor-sale financial assets and derivative instruments, which are measured at fair value. 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 Group s accounting policies. The areas involving higher degree of judgement or complexity, or areas where the assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. STANDARDS EFFECTIVE AFTER 1 JANUARY 2013 THAT HAVE BEEN ADOPTED BY THE GROUP IFR 13, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. Amendments to IAS 36, Impairment of assets, on the recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of CGU s which had been included in IAS 36 by the issue of IFRS 13. The amendment is not mandatory for the Group until 1 January 2014, however the Group has decided to early adopt the amendment as of 1 January NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS ISSUED BUT NOT EFFECTIVE FOR THE FINANCIAL YEAR BEGINNING JANUARY 1, 2013 AND NOT EARLY ADOPTED IFRS 9 Financial Instruments addresses the classification, measurement, and recognition of financial assets, financial liabilities and hedge accounting. IFRS 9 was issued in November 2009, October 2010 and November It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for a financial liability, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. IFRS 9 includes a number of changes and simplifications that increase the possibilities for employing hedge accounting. The Group is yet to assess IFRS 9 s full impact. The Group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. The implementation date for IFRS 9 is not yet decided, but will be earliest 1 January CONSOLIDATION Subsidiaries are all entities over which the group has the power to govern the financial and operating policies - generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the aquisition of a subsidiary are the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisitionby-acquisition basis, either at fair value or at the noncontrolling interest s proportionate share of the recognised amounts of the acquiree s identifiable net assets. Acquisition related costs are expensed as incurred. If the business combination is achieved in stages, the acquistion date carrying value of the acquirer s previously held equity interest in the acquiree is adjusted to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Goodwill is initially measured as the excess of the aggregate consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Inter-company transactions, balances, income / expenses on transactions between group companies are eliminated. Profits and losses resulting from intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Transactions with non-controlling interests (owners) that do not result in loss of control are accounted for as equity transactions. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Joint ventures are accounted for using the equity method. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the profit or loss of the investee after the date of acquistion. 60 GROUP FINANCIAL STATEMENTS

32 When the Group ceases to have control any retained interest in the entity is adjusted to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may indicate that amounts previously recognised in other comprehensive income are reclassified to profit or loss. The Consolidated Financial Statements are presented on the basis of the following group structure: ODFJELL DRILLING LTD (PARENT COMPANY) - Odfjell Offshore Ltd (100%) - Odfjell Invest Ltd (100%) - Odfjell Invest I Ltd (100%) - Odfjell Invest II Ltd (100%) - Deep Sea Atlantic Pte. Ltd. (100%) - Deep Sea Stavanger Pte. Ltd. (100%) - Odfjell Rig Ltd (100%) - Deep Sea Drilling Company II KS (100%) - Odfjell Offshore Management Pte. Ltd (100%) - Odfjell Rig II Ltd (100%) - Odfjell Rig III Ltd (100%) - Odfjell Drilling Shetland Ltd (100%) - Deep Sea Bergen Pte. Ltd. (100%) - Odfjell Drilling Services Ltd. (100%) - Odfjell Drilling AS (100%) - Deep Sea Management AS (100%) - Odfjell Drilling Management AS (100%) - Odfjell Drilling (UK) Ltd (100%) - Odfjell Drilling US AS (100%) - Odfjell Invest AS (100%) - Deep Sea Drilling Company I AS (100%) - Odfjell Operations Ltd. (100%) - Odfjell Drilling Deep Sea Management DMCC (100%) - Deep Sea Management FZE Ltd. (100%) - Odfjell Services (Thailand) FLC (100%) - Odfjell Arabia Drilling Services LLC (100%) - Odfjell Partners Invest Ltd. (100%) - Odfjell Well Services Europe AS (100%) - Odfjell Casing Services AS (100%) - Odfjell Rental Services AS (100%) - Odfjell Well Services Ltd. (100%) - Odfjell Well Services II Ltd. (100%) - Odfjelll Technology Ltd. (100%) - Odfjell Technology AS (100%) - Odfjell Technology Manila Corporation (100%) - Odfjelll Drilling Cooperatief UA (100%) - Odfjell Invest Holland BV (100%) - Odfjell Well Services SRL (100%) - Odfjell Perfuracoes e Servicos Ltda (100%) - Odfjell Well Services Ltda (100%) - Odfjell Drilling Netherlands BV (100%) - Odfjell Galvao II BV (100%) SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board. FOREIGN CURRENCY TRANSLATION (a) Functional and presentation currency Items included in the separate financial statements of each of the Group 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 (in thousands), which is the Group s presentation currency. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. 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. Foreign exchange gains and losses are presented in the income statement within other financial items. (c) Group companies The results and financial position of all the Group s entities that have a functional currency different from the presentation currency (USD) are translated into the presentation currency as follows: - Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; - 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 rate on the dates of the transactions); and - All resulting exchange differences are recognised in other comprehensive income. 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. INTANGIBLE ASSETS Goodwill arises on the acquistion of subsidiaries and represents the excess of the consideration transferred over the Group s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of non-controlling interst in the acquiree. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGUs), or groups of CGUs, that are expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment comprise mainly mobile offshore drilling units, well services equipment and machinery and equipment. Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes its purchase price, any directly attributable costs of bringing the asset to working condition and borrowing costs. Subsequent costs for day-to-day repairs and maintenance are expensed as incurred. The cost of modernisation and rebuilding projects is included in the asset s carrying amount when it is probable that the Group will derive future financial benefits and the cost of the item can be measured reliably. The carrying amount of the replaced part is written off. Modernisation and rebuilding projects are depreciated over the remaining useful life of the related assets. Depreciation is calculated on a straight-line basis over the useful life of the asset or component. Depreciable amount equals historical cost less residual value. Items of property, plant and equipment with components that have substantially different useful lives are treated separately for depreciation purposes. The useful lives of assets and the depreciation methods are reviewed periodically in order to ensure that the method and period of depreciation are consistent with the expected pattern of financial benefits from the asset. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement as gain on sale of assets. Residual value for mobile offshore drilling units are determined based on the market prices for steel and second hand prices for drilling equipment. Any changes are accounted for prospectively as a change in the accounting estimate. The estimated useful life of the rig could change, resulting in different depreciation amounts in the future. Residual value for other property, plant and equipment are estimated to be 0. Rig and equipment are depreciated over a period of 5-30 years. Periodic maintenance is depreciated over the expected period to next docking, estimated to 5 years. Estimated useful life for machinery and equipment is 3-5 years. NEWBUILDINGS Newbuildings under construction are capitalised as fixed assets during the construction as installments are paid to the yard. Capitalised costs include contractual costs and costs related to the monitoring of the project during the construction period. Contractual costs include costs related to the project for the duration of the contract, i.e. from signing of the contract to final completion of the contractual work. Any costs incurred prior to the signing of the contract that relate to the procurement of the contract are regarded as a purchase of contractual assistance and are included in contractual costs. IMPAIRMENT OF NON-FINANCIAL ASSETS All non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. The fair value less cost to sell is the amount obtainable from the sale of an asset in an arm s length transaction less costs associated with the disposal. Value in use represents the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the CGU. For mobile offshore drilling units, each unit is deemed to be a CGU. The value in use is determined on the basis of the total estimated discounted cash flow, excluding financing expenses and taxes. In determining impairment of mobile offshore drilling units and other fixed assets, the management must make judgements and estimates to determine whether the discounted cash flows generated by those assets are less than their carrying amount, including determining the appropriate discount rate to be used. The data necessary for the execution of the impairment test are based on management s estimates of future cash flows, which require estimates to be made for future day rates, utilisation and profit margins. The assumptions used in estimating these cash flows are consistent with internal forecasts. Market outlook and day rate considerations provided by an independent third party are used to support management s estimates. These considerations are mainly based on the oil price. Non-financial assets other than goodwill that have suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. FINANCIAL ASSETS The Group classify financial assets in the following categories: trading financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. Management determines the classification of financial assets at their initial recognition. Financial assets are recognised at fair value. Transaction cost are expensed in the income statement. Derivatives are placed in this category unless designated as hedges. Assets in this category are classified as current. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Loans and receivables are non-derivative financial assets with fixed or determinable payments which 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, which are classified as non-current assets. Loans and receivables are recognised initially at their fair value plus transaction costs. Financial assets are written off when the contractual rights to the cash flows from the financial assets expire or are transferred, and the Group has transferred by and large all risks and rewards from the financial asset. Realised gains and losses are recognised in the income statement as finance income in the period they arise. IMPAIRMENT OF FINANCIAL ASSETS For assets carried at amortised cost, the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occuring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. For assets classified as available for sale, the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A significant or prolonged decline in the fair value of an equity security below its cost is evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING Derivatives are recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured on a continuous basis at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of highly probable forecast transactions (cash-flow hedges). At the date of the hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as well as the object of its risk management and the strategy underlying the various hedge transactions. The Group also documents the extent to which the derivatives used are effective in smoothing the changes in fair value or cash flow associated with the hedge items. Such assessments are documented both initially and on an ongoing basis. The effective portion of changes in the fair value of derivatives designated as cash-flow hedges are recognised in other comprehensive income (net of tax). Gain and loss on the ineffective portion is recognised immediately in the income statement. Amounts recognised directly in other comprehensive income are reclassified as income or expense in the income statement in the period when the hedged liability or planned transaction will affect the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial income/expenses. CURRENT AND DEFERRED INCOME TAX, WITHHOLDING TAX The tax expense for the period comprises current and 62 GROUP FINANCIAL STATEMENTS

33 2 Financial risk management deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement. TRADE RECEIVABLES Trade receivables and other receivables, that have fixed or determinable payments that are not quoted in an active market are classified as receivables. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest method, less provision for impairment. Provision for impairment is made to specified receivable items when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the receivable, the estimated future cash flows of the investments have been affected. SPARE PARTS Spare parts are stated at the lower of cost and net realisable value. Cost is attributed using the first-in, firstout (FIFO) method. The costs of spare parts comprise the purchase price, import duties and other taxes, transport and handling and other costs directly attributable to the acquisition of the goods. Trade discounts, rebates and other similar items are deducted in determing cost. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand, deposits held at call with banks, other current highly-liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown under borrowings in current liabilities in the balance sheet. BORROWINGS Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried 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. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. TRADE PAYABLES Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at face value, due to short time to maturity. REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable. Revenue is stated net of valueadded tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. The Group s revenues are derived from day-rate based drilling contracts and day-rates from management drilling contracts and other service contracts. Revenue from management drilling contracts and other service contracts is recognised when the services are performed and at the rates specified in the contracts. Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both dayrate based and lump sum fee revenues are recognised ratably over the contract period when services are rendered. Under some contracts, the Group is entitled to additional payments for exceeding performance targets. Such additional payments are recognised when any uncertainties are resolved or upon completion of the drilling program. Mobilisation costs incurred as part of a contract are capitalised as receivable and recognised as expense over the contract term, excluding option periods not exercised. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. FINANCIAL RISK FACTORS The Group is exposed to a range of financial risks: market risk (including currency risk, interest rate risk, and price risk), credit risk and liquidity risk. The financial risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. To some extent, the Group uses derivative financial instruments to reduce certain risk exposures. Risk management is carried out on a Group level. The Group identifies, evaluates and hedges financial risks in close co-operation with the Group s operational units. The board of Odfjell Drilling Ltd., has established written principles for the Group regarding risk management of foreign exchange risk, interest rate risk and use of derivative financial instruments. a) Market risk Market risk is the risk of a change in market prices and demand, as well as changes in currency exchange rates and interest levels. I) FOREIGN EXCHANGE RISK The consolidated subsidaries reporting and functional currencies are USD, NOK, GBP, EUR, BRL, RON, THB, SGD and PHP. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD and NOK. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The group is exposed to risks due to fluctuations in exchange rates, especially as charter contracts are normally in USD while most of the operating expenses are in local currency. If USD is weakend by 10 % against NOK, on the balancesheet date, we can expect the following effect on profit before tax in USD thousands: Current receivables Cash Current liabilities (24 703) (19 030) Net effect on profit before tax (346) The Group had 20 foreign exchange contracts at 31 December Market values have been used to determine the fair value of the foreign exchange contracts at the end of the year. The fair value of the foreign exchange contracts is confirmed by the financial institution with which the company has entered into the agreements. During 2013 a gain of USD 0.5 million was classified as a component of the equity as of 31 December 2013 relating to foreign exchange contracts qualified for hedge accounting. II) INTEREST RATE RISK The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long-term debt obligations at floating interest rates. The Group evaluates the share of interest rate hedging based on assessment of the Group s total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure. The Group had 13 interest rate swap agreements at 31 December Market values have been used to determine the fair value of the swap agreements at the end of the year. The fair value of the interest swap agreements is confirmed by the financial institution with which the company has entered into the agreements. During 2013 a gain from change in market values of interest rate swaps were recognised at USD 9.1 million in the income statement as compared to a gain of USD 1.6 million in In addition, a gain of USD 1.7 million was classified as a component of the equity as of 31 December 2012 relating to interest rate swaps qualified for hedge accounting. In 2013 the gain of USD 3.6 was classified as a component of the equity as of 31 December 2013, relating to interest rate swaps qualified for hedge accounting. The Group monitors its interest rate exposure on a dynamic basis. The Group calculates the impact on profit and loss of a defined interest rate shift. The result of the calculation on sensitivities returns the following expected values: - If interest is increased by 1.0 %, the effect will be an increase in financing costs of USD 6.0 million for 2013, compared to USD 8.5 million in b) Credit risk The Group operates in three core business areas: Mobile offshore drilling units (MODU), Drilling & Technology and Well Services (OWS). The market for the Group s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government owned oil companies. The Group performs ongoing credit evaluations of the customers and generally do not request material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Group s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Group believes this risk is limited as the counterparties mainly have a high credit quality. The maximum exposure regarding trade receivables is the carrying amount of USD 248 million. c) Liquidity risk The Group s objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the Group s strategic plan. With regular forecasts and liquidity analysis updates, the Group will ensure sufficient available liquidity to fulfill its duties at loan maturity, without unacceptable loss or risk of damaging the Group s reputation. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available. The Group s cash flow forecasting is performed by Group Finance. Group Finance monitors rolling forecasts of the Group s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient head-room on it s undrawn committed borrowing facilities at all times, so that the Group does not breach borrowing limits or covenants on any of it s borrowing facilities. Such forecasting takes into consideration the Group s debt financing plans and covenant compliance. Surplus cash held by the operating entities over and above the balance required for working capital management is transferred to the Group Treasury. Group treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the above-mentioned forecasts. At the reporting date of 31 December 2013, the Group held time deposits of USD 19 million that are expected to generate cash inflows for managing liquidity risk, compared to USD 4 million in The Group had an undrawn credit facility of USD 530 million as of 31 December The facility is related to the delivery of Deepsea Aberdeen in d) Other risks RIG RATES The Group has signed long-term contracts for Deepsea Atlantic and Deepsea Bergen at fixed rates. The rate consists of a USD element and a NOK element; the latter is annually escalated to reflect the increased costs of staffing and maintenance. Both rigs have contracts with Statoil. Deepsea Atlantic has a contract with fixed duration to August 2015 plus a 2-year option. The drilling contract with Statoil for Deepsea Bergen expires in June 2017, and has a 1-year option. The Group has also signed a drilling contract for Deepsea Stavanger at a fixed rate. The rate consists of a USD element and an AOA (Angola Kwanza) element. The drilling contract expires in November 2014, and has two one-year options. Deepsea Aberdeen is a semisubmersible under construction at the DSME yard in South Korea, with expected delivery in October/ November This sixth generation rig will be a sister rig to Deepsea Atlantic and Deepsea Stavanger, built to the enhanced GVA 7500 ultra deepwater and harsh environment design. A seven year contract was signed with BP in the first quarter of Expected commencement on contract is Q GROUP FINANCIAL STATEMENTS

34 FINANCIAL INSTRUMENTS BY CATEGORY AND LEVEL The tables below analyse financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount. As the time horizon is due in short term, future cash flows are not discounted. The Group had the following financial instruments at each reporting period: The Group had 13 interest rate swap agreements at 31 December Market values have been used to determine the fair value of the swap agreements at the end of the year. The Group has applied hedge accounting for six of the swap agreements entered into in 2012 and The instruments were documented as cash flow hedges, and changes in fair value were recognised directly in equity Assets Liabilities Assets Liabilities Note Level ASSETS AT Available-for-sale financial assets - Other noncurrent assets 3 22 Derivatives held as hedge instrument - Other non current assets Loans and receivables - Subordinated loan to related parties 24, Other non current assets Trade receivables Other current receivables Cash and cash equivalents Total assets LIABILITIES AT Derivatives held at fair value through profit or loss - Other non current liabilities Derivatives held as hedge instrument - Other non current liabilities Financial liabilities at amortised cost - Interest bearing debt Other non current liabilities Trade payables Other current liabilities Total liabilities Interest rate swaps - cash flow hedges - (15 482) - (24 573) Interest rate swaps - cash flow hegdes under hedge accounting (901) - (1 817) Foreign exchange contracts - cash flow under hedge accounting Total (16 383) - (26 390) Less non current portion (16 383) (26 390) Current portion As of Odfjell Drilling Ltd. held the following derivatives: Instrument Fixed rate Floating rate Notional amount Effective from Duration Net market value Interest rate swaps 0,671%-2,890% USD-LIBOR-BBA years (15 483) Interest rate swaps under hedge accounting 0,735%-1,565% USD-LIBOR-BBA years Foreign exchange contracts under hedge accounting years Interest rate swaps 0,671%-2,890% USD-LIBOR-BBA years (24 574) Interest rate swaps under hedge accounting 0,920%-1,565% USD-LIBOR-BBA years (1 817) 66 GROUP FINANCIAL STATEMENTS

35 3 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 Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecasted profitability over time, and expectations about external factors such as interest rates, foreign exchange rates and other which are outside the Group s control. The resulting 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 addressed below. REVENUE The Group s revenues are derived from day rate based drilling contracts, management drilling contracts and other service contracts. Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both day rate based and lump sum fee revenues are recognized ratably over the contract period when services are rendered. INCOME TAX The Group is subject to income tax in many jurisdictions. Various tax systems have required some use of judgement for certain countries in determining income tax for all countries taken together in the consolidated financial statements. The final tax liability for some transactions and calculations will be uncertain. The Group recognises tax liabilities associated with future decisions in tax cases/disputes, based on estimates of the likelihood that additional income tax will fall due. Should the final outcome of these cases vary from the amount of the original provision, this variance will affect the stated tax expense and provision for deferred tax in the period when the final outcome is determined. The parent company recognises tax liabilities when these are incurred. In other words, the tax expense is related to the accounting profit/loss before tax. The tax expense comprises tax payable and the change in net deferred tax. Reference is made to note 21 relating to disclosed information related to dispute with Norwegian Tax Authorities, and hence the classification of paid tax as long term receivable. Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement. IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that have an indefinite useful life, i.e. goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation, i.e. mobile drilling units, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. If available, estimated fair value of an asset is obtained externally. In addition, the Group has financial models which calculate and determine the value in use through a combination of actual and expected cash-flow generation discounted to present value. The expected future cashflow generation and models are based on assumptions and estimates. The discount factor applied in the cash flow budgets is a pre-tax weighted average cost of capital. Beyond the period covered by the business plan, a growth factor which varies between 0 % and 5 % is applied, with an expectation that gross margins will not weaken substantially over time. Mobile Offshore Drilling Units Drilling & Technology Well Services FY 2013 FY 2012 FY 2013 FY 2012 FY 2013 FY 2012 External segment revenue Inter segment revenue Deep Sea Metro Ltd Group revenue Total revenue EBITDA Depreciation and impairment ( ) ( ) (5 373) (5 874) (38 314) (42 610) EBIT Total segments Corporate / Eliminations Consolidated FY 2013 FY 2012 FY 2013 FY 2012 FY 2013 FY 2012 External segment revenue Inter segment revenue (85 096) ( ) - - Deep Sea Metro Ltd Group revenue ( ) (98 551) - - Total revenue ( ) ( ) EBITDA (75 976) (74 190) Depreciation and impairment ( ) ( ) ( ) ( ) EBIT (43 958) (50 283) Reconciliations: FY 13 FY 12 Total EBIT for reportable segments Corporate / overhead (19 254) (23 258) Gain from sale of Mooring business unit Segment reporting 40% share of EBIT DSM Ltd (46 197) (23 528) Share of profit from JV 436 (13 399) Accounting differences EBIT Total Group The Group provides drilling and related services to the offshore oil and gas industry, and has three main business areas; the operation of mobile drilling units, drilling & technology and well services. The Board is the Group s chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units business segment (MODU), Drilling & Technology business segment (OD&T) and Odfjell Well Services business segment (OWS) have been determined as the operating segments. In accordance with the internal financial reporting, the Group s 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-byline proportionate method. See more information regarding this joint venture arrangement in note 7. The Group s internal reporting is prepared according to Norwegian GAAP. This gives nature to differences between the measurements of segment disclosures and comparable items disclosed in this financial report. Such differences are identified and reconciled in the tables below. - Mobile Offshore Drilling Units (MODU): In the MODU segment, the Group operates drilling units owned by the Group and by third parties. The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups; mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. - Drilling & Technology (OD&T): Within the Drilling & Technology segment, the Platform Drilling business area provides integrated drilling and maintenance services for fixed platform drilling rigs in the North Sea. The Technology business area offers engineering services, including design, project management and operation and support. - Well Services (OWS): The Well Services segment provides casing and tubular running services as well as drilling tool and tubular rental services both for exploration wells and for production purposes. Net financial items (76 801) (35 650) Profit before tax Group GROUP FINANCIAL STATEMENTS

36 5 Goodwill Goodwill COST At 1 January Additions - Currency translation differences (2 474) As at 31 December ACCUMULATED AMORTISATION AND IMPAIRMENT At 1 January Impairment charge - As at 31 December Net book value at 31 December COST At 1 January Additions - Currency translation differences As at 31 December The key assumptions used for value-in-use calculations in 2013 are as follows: Drilling & Technology Well Services EBIT margin 5,7 % 29,4 % Growth rate 2,0 % 2,0 % Discount rate 7,4 % 8,9 % The key assumptions used for value-in-use calculations in 2012 are as follows: Drilling & Technology Well Services EBIT margin 6,0 % 25.3% Growth rate 2.0% 2.0% Discount rate 6.3% 6.3% These assumptions have been used for the analysis of each CGU within the operating segment. Management determined budgeted EBIT margin based on past performance and its expectations of market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant operating segments. ACCUMULATED AMORTISATION AND IMPAIRMENT At 1 January Impairment charge - As at 31 December Net book value at 31 December IMPAIRMENT TESTS FOR GOODWILL Goodwill is monitored by the management at the operating segment level. The following is a summary of goodwill allocation for each operating segment: 2013 Opening Addition Disposal Impairment Other adjustments Closing Drilling & Technology (1 324) Well Services (1 149) Total (2 474) Drilling & Technology Well Services Total The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five year period are extrapolated using the estimated growth rates stated below. 70 GROUP FINANCIAL STATEMENTS

37 6 Tangible fixed assets Tangible fixed assets Mobile drilling units Periodic maintenance Construction in progress Well Services equipment Machinery & equipment Total fixed assets 2013 Cost price Additions Disposals (13 283) (35 488) (48 771) Disposal - sale of Mooring division (65 784) - (65 784) Currency translation differences (33 350) (3 086) (36 229) Cost price Accumulated depreciation and impairment losses Depreciation Disposals (2) - - (6 823) (3 442) (10 268) Disposal - sale of Mooring division (24 261) - (24 261) Currency translation differences (19 479) (424) (17 476) Accumulated deprec. and impairm. losses Carrying amounts Cost price Additions Disposals (6 818) (71 601) (78 419) Currency translation differences Cost price Accumulated depreciation and impairment losses Depreciation Disposals (1 375) (30) - (3 929) (35 474) (40 808) Currency translation differences (2 055) Accumulated deprec. and impairm. losses Carrying amounts Useful lifetime 5-35 years 5 years 3-10 years 3-5 years Depreciation schedule Straight line Straight line Straight line Straight line Deepsea Bergen is a semisubmersible drilling rig with Aker H-3.2 design, built in Deepsea Bergen has completed a 5 year classification in 2010 and obtained a renewal of the certificate Samsvarsuttalelse (SUT) from Norwegian Petroleum Directorate. NEWBUILDINGS The Group has signed a construction contract with Daewoo Shipbuilding & Marine Engineering Co. Ltd., on November 12, 2011 for the building of an ultra semisubmursible deepwater rig; Deepsea Aberdeen with an expected delivery date in Q BASIS FOR DEPRECIATION/ ALLOCATION OF EXPENDITURE Deepsea Atlantic was delivered from the shipyard DSME on February 6, 2009 and commenced the contract with Statoil Petroleum AS on August 4, The total expenditures on the rig are allocated into groups of components 7 Investments in joint ventures Deep Sea Metro Ltd. that have different expected useful lifetimes. Periodic maintenance is one of the allocated components. The different groups of components are depreciated over their expected useful lifetimes.the main group of components is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion on August 4, When calculating depreciation, estimated residual value is taken into consideration. Deepsea Stavanger was delivered from the shipyard DSME on July 8, 2010 and commenced the contract with Ophir Services Energy Ltd. on September 16, The total expenditures on the rig are allocated into groups of the allocated components that have different expected useful lifetimes. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetimes. The main group of components is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion Odfjell Galvão BV on September 16, When calculating depreciation, estimated residual value is taken into consideration. Deepsea Bergen was built in The rig is on a contract with Statoil. The contract commenced June 2012 and has duration on five years and a 1 year option. The main group of component s is expected to have an economic useful lifetime of 35 years. The rig is depreciated using the straight line method. When calculating depreciation, estimated residual value is taken into consideration. TRANSFER OF SHAFFER BOP On 30 November 2013, there was an agreement signed for sale of Shaffer BOP from Odfjell Partners Invest Ltd. to Odfjell invest II Ltd., for the price of NOK 184,850,000. The transfer of Shaffer BOP affects the disposal in Machinery & Equipment and acquisitions in Mobile drilling units. The asset was transferred at book value PSW Ross Total Deep Sea Odfjell PSW Group Holding Metro Galvão Group AS Group AS Ltd. BV AS Ross Holding Group AS Book value of equity at Investments/ Aquisitions during the year Share of profits (2 685) (508) (17 581) (30) (13 329) Share of OCI result (78) (114) (114) Depreciation of excess value (84) (84) (70) (70) Impairment of excess value Other changes (547) (547) Currency deviations (216) 272 (70) (1 726) (1 740) Book value of equity at Total The group s share of the results, aggregated assets and liabilities in its joint ventures, are as follows: MOBILE DRILLING UNITS The Group owns three mobile drilling units. The Group entered into a construction contract on February 24, 2006 with the shipyard DSME to design and build Deepsea Atlantic, a semi-submersible drilling rig of GVA 7500 design, and the delivery of the rig took place on February 6, The Group also entered into a building contract on February 27, 2006 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Atlantic was carried out at DSME before the said delivery took place from the shipyard. On February 24, 2007 the Group entered into a construction contract with the shipyard DSME to design and build Deepsea Stavanger, a semisubmersible drilling rig of GVA 7500 design, and the delivery of the rig took place on July 8, The Group also entered into a building contract on February 27, 2007 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Stavanger was carried out at DSME before the said delivery took place from the shipyard. The Group has invested in additional 2,500m riser for Deepsea Stavanger. This additional riser will increase Deepsea Stavanger s flexibility in connection with possible operations in ultra-deep water. The paid installments, including initial project costs, project management cost under the Project Management Agreements, costs of variation orders, costs for preparations for operation and interest cost have been capitalised on the rigs. Deep Sea Metro Ltd. Odfjell Galvão BV PSW Group AS Ross Holding Group AS Total Deep Sea Metro Ltd. Odfjell Galvão BV PSW Group AS Ross Holding Group AS Assets Liabilities Revenues Profit (2 685) (508) (3 806) (4 955) (17 581) (30) (13 329) Total 72 GROUP FINANCIAL STATEMENTS

38 8 Trade receivables and other receivables DEEP SEA METRO LTD Deep Sea Metro Ltd is owned by Odfjell Offshore Ltd (40%) and Metro Exploration (60%) and managed by the joint venture agreement signed in Deep Sea Metro Ltd is incorporated in Bermuda. Of book value investment in joint venture Deep Sea Metro Ltd as per , excess value of USD 2,276,613 is included. Excess value is depreciated over the lifetime of the drillships owned by Deep Sea Metro Ltd. Depreciation of excess value in 2013 amount to USD 84,000 PSW GROUP AS PSW Group AS was incorporated in Norway in March 2010, and is owned by Odfjell Drilling Technology Ltd. (50 %) and Dalseide & Fløysand Invest AS (50 %). PSW Group s subsidiaries are PSW Consultants AS (former name Deep Fjord Consultants AS), PSW Property AS, PSW Solutions AS and PSW Engineering AS. At 31 December 2011 the investment in the joint venture was written down to USD 0. The impairment in 2011 relates to losses and negative equity in the joint venture. At 31 December 2013 the impairment was reversed with USD 2 million due to positive equity and profit in the joint venture. ROSS HOLDING AS Summarised financial information - according to the Group s ownership in DSM Ltd: Ross Holding AS is owned by Odfjell Drilling Ltd Group (50 %) and Ross Offshore Invest AS (50 %). Ross Holding AS owns % of the shares in Ross Offshore AS. Ross Offshore AS owns 100 % of the shares in Ross Well Management AS (former Odfjell Well Management AS) and Ross Well Management Consultants AS (former Odfjell Well Management Consultants AS) as per 31 December Ross Holding AS Group is incorporated in Norway. ODFJELL GALVÃO BV Odfjell Galvão BV is owned by Odfjell Drilling Netherlands BV (50%) and Galvão Oil & Gas Holding BV (50%). Odfjell Galvão BV owns shares in Odfjell Galvão Perfuracoes Ltda (100%), Siri Drilling (20%), Itaoca Drilling BV (20%) and Guarapari Drilling BV (20%) as per Share of total income Share of operating expenses (97 286) (75 022) Share of net financial items (37 157) (33 407) Share of profit/(loss) before tax (9 879) Share of taxes (11 726) (7 702) Share of profit/(loss) for the year (2 685) (17 581) Share of non-current assets Share of cash Share of current assets Total assets Share of equity Share of profit/(loss) for the period (2 685) (17 581) Capital contribution Currency deviation (78) (123) Share of equity Share of non-current liabilities Share of current liabilities Total liabilities Total equity and liabilities Trade receivables Trade receivables Earned, not yet invoiced operating revenues Provision for impairment of accounts receivable (4 865) (8 177) Trade receivables - net OTHER CURRENT RECEIVABLES Reimbursable expenses Prepayments VAT- receivables Other short term receivables Total other current receivables OTHER NON-CURRENT RECEIVABLES Loans to employees Loans to related-parties Capitalised loan expenses (undrawn USD 530 million facility) Taxes paid to Norwegian tax authorities (disputed) Other non current receivables Total other non current receivables THE FAIR VALUE OF TRADE RECEIVABLES AND OTHER RECEIVABLES ARE AS FOLLOWS: Trade receivables Other Receivables Total As the receivables are due in the short term, the fair value is approximately equal to the carrying amount, and the future cash flows are not discounted. THE CARRYING AMOUNTS OF THE TRADE RECEIVABLES ARE DENOMINATED IN THE FOLLOWING CURRENCIES: USD NOK Other Total THE AGEING OF THE TRADE RECEIVABLES, PAST DUE BUT NOT IMPAIRED: to 3 months to 6 months Over 6 months Total Following operational issues on Deepsea Metro II, mainly related to subsea equipment during 2013, and consequently reduced EBITDA, a waiver of the EBITDA-related covenants under the USD 400 million senior credit facility was granted in 2013 for the period until and including the measurement date 31 December Due to the waiver period not ending at least 12 months after the reporting date, all loan liabilities are presented as short term liabilities per 31 December In March 2014 the lenders granted an extended waiver of the EBIT- BA-related covenants to and including measurement date Deepsea Metro II is owned by Chloe Marine Corporation Ltd., a subsidiary of Deep Sea Metro Ltd. 74 GROUP FINANCIAL STATEMENTS

39 Largest shareholders at 31 December 2013 (Note 8 continued) THE AGEING OF THE TRADE RECEIVABLES, PAST DUE AND IMPAIRED: 0 to 3 months to 6 months - - Over 6 months Total MOVEMENTS ON THE PROVISION FOR IMPAIRMENT OF TRADE RECEIVABLES ARE AS FOLLOW: Pr This years change in provisions (3 312) 573 Pr Cash and cash equivalents Cash in bank Time deposits Restricted bank deposits regarding payroll tax Total Name Holding % of total ODFJELL PARTNERS LTD % DEUTSCHE BANK AG % FIDELITY SELECT PORTFOLIOS: ENERGY % STATE STREET BANK & TRUST COMPANY % VARMA MUTUAL PENSION INSURANCE % GOLDMAN SACHS & CO EQUITY SEGREGAT % BNP PARIBAS SEC. SERVICES S.C.A % LAZARD FRERES BANQUE % SKANDINAVISKA ENSKILDA BANKEN AB % JP MORGAN CLEARING CORP % VERDIPAPIRFONDET DNB NORGE SELEKTI % RBC INVESTOR SERVICES TRUST % RBC INVESTOR SERVICES BANK S. A % J.P. MORGAN CHASE BANK N.A. LONDON % MORGAN STANLEY & CO LLC % LIEUNGH SIMEN % STATE STREET BANK AND TRUST CO % VERDIPAPIRFONDET DNB NORGE (IV) % SKANDINAVISKA ENSKILDA BANKEN AB % MORGAN STANLEY & CO INTERNAT. PLC % TOTAL 20 LARGEST SHAREHOLDERS % OTHER SHAREHOLDERS % TOTAL % Helene Odfjell controls through Odfjell Partners Ltd. 71% of the shares and the CEO controls 0.48% of the shares in Odfjell Drilling Ltd. Chairman of the board of directors, Carl-Erik Haavaldsen, has a significant ownership in Cenor Ltd. which owns 19,047 shares in Odfjell Drilling Ltd. 10 Share capital and shareholder information 11 Other reserves On 5 July 2013, it was resolved at the general meeting that share capital of Odfjell Drilling Ltd. to be increased from USD 18,000 to USD 2,000,000. At the general meeting it was further resolved that 1,376,687,078 shares of USD par value issued as fully paid shares, be converted to 200,000,000 shares of par value USD As per 31 December 2013 Odfjell Drilling Ltd. has a share capital of USD 2,000,000. The number of shares issued in Odfjell Drilling Ltd. as per 31 December 2013 is 200,000,000 with par value of USD SHARE CAPITAL AND SHAREHOLDERS The share capital and information about shareholders: Number Nominal value Book value Shares USD 0, All shares carry equal voting rights USD 0, Note Financial instruments Translation difference Acquisition noncontrolling interests At 1 January 2012 (110) (35 872) - (35 982) Interest rate swap, under hedge accounting (1 707) - - (1 707) Currency translation difference Group Currency translation difference joint ventures At 31 December 2012 (1 817) (29 079) - (30 896) Financial instruments, under hedge accounting Currency translation difference Group - (12 359) - (12 359) Currency translation difference joint ventures - (1 740) - (1 740) Acquisition non-controlling interests - - (34 496) (34 496) At 31 December (14 099) (34 496) (75 353) Total 76 GROUP FINANCIAL STATEMENTS

40 12 Interest-bearing debt The interest-bearing debt is a combination of secured debt, unsecured debt and bond loans. Interest rates are generally based on LIBOR rates. NON CURRENT INTEREST-BEARING DEBT Bank borrowings Transaction cost, unamortised (16 163) (20 405) Non current interest-bearing debt CURRENT INTEREST-BEARING DEBT Current portion of non-current interest bearing debt Accrued interest cost Total current interest-bearing debt Total interest-bearing debt Average interest rate for 2012 was 4.03 % (compared with 4.04 % for 2011), after the effect of interest rate hedging. The table below analyses the Group s financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows which includes expected interest payments. Repayment schedule for interest-bearing debt Subsequent Bank borrowings Total per Liabilities secured by mortgage Current liabilities Non current liabilities Total CARRYING AMOUNT OF MORTGAGED ASSETS: Property, plant and equipment Receivables Bank deposits Total The exposure of the Group s borrowings to interest rate changes and the contractual repricing dates at the end of the reporting period are as follows: months or less months years - - Later than 5 years - - Total The carrying amounts of the Group s borrowings are denominated in the following currencies: Repayment schedule for interest-bearing debt Subsequent Bank borrowings Total per Estimated payment schedule for interests as per 31 December Subsequent Interest expenses bank borrowings (53 103) (46 122) (25 309) (3 577) (1 172) - Total (53 103) (46 122) (25 309) (3 577) (1 172) - Estimated payment schedule for interests as per 31 December Subsequent Interest expenses bank borrowings Total USD Total The carrying amount and fair value of the non-current liabilities are as follows: Carrying amount Fair value Bank borrowings Total The fair value of non-current borrowings equals their carrying amount, as the loans has floating rate and credit margin has been stable from the loan raising. The Group has the following undrawn borrowing facilties: Floating rate: - Expiring within one year Expiring beyond one year - - Total The undrawn borrowing facility has been arranged to help finance the delivery of Deepsea Aberdeen in GROUP FINANCIAL STATEMENTS

41 The borrowing facility in the Odfjell Drilling Group includes the following financial covenants: ODFJELL INVEST LTD USD 950 MILLION FACILITY The Odfjell Drilling Group has agreed to maintain, at all times, a minimum free liquidity (cash and cash equivalents) requirement of USD 50,000,000 and a total liquidity of minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling Group 12 months prior to delivery of any investments in excess of USD 100,000,000 has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100,000,000 in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling Group has agreed to maintain an equity ratio (equity to total assets) of minimum 35 per cent, at all times to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that the ratio of current assets to current liabilities at all times being minimum 1.00:1.00. The facility agreement allows Odfjell Drilling Ltd. to distri bute dividends in an amount up to 50% of its net income (adjusted for any write downs of rigs and after taxes paid) in its previous financial year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in the Company. The facility agreement contains undertakings and covenants, and terms and conditions which are considered to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information, certain restrictions on corporate actions and change of business and covenants relating to the operation and maintenance of Deepsea Stavanger and Deepsea Atlantic. The facility agreement contains default and cross-default provisions, all applicable to Odfjell Invest Ltd and its subsidiaries, and in some cases the Odfjell Drilling Ltd. group. The cross-default provision is, however, only applicable to the Odfjell Drilling Ltd. group in relation to a default on indebtedness of more than USD 5 million. ODFJELL RIG II LTD. - USD 270 MILLION FACILITY The Odfjell Drilling Group has agreed to maintain, at all 13 Post employment benefits The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. The pension plans are measured and presented according to IAS 19 (revised 2011). PENSION OBLIGATIONS A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit times, a minimum free liquidity (cash and cash equivalents) requirement of USD 50,000,000 and a total liquidity of minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling Group 12 months prior to delivery of any investments in excess of USD 100,000,000 has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100,000,000 in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling Group has agreed to maintain an equity ratio (equity to total assets) of minimum 35 per cent, at all times to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that the ratio of current assets to current liabilities at all times being minimum 1.00:1.00. Distribution of dividends by Odfjell Drilling Ltd. are limited to a maximum of 50% of net income (adjusted for any write downs of drilling units and after taxes paid) for each calendar year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in Odfjell Drilling Ltd. The facility agreement otherwise contains undertakings and covenants, and terms and conditions which are considered to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information, certain restrictions on corporate actions and change of business and covenants relating to the operation and maintenance of Deepsea Bergen. Further, the facility agreement also contains default and cross-default provisions, all applicable to the Odfjell Drilling Ltd. group. However, the cross-default provision is only applicable to the default of any member of the Odfjell Drilling Ltd. group (excluding Deep Sea Metro, unless any member of the Odfjell Drilling Ltd. group contributes at least USD 5 million in response to such default) on indebtedness of more than USD 5 million. ODFJELL DRILLING SERVICES - USD 300 MILLION The main restrictive covenants are that free cash shall not fall below USD 50,000,000 and total liquidity not below obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. 5% of interest bearing debt in the Odfjell Drilling Group or below USD 15,000,000 or 5% of the interest bearing debt in the Odfjell Drilling Services Group. In addition equity ratio shall at all times not fall below 35 % for the Odfjell Drilling Group and 30 % for the Odfjell Drilling Services Group, for the Odfjell Drilling Services Group, adjusted leverage ratio I (ratio of interest bearing debt plus undrawn and available amounts under the revolving facility, divided by EBITDA on a twelve-month rolling basis) shall not increase above 2.40 if free liquidity is less than USD 100 million, or above 3.00 if free liquidity is more than USD 100 million. Adjusted leverage ratio II (the same definition as adjusted leverage ratio I but divided by EBITDA less USD 40 million), shall not increase above 3.75 if free liquidity is less than USD 100 million, or above 4.50 if free liquidity is less than USD 100 million, ratio of current assets to current liabilities in the Odfjell Drilling Services Group shall at all times be minimum 1.00, and equity for the Odfjell Drilling Group shall not fall below USD 750 million. The facility agreement allows Odfjell Drilling Ltd. to distri bute dividends in an amount up to 50% of its net income (adjusted for any write downs of rigs and after taxes paid) in its previous financial year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in Odfjell Drilling Ltd. The facility agreement otherwise contains undertakings and covenants which Odfjell Drilling Services Ltd. considers to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information and certain restrictions on corporate actions and change of business. Further, the facility agreement also contains default and cross-default provisions, all applicable to the Odfjell Drilling Ltd. group. However, the cross-default provision is only applicable to the default of any member of the Odfjell Drilling Ltd. group (excluding Deep Sea Metro Ltd.) on indebtedness of more than USD 5 million. For the financial years 2012 and 2013 the Group has not been in violation of the covenants. DEFINED BENEFIT PENSION PLANS The Group has a pension scheme covering a total of persons, of which 118 pensioners. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. The liabilities are covered through an insurance company (funded). The Group also has a contractual pension agreement (CPA) covering persons, of which 38 pensioners. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer s contribution to these amounts to 20 % of the pension paid. These liabilities are not covered through an insurance company (unfunded). A number of the Norwegian subsidiaries in the Group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act. Amounts recognised in the balance sheet: Present value of funded obligations Fair value of plan assets Deficit of funded plans Present value of unfunded obligations Total deficit of defined benefit pension plans Movement in the net defined benefit obligation over the years: Present value of obligation Fair value of plan assets Total At 1 January ( ) Current service cost Interest expense/ (income) (3 834) Pension expense REMEASUREMENTS: Return on plan assets, excluding amounts included in interest expense/(income) Total actuarial (gain)/loss Exchange differances (15 056) (5 660) CONTRIBUTIONS: - Employers Plan participants (2 558) (18 140) (20 697) PAYMENTS FROM PLANS: - Benefit payments (3 314) (1 503) At 31 December ( ) At 1 January ( ) Current service cost (1 892) Interest expense/ (income) (3 066) Pension expense REMEASUREMENTS: Return on plan assets, excluding amounts included in interest expense/(income) Total actuarial (gain)/loss (30 930) (21 842) (30 930) (21 842) Exchange differances (8 872) CONTRIBUTIONS: - Employers Plan participants - (22 569) (22 569) PAYMENTS FROM PLANS: - Benefit payments (3 252) (1 737) At 31 December ( ) The significant actuarial assumptions were as follows: Discount rate 4,10% 3.8% Salary growth rate 0% - 3,75% 0% - 3.5% Expected growth in G (base social security amount) 3,50% 3.25% Pension growth rate 0,6% - 3,5% 0.2% % 80 GROUP FINANCIAL STATEMENTS

42 15 Tax The sensitivity of the defined benefit obligation to changes in the weigthed principal assumptions is: Impact on defined benefit obligation Change in assumption Increase in assumption Decrease in assumption Discount rate 1% Decrease by 17% Increase by 22% Salary growth rate 1% Increase by 10% Decrease by 9% Pension growth rate 1% Increase by 13% Decrease by 7% Total pension expenses (including defined benefit and defined contribution scheme) are splitted to the following: Pension expenses from defined benefit scheme Pension expenses from defined contribution scheme Total pension expenses See also note 17 for further information regarding personnel expenses. 14 Other liabilities USD thousands Withholding tax, ordinary taxation (8 024) (7 453) Payable tax, ordinary taxation (31 662) (26 075) Change in deferred tax, ordinary taxation Total tax expense current year items (33 758) (31 496) Estimated average annual tax rate 19,7 % 21,0 % Payable tax prior years, disputed (25 902) 320 Payable tax current year, disputed (13 908) - Change in deferred tax, disputed (28 755) - Total tax expense prior years and disputed (68 564) 320 Total tax expense ( ) (31 176) Effective tax rate 59,8 % 21,3 % TAX RECONCILIATION Profit before tax Tax calculated at domestic tax rates applicable to profits in respective countries* (97 625) (33 398) Non-taxable income (4 698) Taxes ( ) (31 176) * Domestic tax rates applicable to the Group varies between 0 % and 28 % The tax (charge)/credit relating to components of the comprehensive income is as follows: Other non-current liabilities Interest rate swap - related party Other non-current liabilities Total other non-current liabilities Before tax Tax (charge)/ credit After tax Actuarial loss on post employment benefit obligations (13 117) (9 444) Other comprehensive income (13 117) (9 444) Deferred tax Other current liabilities Prepayments from customers Deferred revenue Accrued salaries Holiday pay Employee bonus provisions Other accrued expenses Total other current liabilities Before tax Tax (charge)/ credit After tax Actuarial gain on post employment benefit obligations (6 116) Other comprehensive income (6 116) Deferred tax - (6 116) - The gross movement on the deferred tax account is as follows: Net deferred tax assets/(deferred tax liabilities) at Income statement charge (22 827) Charged directly to equity (6 116) Current assets - (846) Currency translation differences Net deferred tax assets/(deferred tax liabilities) at (17 911) GROUP FINANCIAL STATEMENTS

43 Deferred tax assets Current assets Net pension liabilities Loss carried forward Fixed assets Total TAX COURT CASE Tax payable prior years, disputed, is tax paid by Odfjell Rig Ltd. for it s participation in Deep Sea Drilling Company II KS for the years 2009 and onwards. Due to a negative outcome of the trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities, the Group has changed their estimate regarding the expected amount to be paid in this case. It is now assessed that the most likely outcome will be to pay the full amount that is disputed, and as a result the tax receivable booked at is expensed. Odfjell Rig Ltd. still disputes the Norwegian Tax Authorities view that Odfjell Rig Ltd. is taxable for its participation in Deep Sea Drilling Company II KS. The case has been appealed through the court system Opening balance (4 134) Income statement charge 112 (634) Charged directly to equity Currency translation differences (33) (1 783) (1 705) Opening balance Income statement charge (433) (2 587) (2 174) Charged directly to equity - (6 116) - - (6 116) Use of losses carried forward - - (846) - (846) Currency translation differences Deferred tax liabilities Change in deferred tax, disputed, is recognised as tax expense due to the outcome of the trial between Odfjell Rig Ltd, and the Norwegian Tax Authorities mentioned above. The change in deferred tax expense relates to Odfjell Rig Ltd. s ownership in Deep Sea Drilling Company II KS, and the remaining gain and loss account generated from the sale of the drilling unit Deepsea Bergen by Deep Sea Drilling Company II KS to Odfjell Rig II Ltd. in January Odfjell Rig Ltd. is a company incorporated in Bermuda, and the sole shareholder is Odfjell Drilling Ltd. During the years Odfjell Rig Ltd. was the owner (limited partner) of % of Deep Sea Drilling Company II KS (DSDCII), which in turn was the owner of the rig Deepsea Bergen. The general partner of DSDCII was Deep Sea Drilling Company II AS, and additionally there were two other limited partners. The rig Deepsea Bergen has operated on the Norwegian Continental Shelf since spring 2006 under a bareboat charter with Deep Sea Drilling Company KS. All main decisions pertaining to the rig (purchase, sale, financing etc) are made by partnership meeting of DSDCII. The company Odfjell Drilling AS resident in Norway has been contracted to carry out the day-to-day operations/ management of the bareboat charter. The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. is taxable to Norway as a result of its ownership in DSDCII. The tax authorities made their decision for the years on 29 June 2012, and later also for The case for was brought before the Norwegian courts by Odfjell Rig Ltd. pursuant to a writ of summons on 20 December 2012, and the district court made its decision on 12 July For the income years , the disputed amount (before-tax income) is approximately NOK 526 million. The district court concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus the owner Odfjell Rig Ltd. was deemed taxable on the basis of the Norwegian Tax Act section 2-3 para. 1, letter b for its interest in DSDCII. The district court came to this conclusion inter alia on the basis that the day-to-day management of the bareboat charter by Odfjell Drilling AS in Bergen involves considerable activity in Norway on behalf of DSDCII, and also that the rig Deepsea Bergen had been deployed within Norwegian jurisdiction (i.e. on the Norwegian Continental Shelf). Furthermore, the district court concluded that a tax exemption in the Norwegian Tax Act section 2-34 was not applicable as this only relates to international business which in the court s opinion is not the case as long as the rig is operated on the Norwegian Continental Shelf. Please see table below for overview of paid tax and total tax expense related to court case. Income tax for the period is fully provided and paid, and will be repaid if the outcome of the case is that Odfjell Rig Ltd. is not deemed taxable to Norway for its interest in DSDCII. Share in limited partnership Fixed assets Deferred capital gains Total Tax expense in USD thousands Tax expense in NOK thousands Gross income in NOK thousands 2013 Opening balance (12 946) (12 777) Income statement charge (32 110) (29 306) Currency translation differences (30 832) - (9 138) (39 970) Tax expense and tax paid related to tax court case Total tax expense paid, for income years (25 902) ( ) Total tax expense not paid, for income year 2013 (13 908) (84 611) Total change in deferred tax 2013 (28 755) ( ) Total tax expense and tax paid related to tax court case (68 564) ( ) Opening balance (46) (4 708) (15 040) (19 794) Income statement charge Currency translation differences 6 (320) (1 010) (1 324) (4 134) (12 946) (16 911) TAX AUDIT CASE Odfjell Invest I Ltd. (Odfjell Invest I), a wholly-owned subsidiary of the Group incorporated in Bermuda, was the owner of the rig Deepsea Atlantic (until 12 December 2013), which has been leased to Odfjell Invest AS under a bareboat charter at a fixed day rate. Odfjell Invest AS has in turn entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the Norwegian Continental Shelf. Soon after commencement of drilling services under the drilling contract, Statoil stopped paying the operating rate based on the contention that Odfjell Invest AS was not able to provide the drilling services as contemplated by the drilling contract. Odfjell Invest AS challenged Statoil s decision to stop payment of the operating rate and instigated legal proceedings to recover lost income. Odfjell Invest AS lost the court case in the first instance. As part of a settlement with Statoil, Odfjell Invest AS decided not to appeal the decision. Odfjell Invest AS has taken the position that it had no legal basis for stopping payment of bareboat hire to Odfjell Invest I under the bareboat charter during the period of non-payment of the operating rate by Statoil under the drilling contract The tax authorities have notified that they do not consider Odfjell Invest AS as entitled to a tax deduction under the Norwegian Tax Act section 6-1, resulting in an increase of the taxable income for 2009 of NOK 103,305,720 and for 2010 with NOK 520,607,220. Following the tax audit (report dated 5 July 2013) the notice of reassessment also relates to the omission of taking a payment of hire from Statoil as income, resulting in an increase of the income for 2010 with NOK 6,552,467. Furthermore, the tax authorities have notified that they do not consider the bareboat charter between Odfjell Invest AS and Odfjell Invest I to be in accordance with the arm s length principle. This results in a reduction of bareboat hire for the years with in total NOK 209,434,800. Note that the above notifications from the tax authorities have not yet resulted in any decision of reassessment. The potential tax exposure amounts to USD 41.0 million excluding incurred interest. Odfjell Invest AS will dispute any assessment based on the notification, and hence no tax expense is recognised in the financial statements pr , as the Company s best estimate of the amount it will ultimately pay is zero. 84 GROUP FINANCIAL STATEMENTS

44 16 Combined items, income statement 17 Personnel expenses Other gains and losses Gain on disposals of casing, mooring and rental equipment Disposal of subsidiary Gain on sale of other assets Gain on sale of assets Personnel expenses Salaries and wages Employer`s national insurance contributions Pension expenses Other benefits Hired personnel Total personnel expenses Other operating expenses No. of employees (annual average) Consumption of purchased goods for resale (1 910) (1 436) Hired services, subcontractors and stand-in employees (47 882) (58 137) Hired casing, mooring and rental services (15 037) (16 518) Tools, fixtures and fittings, and working plant (53 069) (49 036) Repair and maintenance (22 470) (18 976) Insurance, guarantee and service costs (6 614) (7 192) Loss on disposal of machinery and bad debt (1 692) (619) Course expenses (fees. rent of premises etc.) (9 031) (7 524) Freight. transport and insurance (8 446) (11 834) Office rent and warehouses (12 897) (13 514) Fees for financial and legal assistance (4 972) (6 298) Inspection (7 975) (4 184) Travel expenses (34 926) (38 418) Other operating and administrative expenses (29 416) (32 366) Total other operating expenses ( ) ( ) Audit Audit (incl. technical assistance with financial statements) Other assurance services (mainly related to listing process at Oslo Stock Exchange) Tax advisory fee (incl. technical assistance with tax returns) - - Total audit fees The fees are net of VAT. 18 Remuneration to the Board of Directors and key executive management Financial income/expenses INTEREST INCOME Interest income Interest income from related parties Total interest income BORROWING COST Interest incurred (56 522) (57 639) Other borrowing expenses (8 991) (6 315) Total borrowing cost (65 513) (63 955) OTHER FINANCIAL ITEMS Currency gain Other financial income Currency loss (50 046) (20 449) Gain/loss on interest rate swaps Other financial expenses (16 444) (10 075) Total other financial items (21 112) EXECUTIVE MANAGEMENT: (USD thousands) Salary Bonus Pension premium Other remuneration Total Simen Lieungh (CEO) Atle Sæbø (CFO) Total remuneration executive management BOARD OF NON EXECUTIVE DIRECTORS: (USD thousands) BoD fee Carl-Erik Haavaldsen 55 Helene Odfjell 54 Kirk L. Davis 43 Henry Hamilton III 12 Bengt Lie Hansen 43 Total remuneration Board of non executive directors GROUP FINANCIAL STATEMENTS

45 2012 EXECUTIVE MANAGEMENT: (USD thousands) Salary Bonus Pension premium Other remuneration Total Simen Lieungh (CEO) Atle Sæbø (CFO) Total remuneration executive management BOARD OF NON EXECUTIVE DIRECTORS: (USD thousands) Helene Odfjell 57 Marianne Odfjell 28 Kirk L. Davis 43 Carl-Erik Haavaldsen 28 BoD fee and DNB Bank ASA as Agent on behalf of the lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 324 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. All of the shares in and substantially all of the assets of Odfjell Rig II Ltd. have been pledged in favour of the lenders, including a mortgage over Deepsea Bergen. Also, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed the obligors obligations under the finance documents. ODFJELL DRILLING SERVICES LTD. USD 300 MILLION FACILITY USD 300 million term loan facility agreement entered into on 4 November 2011 with Odfjell Drilling Services Ltd as borrower and DNB Bank ASA and Danske Bank A/S as lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 330 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. The Company, and certain of Odfjell Drilling Services Ltd. s subsidiaries, are guarantors under the facility agreement. Further, all of the shares in Odfjell Offshore Ltd., Odfjell Drilling Services Ltd., Odfjell Operations Ltd., Odfjell Partners Invest Ltd., Odfjell Drilling AS, Odfjell Drilling Technology Ltd., Odfjell Rental Services AS, Odfjell Casing Services AS, Odfjell Well Services Europe AS, Odfjell Well Services Ltd. and Odfjell Drilling Technology AS have been pledged in favour of the lenders. The loan is also secured by first priority assignment of all intra-group receivables owed to Odfjell Drilling Services Ltd. and its subsidiaries. ODFJELL RIG III LTD. USD 530,000,000 FACILITY AGREEMENT (undrawn facility as per 31 December 2013) USD 530 million term loan facility agreement entered into on 7 May 2013 with Odfjell Rig III Ltd as borrower and DNB Bank ASA as Agent on behalf of the lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 636 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. As security for the facilities, and as a condition precedent to utilisation of the facilities upon delivery of Deepsea Aberdeen, substantially all of the shares in and assets of Odfjell Rig III Ltd. and Odfjell Drilling Shetland Limited will be pledged in favour of the lenders and hedging banks, including a mortgage of Deepsea Aberdeen. Also, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed the obligors obligations under the finance documents, and one of the USD 200 million export credit facilities has been guaranteed by the Norwegian Garanti-Instituttet for Eksportkreditt (for a guarantee fee). Bengt Lie Hansen 28 Total remuneration Board of non executive directors Contingencies 19 Earnings per share Contingencies related to income tax are disclosed in note 15 Tax. Odfjell Drilling and all other offshore contractors being members of the Norwegian Shipowners Association have been called to court in Stavanger District Court in March 2014 for the ruling of pension rights related to night shift compensation for offshore workers. It is currently not possible to estimate the impact of the claim. There are no other contingencies to be disclosed as per 31 December The basic and diluted earnings per share are the same, as the Company has no convertible bond loan or stock option plan. Earnings per share is calculated as net result allocated to shareholders for the year divided by the weighted average number of outstanding shares. During 2013 number of shares was changed, and hence EPS for 2012 is recalculated accordingly. Please see note 10 Equity for disclosed information related to changes in number of issued shares during Profit/ (Loss) attributable to equity holders of the company Commitments CAPITAL COMMITMENTS Weighted average number of ordinary shares in issue Earnings per share 0,34 0,51 20 Securities and mortgages The Group has signed a contract with Daewoo Shipbuilding & Marine Engineering (DSME) to build a new semi-submersible drilling rig DeepSea Aberdeen for the use in the UK s West of Shetland region under a future contract with BP. The commitments related to the newbuilding programme are summarised in the table below: Due in year Due in year Due in year Value of new building commitments ODFJELL INVEST LTD. USD 950 MILLION FACILITY AGREEMENT USD 950 million term loan facility agreement entered into on 4 November 2011 with Odfjell Invest Ltd as borrower and DNB Bank ASA as Agent of behalf of the Lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. As security for the loan, substantially all of the assets of Odfjell Invest Ltd. and its subsidiaries have been pledged in favour of the lenders. This includes the shares in Deep Sea Atlantic Pte. Ltd., Deepsea Stavanger Pte. Ltd. and the charter company Odfjell Invest AS, mortgages over the semi-submersible drilling rigs Deepsea Stavanger and Deepsea Atlantic and assignment of rights to revenue, interest proceeds and bank accounts. In addition, the shares in Odfjell Invest Ltd. have been pledged by Odfjell Offshore Ltd. in favour of the lenders. Also, Deep Sea Atlantic Pte. Ltd., Deep Sea Stavanger Pte. Ltd., Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed as and for its own debt the due and punctual observance and performance of the obligors obligations under the finance documents, however such that Odfjell Drilling Ltd. may be released as guarantor under the facility agreement upon the occurrence of either an initial public offering or a private placement of Odfjell Offshore Ltd. ODFJELL RIG II LTD. - USD 270 MILLION FACILITY AGREEMENT USD 270 million term loan facility agreement entered into on 15 February 2013 with Odfjell Rig II Ltd as borrower Capital expenditure other than newbuildings contracted for at the end of the reporting period but not yet incurred is as follows: Global Standard - New ERP solution Rig investments 1) Rental and casing equipment, due in 1 year Total ) Rig investments is mainly five year classification of Deepsea Atlantic Q GROUP FINANCIAL STATEMENTS

46 24 Transactions with related parties OPERATING LEASE COMMITMENTS - GROUP COMPANY AS LESSEE The Group leases various offices under non-cancellable operating lease arrangements. The lease terms are between 1 and 10 years, and the majority of the lease arrangements are renewable at the end of the lease period at market rates. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: The Group is 71% controlled by Odfjell Partners Ltd. Odfjell Partners Ltd. is controlled by board memeber Helene Odfjell. CEO Simen Lieungh controls 0.48% of the shares in Odfjell Drilling Ltd. as per 31 December The following material transactions were carried out with related parties: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total SALES OF SERVICES: - Entities controlled by Odfjell Partners Ltd. (management services) Associates Total OPERATING EXPENSES 23 Capital Disclosures Associates Total LEASES: CAPITAL MANAGEMENT The primary objective of the Group`s capital management is to ensure that it maintains healthy capital ratios and liquidity available to take advantage of investment opportunities and generally support the business. Capital management should be such that the capital structure is sufficiently robust to withstand prolonged adverse conditions in significant risk factors, such as long-term down-cycles in our markets and unfavourable conditions in financial markets. Capital management also comprise securing the company to be in compliance with covenants on interest bearing debt. Reference is made to note 12 which disclose information about covenants on long term interest bearing liabilities. The Group will manage the capital structure and make adjustments to it, to maintain an optimal structure adapted to current economic conditions. In order to maintain or adjust the capital structure, the Group may adjust dividend payments, buy treasury shares, return capital to shareholders or issue new shares DEPOSITS / PLACEMENTS The liquidity management has four main objectives: - Matching of surplus funds against borrowing requirements. - Secure a high level of liquidity (a targeted minimum of two months cash flow) in order to meet future plans of the Odfjell Drilling. - Limitation of credit risks. - Maximise return on liquid assets. Accordingly, investments may only be made in securities with a rating of Investment grade, Baa (Moodys), BBB- (Standard and Poors and Fitch IBCA) or better. For companies not rated by international rating bureaus, investments may be made in accordance with DNB s rating BBB or better. A list of counter party exposure limits shall be established by the CFO, and be reported to the Board of Odfjell Drilling on a yearly basis. The following instruments are allowed for short term placements; - Deposits in banks - Loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt) - Certificates - Money-market funds WORKING CAPITAL The company s policy is to have working capital corresponding to 2 months operating expenses. INTEREST RATE RISK The administration is authorised to hedge up to 50% of the interest payments of the external financing based on an approval from the CFO. Status is to be reported to the Board on a quarterly basis. - Entities controlled by Odfjell Partners Ltd. (office rent) Total INTEREST INCOME: - Associates Total KEY MANAGEMENT COMPENSATION Key management includes directors (executive and non-executive). The compensation paid or payable to key management for employee services is shown in Note 18 - Remuneration. Year-end balances arising from purchase of services CURRENT RECEIVABLES FROM RELATED PARTIES: Current receivables from related parties: Total Equity Total assets Equity ratio 41% 41% Cash and cash equivalents Available drawing facilities - - Total available liquidity CURRENT LIABILITIES TO RELATED PARTIES: Current liabilities to related parties Current liabilities to parent company Total NON-CURRENT LOANS FROM RELATED PARTIES Non-current liability under related party agreement - - Total - - NON-CURRENT RECEIVABLES FROM RELATED PARTIES Non-current receivable under related-party agreement Non-current receivable Odfjell Capital Ltd Total GROUP FINANCIAL STATEMENTS

47 Parent Company Financial Statements COMMITMENTS The Group leases various offices under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total Disposal of Deep Sea Mooring On 16 April 2013, the group agreed to sell it s Mooring business unit, including shares in Deep Sea Mooring AS in addition to property, plant and equipment related to the operations of the Mooring business unit. The business of the unit is well services and rental of mooring equipment. The transaction was completed on 16 May with a total net gain of USD 19,6 million. The business is not presented in this interim financial information as a discontinued operation, as it does not represent a major line of business. Financial information relating to the mooring business area is set out below: USD thousands Operating revenue Other gains/(losses) Personell expenses (1 162) (3 655) Other operating expenses (800) (2 620) EBITDA Depreciation and impairment (2 770) (7 745) Operating profit Net financial items 4 13 Profit/(loss) before tax USD thousands Property, plant and equipment Events after the reporting period Deep Sea Metro Ltd s debt to Odfjell Offshore Ltd., amounting to USD 80 million in addition to accrued interest, was settled on 20 February Settlement was made partly by way of contribution of cash equity by the 60% shareholder Metro Exploration Holding Corp to Deep Sea Metro Ltd in exchange for common shares and partly by Odfjell Offshore Ltd converting the remaining portion of the facility to common shares, thereby maintaining the 40/60 ownership. Cash settlement from Deep Sea Metro Ltd. to Odfjell Offshore Ltd. on 20 February 2014 was USD 49,525,070, including accrued interest. There have not been any other events identified after the reporting period, which would materially affect these financial statements. 92 PARENT COMPANY FINANCIAL STATEMENTS

48 Income Statement Statement of Financial Positions USD thousands Note USD thousands Note Other operating expenses 2 ( ) ( ) Total operating expenses ( ) ( ) Operating profit / (loss) ( ) ( ) Interest income Interest income from group companies 6, Other financial income group companies Other financial income 9, Interest expenses - (1 386) Interest expenses from group companies 6, 9 ( ) ( ) Other financial expenses group companies - ( ) Other financial expenses 10 ( ) 891 Net financial items ( ) Ordinary profit / (loss) before tax ( ) Tax on ordinary result Net profit / (loss) for the year ( ) ASSETS Investments in subsidiaries Long term loan to group companies Long term loan Total financial fixed assets Other short time receivables Intercompany short-term receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Share capital 3, Other contributed capital Other equity Total equity Allocation: Transferred from/to other equity 3 ( ) Long term debt Intercompany long term liabilities 6, Total long-term liabilities Short term debt Other short-term liabilities Intercompany short-term liabilities Total short-term liabilities Total liabilities Total equity and liabilities The Board of Odfjell Drilling Ltd Hamilton, Bermuda, 1 April 2014 Carl-Erik Haavaldsen Chairman Helene Odfjell Director Kirk Davis Director Henry Hamilton III Director Bengt Lie Hansen Director 94 PARENT COMPANY FINANCIAL STATEMENTS

49 Statement of Cash Flow Notes (all figures in USD thousands) USD thousands Accounting Principles CASH FLOWS FROM OPERATING ACTIVITIES Profit/(loss) before tax ( ) Adjustments for: Decrease/(increase) in trade accounts receivable and other receivables (24 308) Decrease/(increase) in trade accounts payable and other current liabilities Change in net intercompany short-term liabilities and receivables ( ) ( ) Net cash flows from operating activities ( ) CASH FLOWS FROM INVESTING ACTIVITIES Long-term loan ( ) Net cash flow used in investing activities ( ) CASH FLOWS FROM FINANCING ACTIVITIES Long term debt ( ) ( ) Long term loan to group companies ( ) Intercompany long term liabilities ( ) Paid out dividende ( ) ( ) Net cash flow from financing activities ( ) ( ) The accounting information includes profit and loss statement, balance sheet statement, notes and cashflow statement. The accounts are prepared in accordance with Norwegian GAAP. Figures are reported in USD. The company is located at Bermuda. RECOGNITION OF INCOME The company is a single purpose company with the only interest of owning its shares in subsidiaries. Any dividend received or other financial income are recognised as financial income. CLASSIFICATION OF BALANCE SHEET ITEMS Assets identified as being permanently owned or used, are classified as fixed assets. Other assets are classified as current assets. Liabilities due more than one year after they are incurred are classified as long-term liabilities. First year instalment on long-term loans are classified as long-term liabilities. Liabilities due less than one year after being incurred are classified as short-term liabilities. ACCOUNTS RECEIVABLE Trade debtors and other receivables are accounted for at net value after deductions for expected losses. FOREIGN CURRENCY Balance sheet items in foreign currencies are translated to USD at the currency rate at the balance date. Profit and loss transactions in other currencies, are translated to USD at the currency rate at the transaction day. CASH AND BANK DEPOSITS Cash and bank deposits also include other liquid investments with a period to maturity of 90 days or less from the date of issue. IMPAIRMENT OF ASSET The asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. The assets are tested annually for impairment at each reporting date. CASH FLOW STATEMENT The cash flow statement is prepared using the indirect method. CHANGE OF FUNTIONAL AND PRESENTATION CURRENCY As per 1 January 2012 the company changed its functional and presentation currency from NOK to USD. NET EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS Net increase/(decrease) in cash and cash equivalents ( ) ( ) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Operating expenses, remuneration of the board of directors and CEO and number of employees etc FEE TO THE AUDITOR (EX. VAT): Auditors fee Other confirmations Technical assistance related to conversion of financial statement from NGAAP to IFRS Total OTHER OPERATING EXPENSES: Board of directors fee Financial and legal assistance ex VAT Management fee Other expenses Total The administration of the company is performed by Odfjell Drilling AS for a management fee of USD The company has no employees, and no remuneration were paid to the General Manager during the year. General Manager receives salary from Odfjell Drilling AS. No loans or guarantees have been given to the General Manager or to the members of the board of directors. The company is not required to have an occupational pension scheme in accordance with the Norwegian law of required occupational pension. 96 PARENT COMPANY FINANCIAL STATEMENTS

50 3 Shareholders equity The share capital consists of shares with a nominal value of USD 0,01. Total book value USD Share capital Other contributed capital Other equity Shareholders equity as per Dividend - - ( ) ( ) Profit Shareholders equity as per Shares ( ) - - Dividend - - ( ) ( ) Profit for the year - - ( ) ( ) Shareholders equity as per Total J.P. Morgan Chase Bank N.A. London % Morgan Stanley & Co. LLC % Lieungh Simen % State Street Bank and Trust Co % Verdipapirfondet DnB Norge V % Skandinaviska Enskilda Banken AB % Morgan Stanley & Co.Internat. PLC % Other shareholders % Total ,00% Helene Odfjell controls 71.0 % of the shares in Odfjell Drilling Ltd. through Odfjell Partners Ltd. CEO controls 0.48 % of the shares in Odfjell Drilling Ltd. Chairman of the board of directors, Carl-Erik Haavaldsen, has a significant ownership in Cenor Ltd. which owns 19,047 shares in Odfjell Drilling Ltd. 4 Share capital and shareholders 5 Subsidiaries The share capital and information about shareholders: Number Nominal value Book value Company Acquisition/ formation date Registered office Shares and percent of votes Percent of votes Share capital USD Profit/loss 2013 in USD Equity as per in USD Book value Shares USD 0, Total USD 0, Overview of largest shareholders as per : Odfjell Offshore Ltd Hamilton, Bermuda Odfjell Drilling Services Ltd Hamilton, Bermuda 100% 100% ( ) % 100% ( ) Total The shares are recognised in the accounts according to the cost method. Number of shares Participating interests/ share of votes Odfjell Partners Ltd % Deutche Bank AG % Fidelity Select Portfolios: Energy % State Street Bank & Trust Company % Varma Mutual Pension Insurance % Goldman Sachs & Co Equity Segregat % BNP Paribas Sec. Services S.C.A % Lazard Freres Banque % Skandinaviska Enskilda Banken AB % JP Morgan Celaring Corp % Verdipapirfondet DnB Norge Selekti % RBC Investor Services Trust % RBC Investor Services Bank S.A % 6 Intercompany balances Long term: Receivables 2013 Liabilities 2013 Receivables 2012 Liabilities 2012 Interests 2013 Odfjell Offshore Ltd Fixed ann. interest rate of 6,95% Odfjell Drilling Services Ltd ( ) 3 mnths Libor + 3,63% margin Total long term Repayment and interest conditions: Loan from Odfjell Drilling Services Ltd : Final maturity date 9 November 2018, applicable interest is 3 months Libor + 3,63% margin Loan given to Odfjell Offshore Ltd: Final maturity date 9 May 2015, applicable interest is fixed annual 6,95%. 98 PARENT COMPANY FINANCIAL STATEMENTS

51 9 Related parties transactions Short term: Receivables 2013 Liabilities 2013 Receivables 2012 Liabilities 2012 Odfjell Drilling AS - (17 001) Odfjell Drilling Holding Ltd Odfjell Drilling Services Ltd - (6 063) Odfjell Rig Ltd Odfjell Drilling Technology Ltd Odfjell Invest Ltd Total short term Revenue from related parties Type of transaction Related party Relation Amount 2013 Amount 2012 Interest Odfjell Offshore Ltd Subsidiary Guarantee provision Odfjell Invest Ltd Subsidiary Guarantee provision Odfjell Rig II Ltd Subsidiary Guarantee provision Odfjell Rig Ltd Subsidiary Guarantee provision Odfjell Drilling Services Ltd Subsidiary Sum The short term receivables have less than one year maturity. 7 Cash and bank deposits Cost from related parties Type of transaction Related party Relation Amount 2013 Amount 2012 Management services Odfjell Drilling AS Subsidiary Interest Odfjell Drilling Services Ltd Subsidiary Sum Current account NOK Current account USD Total Guarantee provision As security for the pledged loan in Odfjell Drilling AS, some companies within the group have furnished a joint liability guarantee towards the lending authority. Odfjell Drilling AS therefore pays a guarantee provision to these companies. Bank deposits are not restricted. 8 Short-term liabilities 10 Financial income and expenses Other financial income: Foreign exchange profit Regulation bank balance Guarantee commission Total other financial income Provision for directors' fees Trade creditors Other short term debt Total Other financial expenses: Interest expenses Foreign exchange loss Regulation bank balance Other financial expenses - (14 785) Initial public offering Total other financial expenses (891) 100 PARENT COMPANY FINANCIAL STATEMENTS

52 11 Guarantees and security 12 Tax GUARANTEES FROM ODFJELL DRILLING LTD IN RELATION TO SUBSIDIARIES LOAN AGREEMENTS Odfjell Drilling Ltd has furnished an On-Demand Guarantee under the following facility agreements: - USD 300 million term loan facility agreement entered into on 4 November 2011 with Odfjell Drilling Services Ltd as borrower and DNB Bank ASA and Danske Bank A/S as lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 330 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. - USD 950 million term loan facility agreement entered into on 4 November 2011 with Odfjell Invest Ltd as borrower and DNB Bank ASA as Agent of behalf of the Lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. - USD 270 million term loan facility agreement entered into on 15 February 2013 with Odfjell Rig II Ltd as borrower and DNB Bank ASA as Agent on behalf of the lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 324 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. - USD 530 million term loan facility agreement entered into on 7 May 2013 with Odfjell Rig III Ltd as borrower and DNB Bank ASA as Agent on behalf of the lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 636 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. SHARE PLEDGES Odfjell Drilling Ltd has pledged its shares in Odfjell Offshore Ltd and Odfjell Drilling Services Ltd as security for any amounts outstanding under the USD 300 million loan agreement entered into by Odfjell Drilling Services Ltd on 4 November OTHER SECURITY ODFJELL DRILLING SERVICES LTD. USD 300,000,000 FACILITY AGREEMENT The Company, and certain of Odfjell Drilling Services Ltd. s subsidiaries, are guarantors under the facility agreement. Further, all of the shares in Odfjell Offshore Ltd., Odfjell Drilling Services Ltd., Odfjell Operations Ltd., Odfjell Partners Invest Ltd., Odfjell Drilling AS, Odfjell Drilling Technology Ltd., Odfjell Rental Services AS, Odfjell Casing Services AS, Odfjell Well Services Europe AS, Odfjell Well Services Ltd. and Odfjell Drilling Technology AS have been pledged in favour of the lenders. The loan is also secured by first priority assignment of all intra-group receivables owed to Odfjell Drilling Services Ltd. and its subsidiaries. ODFJELL INVEST LTD. USD 950,000,000 FACILITY AGREEMENT All of the shares and substantially all of the assets of Odfjell Invest Ltd. and its subsidiaries have been pledged in favour of the lenders, including mortgages over Deepsea Stavanger and Deepsea Atlantic. Also, Odfjell Drilling Ltd. and certain of its subsidiaries have guaranteed the obligors obligations under the finance documents. ODFJELL RIG II LTD. USD 270,000,000 SENIOR SECURED TERM LOAN FACILITY All of the shares in and substantially all of the assets of Odfjell Rig II Ltd. have been pledged in favour of the lenders, including a mortgage over Deepsea Bergen. Also, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed the obligors obligations under the finance documents. ODFJELL RIG III LTD. USD 530,000,000 FACILITY AGREEMENT As security for the facilities, and as a condition precedent to utilisation of the facilities upon delivery of Deepsea Aberdeen, substantially all of the shares in and assets of Odfjell Rig III Ltd. and Odfjell Drilling Shetland Limited will be pledged in favour of the lenders and hedging banks, including a mortgage of Deepsea Aberdeen. Also, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed the obligors obligations under the finance documents, and one of the USD 200 million export credit facilities has been guaranteed by the Norwegian Garanti-Instituttet for Eksportkreditt (for a guarantee fee). Odfjell Drilling Ltd is registered in Bermuda. There is no Bermuda income, corporation, or profit tax, withholding tax, capital gains, capital transfer tax, estate duty or inheritance tax payable by the company or its shareholders not ordinarily resident in Bermuda. The company is not subject to Bermudan stamp duty on the issue, transfer or redemption of its shares. 13 Financial liabilities The company has received from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1996 an assurance that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income, or computed on any capital assets, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not until 2035 be applicable to the company or to any of its operations, or to the shares, debentures or other obligations of The table below summarises the maturity profile of the company s financial liabilities at 31 December 2013: the company except insofar as such tax applies to persons ordinarily resident in Bermuda and holding such shares, debentures or other obligations of the company or any land leased or let to the company. As an exempted company, the company is liable to pay a registration fee in Bermuda at a rate presently amounting to USD per annum. Less than 3 months 3 to 12 months 1 to 5 years > 5 years Long term loan from subsidiary Accounts payable ( ) Other short-term liabilities - ( ) - - Intercompany short-term liabilities - ( ) - - Total ( ) ( ) Guarantee liabilities Parent company guarantee in relation to the subsidiaries loan agreements; Loan agreement in Odfjell Drilling Services Ltd Loan agreement in Odfjell Invest Ltd Loan agreement in Odfjell Rig Ltd Loan agreement in Odfjell Rig II Ltd Loan agreement in Odfjell Rig III Ltd Total guarantee liabilities Book value of assets pledged as security The following assets are pledged as security by the parent company Odfjell Drilling Ltd regarding the loan agreement entered into by its subsidiary Odfjell Drilling Services Ltd: Shares in Odfjell Offshore Ltd Shares in Odfjell Drilling Services Ltd Total book value of assets pledged as security Intra-group receivables (Odfjell Drilling group) Total book value of receivables pledged as security PARENT COMPANY FINANCIAL STATEMENTS

53 Responsibility statement Auditors Report We confirm, to the best of our knowledge, that the financial statements for the period 1 January to 31 December 2013 have been prepared in accordance with current applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit or loss of the entity and the group taken as a whole. We also confirm that the Board of Directors Report includes a true and fair review of the development and performance of the business and the position of the entity and the group, together with a description of the principal risks and uncertainties facing the entity and the group. Bermuda, 1 April 2014 Board of Directors of Odfjell Drilling Ltd. Carl-Erik Haavaldsen Chairman Helene Odfjell Director Kirk Davis Director Henry Hamilton III Director Bengt Lie Hansen Director 104 ODFJELL DRILLING ANNUAL REPORT

54 Auditors Report Design and production by Alf Gundersen Photo by: Helge Hansen (p. 1, 6, 10, 14, 15, 16, 19, 26, 28, 29, 32, 33,34, 36, 37, 40, 44, 48, 108) David Zadig, (p. 18, 20, 22, 30, 38, 39) Stein Atle Fedøy (p. 21) Rune Johanson, Statoil (p. 23) Øystein Klakegg (p. 46) 106

55 ODFJELL DRILLING LTD. CLARENDON HOUSE 2 CHURCH STREET HAMILTON HM11 BERMUDA 108