Prospectus. Songa Offshore SE

Transcription

1 Prospectus Songa Offshore SE (a European public company limited by shares organised under the laws of the Republic of Cyprus) Listing on Oslo Børs of 35,200,000 Placement Shares issued in connection with the Private Placement completed in April 2012 The information in this prospectus (the Prospectus ) relates to the listing (the Listing ) on Oslo Børs ASA ( Oslo Børs ) by Songa Offshore SE (the Company or Songa Offshore, and, together with its consolidated subsidiaries, the Group ) of 35,200,000 new ordinary shares in the Company with a par value of EUR 0.11 each (the Placement Shares ) issued in connection with a private placement completed in April 2012 (the Private Placement ). The Company s ordinary shares (the Shares ) are listed on Oslo Børs under the ticker code SONG. This Prospectus has been prepared in order to provide information about the Group and its business in relation to the Private Placement, the Listing and the Placement Shares, and to comply with the Norwegian Securities Trading Act of 29 June 2007 no 75 (the Norwegian Securities Trading Act ) and related secondary legislation, including EC Commission Regulation EC/809/2004. The Financial Supervisory Authority of Norway (the NFSA ) has reviewed and approved this Prospectus in accordance with Section 7-7 of the Norwegian Securities Trading Act. THIS PROSPECTUS SERVES AS A LISTING PROSPECTUS ONLY. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR INVITATION TO PURCHASE, SUBSCRIBE OR SELL, ANY OF THE SECURITIES DESCRIBED HEREIN, AND NO SHARES OR OTHER SECURITIES ARE BEING OFFERED OR SOLD IN ANY JURISDICTION PURSUANT TO THIS PROSPECTUS. Investing in the Shares involves certain risks. See Section 2 Risk Factors beginning on page 16. Managers This Prospectus is dated 28 June 2012

2 Important information No person is authorised to give information or to make any representation in connection with the Shares, the Placement Shares, the Private Placement and/or the Listing other than as contained in this Prospectus. If any such information is given or made, it must not be relied upon as having been authorised by the Company or the Managers (as defined below) or by any of the affiliates, advisors or selling agents of any of the foregoing. The Company has engaged Arctic Securities ASA, Nordea Markets (a part of Nordea Bank Norge ASA), Pareto Securities AS and SEB Enskilda AS as managers (the Managers ) for the Company in connection with the Private Placement and the Listing. The distribution of this Prospectus in certain jurisdictions may be restricted by law. This Prospectus does not constitute an offer of, or an invitation to purchase, subscribe or sell, any of the securities described herein. No one has taken any action that would permit a public offering of the Shares. Accordingly, neither this Prospectus nor any advertisement may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. The Company and the Managers require persons in possession of this Prospectus to inform themselves about, and to observe, any such restrictions. Any reproduction or distribution of this Prospectus, in whole or in part, and any disclosure of its contents is prohibited. No Shares or other securities are being offered or sold in any jurisdiction pursuant to this Prospectus. This Prospectus and the Listing shall be governed by, and construed in accordance with, Norwegian law. The courts of Norway, with Oslo District Court as exclusive legal venue, shall have exclusive jurisdiction to settle any dispute that may arise out of, or in connection with, the Listing or this Prospectus. i

3 TABLE OF CONTENTS 1 SUMMARY Introduction to the Company The background and purpose of the Private Placement The Private Placement Summary of financial information Summary of capitalization and indebtedness Significant changes in the Group s financial or trading position since 31 March Directors, management and employees Shares and Articles of Association Major shareholders Related party transactions Research and development and patents Trend information and other factors that may affect the operations of the Company Summary of risk factors Advisors and auditor Documents on display RISK FACTORS Risks relating to the market in which the Group operates Risks factors relating to the Group and its business Risks relating the Group s financial situation Risks relating to the Shares RESPONSIBILITY FOR THE PROSPECTUS GENERAL INFORMATION Important investor information Presentation of financial and other information Industry and market data Cautionary note regarding forward-looking statements BACKGROUND FOR THE PRIVATE PLACEMENT THE PRIVATE PLACEMENT AND THE LISTING Overview and terms of the Private Placement Resolution regarding the Private Placement Participation of major existing shareholders and members of the Company s management, supervisory and administrative bodies in the Private Placement The Placement Shares Shares following the Private Placement Dilution Advisors Net proceeds and expenses Interests of natural and legal persons involved in the Private Placement Publication of information relating to the Private Placement and the Listing MARKET OVERVIEW Introduction Overview and trends E&P spending Oil demand and the oil price Contract drilling and rig classification Global floater fleet evolution Floater fleet by company Midwater rig supply and key market players Global midwater utilization/demand Global midwater customers Global midwater dayrates GROUP OVERVIEW Corporate information ii

4 8.2 History and development Legal structure of the Group Description of the main companies in the Group The Company s object and business strategy QHSE ( Quality, Health, Safety and Environment ) policy The rig fleet Contractual status Property, plants and equipment Research and development and patents Environmental issues Dependence on contracts and licences Material contracts Significant events after the end of the financial year Trend information and other factors that may affect the operations of the Company BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES Board of Directors Management Shares acquired by members of the Board and the Management Pensions Loans and guarantees Conflicts of interests Corporate governance Employees SELECTED FINANCIAL INFORMATION General Selected condensed financial information Segment information Statutory auditors OPERATIONAL AND FINANCIAL REVIEW Comments to the financial statements Investments Working capital Significant changes in the Group s financial or trading position since 31 March Capitalization and indebtedness Capital resources Borrowings Restrictions on use of capital Redomiciliation to Cyprus in 2009 Exit tax Regulations governing operations Geopolitical risks SHARES, SHARE CAPITAL AND SHAREHOLDERS MATTERS Description of the Shares and share capital Stock exchange listing Historical development in share capital and number of Shares Major shareholders Outstanding authorisations Shareholders rights Additional rights of shareholders Limitations on the right to own and transfer Shares Dividend policy and payment of dividends General Meetings Alternation of capital Purchase of own shares and redemption Voting rights Pre-emption rights Regulation of dividends Liability of directors Distribution of assets on liquidation iii

5 12.18 Summary of the Company s constitutional documents SECURITIES TRADING IN NORWAY Introduction Trading of equities and settlement Information, control and surveillance Shareholder register, the VPS and transfer of Shares Foreign investment in Norwegian shares Disclosure obligations Insider trading Takeover bids Squeeze out and sell out TAXATION Cyprus taxation Norwegian taxation Non-Norwegian Shareholders Inheritance tax Duties on transfer of Shares ADDITIONAL INFORMATION Related party transactions Disputes Incorporation by reference Documents on display Confirmation regarding sources Statements regarding expert opinions DEFINITIONS AND GLOSSARY OF TERMS APPENDICES Appendix 1: Articles of Association of Songa Offshore... A1 Appendix 2: Memorandum of Association of Songa Offshore... A21 iv

6 1 SUMMARY The following summary should be read as an introduction to the full text of this Prospectus, and in conjunction with, and is qualified in its entirety by, the more detailed information and the Appendices appearing elsewhere in this Prospectus. Any investment decision relating to the Shares should be based on the consideration of this Prospectus as a whole. Where a claim relating to the information contained in this Prospectus is brought before a court, a plaintiff investor might, under the national legislation of a members state of the European Economic Area (the EEA ), have to bear the costs of translating this Prospectus before legal proceedings are initiated. No civil liability attaches to those persons who have prepared this summary, including any translations hereof, unless it is misleading, inaccurate or inconsistent when read together with the other Sections of this Prospectus. 1.1 Introduction to the Company Company information Songa Offshore is a European public company limited by shares organised under the laws of the Republic of Cyprus. It was incorporated on 18 April 2005 as a Norwegian public limited liability company and converted to an SE on 12 December The conversion into an SE was effected through a merger between Songa Offshore ASA and Songa Offshore Cyprus Plc. With effect from 11 May 2009, the survivor of the merger, Songa Offshore SE, transferred its registered office to Cyprus in accordance with Article 8 of the SE Regulation and Section 7 of the SE Act (the Redomiciliation ). The Company is registered with the Cyprus Registrar of Companies with business registration number SE 9 and is subject to the laws of Cyprus, and in particular the Cyprus Companies law. The Company s principal place of business is in Limassol, Cyprus. Its registered main office is 8, John Kennedy Street, IRIS House, Off. 740B, Limassol, visiting address is 25 Kolonakiou Street, Zavos Kolonakiou Centre, Block B, Flat 101, 4103 Limassol, Cyprus, telephone , telefax and web address is The Company s Shares have been listed on Oslo Børs since 26 January 2006 under the ticker code SONG. Songa Offshore also has offices in Oslo and Stavanger (Norway), Houston (Texas, USA), Singapore, Kuala Lumpur (Malaysia), Luanda (Angola) and Perth (Australia). The Company had a total of 469 employees as of 31 December 2011, whereof 356 employees offshore based. The Group is engaged in the business of owning and operating offshore drilling rigs and other vessels to be used in the exploration and production of hydrocarbons. The Group owns 6 semisubmersible rigs and 4 newbuildings (Cat D). With a highly experienced management team, the Company s vision is to provide a flexible and reliable drilling service to its customers. The rig operations are run from Singapore, Limassol (Cyprus), Stavanger (Norway), Luanda (Angola) and Kuala Lumpur (Malaysia). 1

7 1.1.2 History and development The most significant events in the history of the Group can be summarized as follows: Year Event 2005 Company founded and listed on the Norwegian OTC list Songa Venus and Songa Mercur acquired from IPC Songa Saturn acquired from GlobalSantaFe 2006 Listed on Oslo Børs in January Songa Dee acquired from Stena Songa Venus and Songa Mercur underwent major refitting and upgrading in Singapore 2007 Songa Trym acquired from Odfjell Drilling 2008 Songa Delta acquired from Odfjell Drilling New corporate headquarters established in Limassol, Cyprus Converted to Societas Europaea, Songa Offshore SE 2009 Songa Offshore SE redomiciled to Cyprus 2010 USD 50million investment in Deepwater Driller Ltd, the owner of UDW rig Songa Eclipse. Songa Offshore holds a 31.25% stake Songa Saturn sold 2011 Increased ownership in Songa Eclipse to 100% Awarded 18 months contract plus 1 firm well for Songa Eclipse with Total E&P in Angola following delivery from Jurong in August Awarded contracts for two harsh midwater semi submersible rigs with Statoil on 8 year tenors, to be constructed at Daewoo Shipbuilding & Marine Engineering Co., Ltd. shipyard in South Korea 2012 Awarded contracts for two additional harsh midwater semi submersible rigs with Statoil on 8 year tenors, to be constructed at Daewoo Shipbuilding & Marine Engineering Co., Ltd. shipyard in South Korea Business description - overview The Group is currently operating 6 rigs and have 4 semisubmersible rigs to be constructed at the Daewoo Shipbuilding & Marine Engineering Co., Ltd ( DSME ) shipyard in South Korea. The Group has during 2011 secured many new contracts for its rigs, and has increased the order backlog during the last 12 months from USD 1.1 billion to USD 7.1 billion. It has been a strategy for the Group to secure long term contracts for a majority of the Group s rigs, and by that securing good earnings visibility. A more detailed business description of the Group is included in Section 8 Group overview. 1.2 The background and purpose of the Private Placement The Company resolved to carry out the Private Placement in order to ensure that the desired equity capital was raised in a timely and cost efficient manner. The net proceeds from the Private Placement, which amounted to approximately NOK 614 million, will be used for (i) capex and life enhancement of the rigs currently operating on the Norwegian Continental Shelf for Statoil (Dee, Trym and Delta), (ii) strengthen the Company s balance sheet and (iii) general corporate purposes. The Company intends to fund these purposes with the net proceeds from the Private Placement, 2

8 existing cash, cash generated from the operating business and existing loan facilities. The exact split for the use of proceeds from the Private Placement is thus not estimated. 1.3 The Private Placement On 19 April 2012, after close of trade on Oslo Børs, the Company publicly announced that it had engaged the Managers to advise on, and effect, the Private Placement through an over-night accelerated book built offering of Placement Shares directed towards existing shareholders and new investors, raising gross proceeds of up to the NOK equivalent of USD 110 million. The Private Placement was documented by an investor presentation, a term sheet and terms of application. The minimum order and allocation of Placement Shares in the Private Placement was set to the number of Placement Shares equal to an aggregate purchase price of the NOK equivalent of USD 500,000. The final price per Placement Share was to be determined based on, and following, the book-building process by the Company s board of directors (the Board of Directors or the Board ) in consultation with the Managers. Completion of the Private Placement was made conditional upon the Board of Directors making a resolution on the offer price and allocation of the Placement Shares in the Private Placement and the issuance of the allocated Placement Shares. Following close of the book-building period and prior to opening of trade on Oslo Børs on 20 April 2012, the Company publicly announced that the Private Placement was significantly oversubscribed and had raised gross proceeds of NOK 633 million (~USD 110 million), and that an allocation of 35,200,000 Placement Shares at a subscription price of NOK 18 per Placement Share had been made in respect of existing shareholders of the Company and new investors. The allocation of Placement Shares was determined by the Board of Directors, in consultation with the Managers, based on customary allocation criteria such as the investors relative shareholding in the Company, the size of the order, the investor quality, timeliness of the order and applicable selling restrictions in the Private Placement. To facilitate prompt delivery of the allocated Placement Shares versus payment for the same on the payment date 25 April 2012, investors in the Private Placement other than Spencer Trading Inc and Perestroika AS with affiliated and related parties (including Frank Mohn AS and Fredrik Wilhelm Mohn) (the Major Investors ) received already listed secondary Shares made available to the Managers by Spencer Energy AS (the Lender ) pursuant to a share lending agreement, in lieu of the Placement Shares to be issued. Consequently, all allocated Shares in the Private Placement other than the Shares allocated to the Major Investors were tradable on Oslo Børs at the time of delivery to the investors. Thereafter, on 26 April 2012, the borrowed Shares were re-delivered to the Lender, and the Placement Shares allocated to the Major Investors were delivered, in the form of the Placement Shares issued pursuant to the resolution by the Board of Directors pertaining to the Private Placement described in Section 6.2 Resolution regarding the Private Placement. Pending the publication of this Prospectus pursuant to which the Placement Shares will be listed, the Placement Shares were issued and registered under a separate International Securities Identification Number ( ISIN ) to ensure that they could not be traded on Oslo Børs. 1.4 Summary of financial information The selected condensed financial data in this Prospectus should be read in conjunction with the relevant condensed financial statements and the notes to those statements which are incorporated into this Prospectus by reference. The selected financial data presented in this Section has been derived from the audited consolidated financial statements of the Group for the year ended 31 December 2011, 2010 and 2009, based on International Financial Reporting Standards ( IFRS ) as 3

9 adopted by the European Union (the EU ), and its unaudited consolidated financial statements for the three months ended 31 March 2012 and Condensed consolidated statement of comprehensive income the Group The table below summarizes the condensed consolidated statement of comprehensive income for the Group for the three months ended 31 March 2012 and 2011 and the years ended 31 December 2011, 2010 and See Section 11.1 Comments to the financial statements for more detailed financial information. IFRS, in USD Q Q (restated) (unaudited) (unaudited) (audited) (audited) (undited) Total revenues 133, , , , ,682 Operating Expenses (73,947) (71,542) (283,911) (327,846) (276,273) Reimbursable expense (1,178) (2,605) (5,195) (6,001) (37,361) General and administrative expenses (13,947) (14,171) (44,610) (47,404) (47,846) Other gain and loss (4,114) (1,650) , Depreciation and amortization (26,411) (24,141) (95,277) (101,649) (87,000) Finance income Finance cost (2,345) (5,335) (11,752) (36,184) (52,214) Profit (loss) before tax 11,796 27,122 82, , ,338 Income tax credit (charge) (501) 1,984 41,820 (1,672) (24,628) Profit 11,295 25, , , ,710 Cashflow hedge 3,992 - (13,191) - - Total comprehensive income 15,287 25, , , , Condensed consolidated statement of financial position the Group The table below summarizes the condensed consolidated statement of financial position for the Group for the three months ended 31 March 2012 and 2011 and the years ended 31 December 2011, 2010 and IFRS (USD '000) 2012 Q Q (unaudited) (unaudited) (audited) Restated (audited) (audited) 1 In fourth quarter of 2011 the Company has revised and updated the process connected to foreign currency transactions in the Group. As part of this, currency adjustments made in the past was reviewed. Based on this review it is the Company s assessment that an unrealised gain on currency of USD 16.8 million in 2010 need to be amended, due to incorrect application of currency adjustments. This element had a negative effect on the profit for the year 2010 of USD 16.8 million, with a corresponding adjustment on equity in 31 December The 2010 financial statements have been restated to reflect this change. 4

10 ASSETS Non-current assets Rigs, machinery and equipment 2,128,491 1,607,215 2,092,286 1,180,684 1,410,312 Deferred tax assets 102,916 59, ,916 59,142 46,722 Investment in associates - 50,000 Total non-current assets 2,231,407 1,666,357 2,195,202 1,289,826 1,457,034 Current assets Assets available for sale 3,504 4,280 3,328 4,368 - Trade and other receivables 87, ,257 60,910 99, ,404 Prepayments 5,042 3,007 6,730 4,130 4,658 Earned revenue 14, ,970 1,385 13,019 Other assets 95,897 34,533 90,980 15,227 28,240 Cash and cash equivalents 31, ,569 80, ,015 68,842 Total current assets 236, , , , ,163 TOTAL ASSETS 2,468,194 1,943,103 2,442,518 1,546,785 1,720,196 IFRS (USD '000) 2012 Q1 (unaudited) 2011 Q1 (unaudited) 2011 (audited) Restated (audited) (audited) EQUITY AND LIABILITIES Capital and reserves Issued capital 26,075 26,075 26,075 26,075 21,476 Share premium 371, , , , ,118 Reserves 15,585 15,585 15,585 15,585 15,585 Other equity 755, , , , ,348 Total equity 1,168,975 1,084,366 1,153,688 1,042, ,527 Non-current liabilities Bank loan 783, , , , ,639 Bond loans 235,048 47, ,264 47,508 87,488 Derivative financial 5,840-18, instruments Other long term liabilities 3,757 9,376 4,038 6,650 2,933 Total non-current liabilities 1,028, ,411 1,022, , ,060 Current liabilities Liability to non 87, controlling interest Bank loans 49,411 73,600 49,411 73, ,466 Bond loans 59,087-47,

11 IFRS (USD '000) Other short term interest bearing debt Trade and other payables 2012 Q1 (unaudited) 2011 Q1 (unaudited) 2011 (audited) Restated (audited) (audited) - 283, ,416 17,939 43,332 19,570 25,688 Tax payable 12,568 17,384 12,515 21,321 35,424 Derivative financial instruments Net deferred revenues 2,828 8,142 4,066 9,287 10,938 4,563 4,878 4,599 5,602 9,546 Other liabilities 90,743 39, ,602 32,209 37,548 Total current liabilities 270, , , , ,610 Total liabilities 1,299, ,736 1,288, ,384 1,011,670 TOTAL EQUITY AND LIABILITIES 2,468,194 1,943,102 2,442,518 1,546,785 1,720, Condensed consolidated statement of changes in equity the Group The table below summarizes the condensed consolidated statement of changes in equity for the Group for the three months ended 31 March 2012 and 2011 and the years ended 31 December 2011, 2010 and Amounts in USD '000 Share capital Share premium Equity-settled employee benefits reserve Recognition of convertible bond Hedging reserve Other equity Total equity Balance as at 1 January , ,496 15,585 20, , ,289 Adjustments recognized directly to equity (7) (7) Total comprehensive income for the period , ,710 Issue of share capital 4, , ,994 Cost of share issuance - (2,526) (2,526) Derecognition of convertible bond (20,815) - 18,882 (1,933) Balance as at 21,466 15, , , December 2009 (audited) 230,118 Balance as at 1 January , ,118 15, , ,527 Total comprehensive income for the period , ,830 6

12 Amounts in USD '000 Share capital Share premium Equity-settled employee benefits reserve Recognition of convertible bond Hedging reserve Other equity Total equity Issue of share capital 4, , ,574 Cost of share issuance - (4,531) (4,531) Balance as at 31 December 2010 Restated (audited) 26, ,564 15, ,177 1,042,401 Balance as at 1 January , ,564 15, ,177 1,042,401 Profit of the year , ,478 Other comprehensive income (13,191) (13,191) Balance as at 31 December 2011(audited) 26, ,564 15,585 (13,191) 753,655 1,153,688 Balance as at 1 January , ,564 15, ,177 1,042,401 Total comprehensive income for the year ,138 25,138 Balance as at 31 March 2011 (unaudited) 26, ,564 15, ,315 1,067,539 Balance as at 1 January , ,564 15,585 (13,191) 753,655 1,153,688 Profit of the year ,295 11,295 Other comprehensive income Previous year adjustment ,992 3,992 Balance as at 31 March 2012 (unaudited) 26, ,564 15,585 (9,199) 764,950 1,168, Condensed consolidated statement of cash flow the Group The table below summarizes the condensed consolidated cash flow statement for the Group for the three months ended 31 March 2012 and 2011 and the years ended 31 December 2011, 2010 and (USD '000) 2012 Q Q (unaudited) (unaudited) (audited) Restated (audited) (audited) Cash flows from operating activities: Profit before tax 11,796 27,122 82, , ,338 Adjustment for: Depreciation 26,411 24,242 95, ,649 87,000 7

13 (USD '000) 2012 Q Q (unaudited) (unaudited) (audited) Restated (audited) (audited) Cost of option plans 422 1,709 (4,209) 4,125 2,954 Finance costs 2,345 5,335 11,752 36,184 52,214 Other gain and loss 4,114 1,650 (358) (58 048) (19,064) Movements in working capital: Change in receivables (38,527) (2,493) (43,013) 52,549 (121,830) Change in payables 8,084 (1,631) 23,762 (6,118) 15,294 Change in other liabilities (14,842) 3,010 35,519 (5,298) 23,771 Cash generated from operations (197) 58, , , ,677 Urealized exchange differences Taxes paid - (794) (1,004) (25,332) (15,860) Interest and fees paid (9,908) (6,448) (44,472) (41,331) (50,926) Cash effect from other gains and losses (1,391) 3,635 (5,927) (7,416) 8,485 Net cash generated by operating activities (11,496) 55, , , ,376 Cash used in investing activities: Purchase of property, plant and equipment (48,796) (16,335) (830,438) (81,042) (94,115) Proceeds from sale of property, plant and equipment , Investment in other companies, net of cash acquired (26,130) (91,130) (50,000) Net cash used in investing activities (48,796) (42,465) (921,568) 151,300 (94,059) Cash generated by financing activities: Proceeds from issue of share capital net of share issance cost Proceeds from issue of bonds and new bank loan raised Proceeds from share issue to non controlling interest Repayment of bonds and bank loans Net cash used/generated in financing activities ,044 64,468 50, , ,120 21,800-6,738 13,474 - (38,939) (18,955) (194,706) (932,757) (249,244) 11,061 (12,217) 719,966 (328,593) (162,976) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December (49,231) 554 (51,617) 63,173 10,341 80, , ,015 68,842 58,501 31, ,569 80, ,015 68,842 8

14 1.5 Summary of capitalization and indebtedness Capitalization The following table sets forth information about the Group s unaudited consolidated capitalization as of 31 March 2012 and adjusted to reflect if the below-mentioned material changes had been in place as at that time for comparative purposes. As of 31 March 2012 Adjustments 1 As adjusted (In USD 000) (unaudited) (unaudited) (unaudited) Indebtedness Current debt Guaranteed 23,529-23,529 Secured 25,882-25,882 Unguaranteed/unsecured 59,087-18,000 41,087 Other current liabilities 162, ,118 Total current debt 270,616-18, ,616 Non-current debt (excl. current portion of long-term debt) Guaranteed 1 25,882-6,000 19,882 Secured 758, , ,076 Unguaranteed/unsecured 235, , ,048 Other non-current liabilities 9,597-9,597 Total non-current debt 1,028, ,000 1,252,603 Total indebtedness (a) 1,299, ,000 1,505,219 Shareholders equity Issued capital 26, , ,075 Share premium 371, ,564 Reserves 15,585-15,585 Other equity 755, ,751 Total equity (b) 1,168, ,000 1,278,975 Total capitalization (a+b) 2,468, ,000 2,784,194 1) All bank loans are secured, and certain parts of the bank facilities are also guaranteed, shown on separate line. A part of the USD 951 million bank loan facility is guaranteed by Eksportfinans and Garanti Instituttet for Eksportkreditt, GIEK. The bank facility in the principal amount of USD 50 million is 100% guaranteed by the subsidiaries Songa Equinox Ltd. and Songa Endurance Ltd., the rig owning companies of the newbuilds Cat-D 1 and Cat-D 2. The adjustment of USD 18 million in Total current debt is derived from payment of interest of USD 12 million relating to the NOK bond issued in November 2011 and a buyback of bonds maturing in June 2012 in the total amount of USD 6 million including interest. The adjustment of USD 224 million in Total non-current debt originates from repayment of debt relating to the Eclipse bank loan facility, USD 12 million, the establishment of a bank facility with Statoil, amounting to USD 111 million, used in downpayment of the first yard instalment of CAT-D 3 and bond issue of NOK 750 million USD ~125 million. Total adjustments relating to Total indebtedness (a) is in the amount of USD 206 million. The adjustment of USD 110 million in Total equity (b) relates to a private placement of 32,500,000 new shares. In total the capitalization (a+b) is adjusted with USD 316 million since 31 March 2012.The Group monitors and manages the 9

15 financial risks related to the operations of the Group through internal reports and analysis. The Group is exposed to various risks such as market risk (including currency risk, fair value interest rate risk, and price risk), credit risk, liquidity risk and cash flow interest rate risk. This is outlined further in note 5 financial instruments in the annual report for Indebtedness The following table sets forth information about the Group s unaudited consolidated net indebtedness as of 31 March 2012 and adjusted to reflect if the below-mentioned material changes had been in place as at that time for comparative purposes. As of 31 March 2012 Adjustments As adjusted (In USD 000) (unaudited) (unaudited) (unaudited) Net indebtedness (A) Cash 31, , ,167 (B) Cash equivalents 3,504-3,504 (C) Trading securities (D) Liquidity (A) + (B) + (C) 34, , ,671 (E) Current financial receivables (F) Current bank debt 49,411-49,411 (G) Current portion of long-term debt 59,087-18,000 41,087 (H) Other current financial debt 2,828-2,828 (I) Current financial debt (F) + (G) + (H) 111,326-18,000 93,326 (J) Net current financial indebtedness (I) - (E) - (D) 76, , ,345 (K) Non-current bank loans 783,958-12, ,958 (L) Bonds issued 235, , ,048 (M) Other non-current loans 5, , ,840 (N) Non-current financial indebtedness (K) + (L) + (M) 1,024, ,000 1,248,846 (O) Net financial indebtedness (J) + (N) 1,101,501-29,000 1,072,501 The Cash (A) is adjusted with USD 235 million relating to cash received from the private placement of 32,500,000 new shares amounting to USD 110 million, and cash received from bond issuance of NOK 750 million~ USD 125 million, cf. Bonds issued (L). The current portion of long-term debt (G) is adjusted with USD 18 million derived from payment of interest of USD 12 million relating to the NOK bond issued in November 2011 and a buyback of bonds maturing in June 2012 in the total amount of USD 6 million including interest. Net current financial indebtedness (J) is therefore adjusted with USD 253 million. Non-current bank loans (K) is adjusted with USD 12 million relating to repayment of the Eclipse bank loan facility. The adjustment of Other non-current loans (M) relates to the loan agreement with Statoil of USD 111 million to be used in paying down the first instalment in the CAT-D 3 rig. Net financial indebtedness (O) is thus adjusted with USD 29 million after 31 March The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to stakeholders through the optimization of the debt and equity balance. The Group has been through two years with the strategy of increasing the gearing ratio and has increased the gearing ratio from 2010 to 2011 from 21% to 47%. Borrowings are disclosed in note 22 in the annual report for The increased gearing can mainly be 10

16 explained by bond and bank loan financing raised in connection with the Group s acquisition of the rig Songa Eclipse and the first installments on Cat - D1 and Cat - D2. Going forward the Group will monitor the gearing ratio closely and will in potential investment opportunities aim to optimize the gearing ratio seen in combination with the risks involved for any investments. Further information relating to indebtedness and capital structure is disclosed in note 5 in the annual report for Significant changes in the Group s financial or trading position since 31 March 2012 Other than set out below, there has been no significant change in the Group s financial or trading positions since 31 March 2012: On 20 April 2012, the Company completed the Private Placement of 35,200,000 Placement Shares directed towards existing shareholders and new investors. The substantially over-subscribed Private Placement was made at a price of NOK 18 per Placement Share, and the capital increase represents approximately 21% of the outstanding Shares in the Company pre the Private Placement. The gross proceeds from the Private Placement amounts to NOK 633 million (USD 110 million) and the share issuance expense is USD 3.25 million. The net proceeds from the Private Placement, which amounts to approximately NOK 614 million, will be used for (i) capex and life enhancement of the rigs currently operating on the Norwegian Continental Shelf for Statoil (Dee, Trym and Delta), (ii) strengthen the Company s balance sheet and (iii) general corporate purposes. The Company intends to fund these purposes with the net proceeds from the Private Placement, existing cash, cash generated from the operating business and existing loan facilities. The exact split for the use of proceeds from the Private Placement is thus not estimated. At the same time, to cater for the extensive capital expenditures undertaken on Dee, Trym and Delta during 2012 and to reflect the extended residual life of these units post completion, an amended amortization profile on the existing bank facility (excluding Eclipse) was agreed with the syndicate banks. As part of the amendment, the Group will not amortize this debt for the next four quarters and the amount USD 26.5 million per quarter will be distributed and added to the quarterly amortization payments over the residual life of the facility, which matures in October Statoil has granted Songa Offshore a pre-delivery financing for the 20% down payment for the last two Cat-D rigs to be build at DSME shipyard in South Korea. The loan is based on standard market terms and matures by the delivery of the rigs. The first draw down on the facility was made in June 2012, with USD 111 million. 1.7 Directors, management and employees The Board of Directors The Company s Board of Directors consists of Jens Wilhelmsen (Chairman), Arne Blystad (Board member), Nancy Ch. Erotocritou (Board member) and Erik Østbye (Board member) Management The Company s management (the Management ) consists of Asbjørn Vavik (Chief Executive Officer), Geir Karlsen (Chief Financing Officer) and Trond Christensen (Chief Operating Officer) Employees As of the date of this Prospectus, the Group has 478 employees in total. 11

17 1.8 Shares and Articles of Association As of the date of this Prospectus, Songa Offshore s authorised share capital is EUR 36,872,000 divided into 335,200,000 shares of nominal value EUR 0.11 each and the issued share capital is EUR 22,320, divided into 202,912,544 Shares of nominal value EUR 0.11 each. All the Shares are authorized, issued and fully paid up. The Shares (other than the Placement Shares) are registered in the Norwegian Central Securities Depository (the VPS ) with ISIN CY and listed under the ticker code SONG. The Placement Shares are registered with a separate ISIN CY , pending publication of this Prospectus. All Shares are vested with equal shareholder rights in all respects. The Company s articles of association (the Articles of Association ) do not contain any provisions imposing limitations on the ownership or the tradability of the Shares. The Articles of Association are included in Appendix 1 to this Prospectus. 1.9 Major shareholders As of 26 June 2012, Songa Offshore had a total of 4,022 registered shareholders in the VPS. The 20 largest shareholders in Songa Offshore registered in the VPS on 26 June 2012 were: No. Shareholder No. of shares % Type Country 1 PERESTROIKA AS 27,271, NOR 2 SPENCER ENERGY AS HAAKON VII 26,758, NOR 3 FRANK MOHN A/S AKSJER 9,919, NOR 4 SEB ENSKILDA ASA EGENHANDELSKONTO 5,616, NOR 5 JPMORGAN CHASE BANK SPECIAL TREATY LENDI 4,567, NOM GBR 6 VERDIPAPIRFONDET DNB 4,441, NOR 7 FONDSFINANS SPAR 4,075, NOR 8 Citibank NA New York S/A DFA-INTL SML CAP 3,656, NOM USA 9 VARMA MUTAL PENSION COMPANY 2,850, FIN 10 NORDEA SECURITIES AB CLIENTS ACCOUNT 2,844, NOM SWE 11 MOHN FREDERIK WILHELM 2,200, NOR 12 NORDEA BANK NORGE AS SECURITIES OPERATION 2,037, NOR 13 SIX SIS AG ACCOUNT 2 1,978, NOM CHE 14 DEUTSCHE BANK AG LON S/A PRIME BROKERAGE 1,976, NOM CYM 15 SKANDINAVISKE ENSKIL A/C SEC FIN 1,963, NOM SWE 16 DNB NOR SMB VPF 1,893, NOR 17 STATE STREET BANK AN A/C CLIENT OMNIBUS F 1,856, NOM USA 18 SHB STOCKHOLM CLIENT C/O HANDELSBANKEN AS 1,829, NOM SWE 19 VPF NORDEA KAPITAL C/O JPMORGAN EUROPE 1,707, NOR 20 SPESIALF KLP ALFA GL 1,600, NOR TOP ,045, Others... 91,867, TOTAL ,912, % See Section 12.4 Major shareholders for more detailed shareholder information Related party transactions All transactions with close associates have been carried out at arm s-length prices, are settled on a regular basis and are otherwise effected in accordance with applicable law. See Section 15.1 Related party transactions for further information. 12

18 1.11 Research and development and patents The Group does not carry out any research or development activities nor does it have any intellectual property or patents. The Group does not hold any material research or development patents Trend information and other factors that may affect the operations of the Company The Group has not experienced any significant trends that are significant to the Group after 31 March The Company is not aware of any trend, commitment, event or uncertainty that is reasonably expected to have a material effect on the Group s business for at least the current financial year. There are, however, many uncertainties inherent in the offshore drilling business and operations in foreign countries that could have material adverse effects on the Group s business. The Group took delivery of the ultra deepwater semisubmersible rig Songa Eclipse in 2011, and is currently working in both the midwater segment as well as the ultra deepwater segment. The market for ultra deepwater rigs has developed positively during the last 12 months, and the outlook for this segment looks promising. The Group sees the investment in this segment as attractive and should with this rig be well positioned to take part in the promising outlook for this segment. The expectations were high at the start of 2011 and there was an increase in bidding activity during the year. This led to new contracts for the Group s rigs in the North Sea, and the 3 rigs are currently contracted for the next 3 to 5 years. The Group will try to benefit from the strengthening of the South East Asia market, and endeavours to secure mid- to long term contract for the two rigs which it has in operation in this market. The Board of Directors does not expect any major changes in the principal activities of the Group in the foreseeable future Summary of risk factors A number of risk factors may have a material adverse effect on the Group, as well as on the trading value of the Shares. Below is a brief summary of the risk factors described in Section 2 Risk factors Risks relating to the market in which the Group operates - Oil and gas prices - Oversupply of drilling units in the industry - Reliance on customers and third parties - Regulations governing operations - Geopolitical risks - Risk of war, other armed conflicts and terrorist attacks - Market volatility 13

19 Risks factors relating to the Group and its business - Project risk - Insurance and uninsured risk - Vessel operation - Charter risks - Construction risk - Risk of accidents - Service life and technical risk - Unexpected repair costs - Key personnel for operations and profitability Risks relating to the Group s financial situation - The Group has a significant amount of third party indebtedness - The Group has exposure for financial covenants - Market risk management - Foreign currency risk management - Interest rate risk management - Credit risk management - Availablity of funding - Borrowing and leverage - Value of the drilling units and market rates - Redomiciliation to Cyprus in 2009 Exit tax Risks factors relating to the Shares - The market price of the Shares may fluctuate significantly in response to a number of factors - Future sales of Shares by the Company s major shareholder or any of its primary insiders may depress the price of the Shares - Liquidity of the Shares - Shareholders may not be able to exercise their voting rights for Shares registered in a nominee account - Dilution - Limitations on the ability to make claims against the Company - The Company s investors outside of Norway are subject to exchange rate risk 14

20 1.14 Advisors and auditor Arctic Securities ASA, Nordea Markets (a part of Nordea Bank Norge ASA), Pareto Securities AS and SEB Enskilda AS (collectively, the Managers) have been retained as managers for the Company in connection with the Private Placement and the Listing. Advokatfirmaet Thommessen AS (Norwegian law) and Harneys (Cyprus law) are acting as legal advisors to the Company in relation to the Private Placement and the Listing. The Company s auditor is PriceWaterhouseCoopers Limited, organization number , with registered business address at City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus Documents on display Copies of the following documents will be available for inspection at Songa Offshore s registered office during normal business hours on Monday to Friday each week (except for public holidays) for a period of 12 months from the date of this Prospectus: the memorandum of association of the Company (the Memorandum of Association ); the Articles of Association of the Company; all reports, letters, and other documents, historical financial information, valuations and statements prepared by any expert at the Company s request any part of which is included or referred to in the Prospectus; and the historical financial information of the Company and its subsidiaries for each of the three financial years preceding the publication of this Prospectus. Copies of this Prospectus may also be obtained from the Managers during the same 12 months period. 15

21 2 RISK FACTORS Investing in the Shares involves inherent risks. Before deciding whether or not to invest in the Shares, a prospective investor should consider carefully all of the information set forth in this Prospectus, and in particular, the specific risk factors set out below, being the material risk factors presently known by the Company. An investment in the Shares is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment. If any of the risks described below materialize, individually or together with other circumstances, they may have a material adverse effect on the Group s business, financial condition, results of operations and/or cash flow, which may cause a decline in the value and trading price of the Shares that could result in a loss of all or part of any investment in the Shares. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. 2.1 Risks relating to the market in which the Group operates Oil and gas prices The profitability and cash flow of the Group s operations will depend upon the market price of oil and gas, which in turn is affected by numerous factors beyond the Group s control, including, but not limited to, economic and political conditions, levels of supply and demand, the policies of the Organization of Petroleum Exporting Countries ( OPEC ), currency exchange rates and the availability of alternate fuel sources. Oil and gas commodity prices have been high and have therefore increased the cost of oilfield goods and services worldwide and in the countries in which the Group operates. The impact on the Group s business following a substantial decrease in oil prices could be a delay in activity because of oil companies cutting its investments, which could lead to a lower utilization of rigs. Oil companies are expecting strong growth in E&P investments going forward. E&P companies capex growth year over year is estimated to 12% for 2012, based on surveys from Schlumberger and Citigroup. In any event, higher or lower commodity demand and prices do not necessarily translate into increased or decreased drilling activity since the customers project development time, reserve replacement needs, as well as expectations of future commodity demand and prices, all combine to drive demand for the services of the Group. Each of these factors could have a material adverse effect on the Group s results of operations and profitability Oversupply of drilling units in the industry The supply of drilling units in the industry is affected by, inter alia, assessments of the demand for these units by oil and drilling companies. Any over-estimation of demand for drilling units may result in an excess supply of new drilling units. During prior periods of high utilization and dayrates, industry participants have increased the supply of rigs by ordering the construction of new units. This has often created an oversupply of rigs and has caused a decline in utilization and dayrates when the rigs enter the market, sometimes for extended periods of time as rigs have been absorbed into the active fleet. The industry is currently witnessing a new building cycle, which is expected to result in 15 new rigs being delivered through While most of the rigs being built are in the ultra-deepwater segment, the midwater segment, which already has a worldwide count of 120 rigs, is expected to see 2 new units entering the market through 2012 (Source: Pareto, Dec 2011). Rigs that are cold-stacked (i.e., containing minimal crew with limited or no scheduled maintenance being performed) may re-enter the market. The entry into service of newly 16

22 constructed, upgraded or reactivated units will increase marketed supply and could reduce, or curtail a strengthening of, dayrates in the affected markets as rigs are absorbed into the active fleet. Any further increase in construction of new rigs may negatively affect utilization rates and dayrates. In addition, the new construction of high specification rigs, as well as changes in the drilling rig fleets of the Group s competitors, could require the Group to make material additional capital investments to keep its rig fleet competitive. Excess supply could result, when existing contracts expire or are otherwise terminated, in lower contract rates, which could have a material adverse effect on the business and results of operations of the Group Reliance on customers and third parties The Group provides offshore drilling services to a customer base that includes major integrated oil and natural gas companies, state-owned national oil and natural gas companies and independent oil and natural gas companies. As of 31 March 2012, the three largest customers (Statoil, Wintershall and Petronas) in aggregate accounted for 99.6% of the consolidated operating revenues of the Group. As of 1 May 2012, the three largest customers (Statoil, Total and Petronas) represented 100% of the contract revenue backlog of the Group. While it is expected that Statoil and Total will continue to be significant customers going forward, there can be no assurance that this will be the case. While it is normal for the Group s customer base to change over time as work programs are completed, the loss of any major customer may have a material adverse effect on the financial position, results of operations and/or cash flows of the Group. For historical reasons, the Group has entered into lease and management agreements with an affiliate of Odfjell Drilling with respect to the drilling operations of Songa Delta and Songa Trym under their contracts with Wintershall, Det norske oljeselskap and Statoil, respectively. Accordingly, the Group is dependent on Odfjell Drilling for performing drilling operations on Songa Delta and Songa Trym. The inability or failure of Odfjell Drilling to satisfy its obligations under the lease and management agreements and the contracts with Wintershall, Det Norske Oljeselskap and Statoil could have an adverse impact on the reputation of the Group, which in turn could have an adverse impact on its business and operations. However, the Group will take over the full operational responsibility of Songa Trym and Songa Delta upon the expiry of the Odfjell management contracts in summer The Group relies on third parties to perform certain services to be provided to its customers, including maintenance operations and catering services. A failure by one or more of these third parties to satisfactorily provide, on a timely basis, the agreed upon services may have an adverse impact on the Group s ability to perform its obligations under drilling contracts. Such performance deficiencies could expose the Group to liability and have a material adverse effect on the ability to compete for future drilling contracts. These risks and uncertainties could result in reduced revenue or, in some cases, significant losses for the Group, which would have a material adverse effect on the Group s financial position and/or results of operations Regulations governing operations As the Group conducts operations in a variety of jurisdictions, it is subject to regulatory risks in multiple jurisdictions, and applicable laws and regulations could change, including on short notice, or be subject to changing interpretations. Changes in applicable laws or regulations or in the interpretation or enforcement of such laws or regulations could require the Group to modify the manner in which it operates, increase the costs to the Group of its operations, require the Group to make significant capital expenditures or to curtail aspects of its operations. Any of the foregoing could have a material adverse effect on the Group s financial condition and results of operations. 17

23 2.1.5 Geopolitical risks There are risks inherent in doing business internationally. These include unexpected changes in regulatory requirements, difficulties in staffing and managing foreign operations, social and political instability, fluctuations in currency exchange rates, potentially adverse tax consequences, legal uncertainties regarding liability and enforcement, and changes in local laws and controls on the repatriation of capital or profits. Any of these risks could materially affect the Group s overseas operations and, consequently, the financial position and profit of the Group Risk of war, other armed conflicts and terrorist attacks War, military tension and terrorist attacks have among other things caused instability in the world s financial and commercial markets. This has in turn significantly increased political and economic instability in some of the geographic markets in which the Group operates (or may operate in the future), and has contributed to high levels of volatility in prices for among other things oil and gas. In addition, acts of terrorism and threats of armed conflicts in or around various areas in which the Group operates (or may operate in the future), and piracy or assaults on property or personnel, kidnapping of personnel and changing political conditions could limit or disrupt the Group s markets and operations, including by causing disruptions of oil exploration and production activities, loss, arrest or requisitioning of the fleet, loss or evacuation of personnel, cancellation of contracts, restriction of the movement and exchange of funds or limitation of the Group s access to markets for periods of time. Armed conflicts, terrorism and their effects on the Company, the Group or its markets may have a significant adverse affect on the Group s business and results of operations in the future Market volatility The world s principal financial markets have experienced extreme volatility and disruption for more than three years, due in large part to the turmoil affecting the liquidity of the banking system and the market reaction thereto. The impact of the turmoil in the financial markets has been exacerbated by adverse macro-economic trends affecting an increasing number of the principal economies that have moved toward, or are now in, recession. These adverse market conditions have led to, and could lead to further, significant trading losses and write-downs by banks and other financial institutions. In the face of severe constraints on the availability of credit, potential or actual failures of major financial institutions, severe declines in the market capitalization of financial institutions, the virtual disappearance of the securitization markets and increasing levels of foreclosures and corporate defaults, governments in a number of countries have undertaken initiatives to stabilize the financial markets. In the meantime, such market conditions have had, and may continue to have, various consequences, including material effects on interest rates and foreign exchange rates, which also impact liquidity and volatility. Failure of government and other initiatives to stabilize and improve the performance of the financial markets could result in continued constraints on the liquidity available to the economy. It is unclear whether the severity of the downturn in the global financial markets and/or economic conditions will continue to worsen, or when conditions might improve. It is difficult for the Group to predict what the impact of continued market turbulence will be on the Group from a general business perspective or from a capital or liquidity perspective. The current credit crisis could affect lenders participating in the Group s credit facilities, making them unable to fulfill their commitments and obligations to the Group. Any reductions in drilling activity owing to such conditions or failure by the Group s customers, suppliers or lenders to meet 18

24 their contractual obligations to the Group could adversely affect its financial position, results of operations and/or cash flows. 2.2 Risks factors relating to the Group and its business Project risk It is customary in the business in which the Group operates that all contracts are charter related, e.g. structured as time charters or bareboat charters. The rationale for this is that oil service companies provide a service where the schedule and scope of work is controlled and ultimately directed by its customers. In some instances market participants may accept fixed prices for certain components of the overall contract work scope. Such instances include mobilization and demobilization of a unit to/from a worksite, and the conversion/upgrade of units to meet specific requirements as may be required for a specific project. The Group s corporate policy is to seek to mitigate project risk at all times by having a strict policy on termination risk, breakdown risk, off-hire situations, force majeure risk etc. However, there can be made no assurance that the Group will be able to sufficiently mitigate these project risks Insurance and uninsured risk Operational risks can inter alia cause personal injury, the loss of a unit, operational disruption, off hire and termination of contract. In order to mitigate these risks, the Group has instigated an insurance program in line with market practice, and additional insurance is always considered when a specific project is considered to be of a high risk nature. However, there can be no assurance that potential damages or claims towards the Company or the Group will be covered by the Group s insurance program. There can be no assurance that the Group will continue to carry the insurance it currently maintains. The Group may also be unable to maintain insurance to cover some of these risks at economically feasible premiums. Pollution and environmental risks generally are not fully insurable, and the Group does not typically retain loss-of-hire insurance policies to cover its rigs. The Group s insurance policies and contractual rights to indemnity may not adequately cover the Group s losses, or may have exclusions of coverage for some losses. The Group does not have insurance coverage or rights to indemnity for all risks, including, among other things, liability risk for certain amounts of excess coverage and certain physical damage risk. If a significant accident or other event occurs which is not fully covered by insurance or contractual indemnity, it could adversely affect the financial position, results of operations and cash flows of the Group Vessel operation The Group s fleet is exposed to operational risks associated with offshore operations such as breakdown, bad weather, technical problems, force majeure situations (e.g. nationwide strikes), collisions, grounding and similar events, which may have a material adverse effect on the earnings and value of the Group. Part of the strategy of the Group contemplates acquiring rigs in order to expand its fleet to rigs in the long term. There are various risks associated with such acquisitions, including, but not limited to, identifying suitable rigs, procuring the financing necessary for such acquisitions on favorable terms and incurring costs related to making the rigs operational. Some or all of these factors may be beyond the control of the Group. If the Group is unable to identify suitable rigs, procure financing for such acquisitions on favorable terms or at all, or finance the operation of the acquired rigs, its fleet expansion strategy would be adversely affected. The offshore contract drilling industry is generally divided into four broad markets: shallow water (up to 400 feet), 19

25 midwater (400 3,000 feet), deepwater (3,001 7,500 feet) and ultra-deepwater (7,501 12,000 feet). These broad markets are generally divided into smaller sub-markets based upon various factors, including type of drilling rig. The primary types of drilling rigs include jack-up rigs, semisubmersible rigs, drill ships, platform rigs, barge rigs and submersible rigs. While the market for drilling services is affected by general economic and industry conditions, each type of drilling rig can be affected differently by changes in demand for drilling services. The Group currently has five midwater semi-submersible rigs and one deepwater semi-submersible rig. The drilling fleet of the Group is therefore heavily concentrated in the semi-submersible rig market. If demand for semisubmersible rigs were to decline relative to demand for other drilling rig types, the operating results of the Group could be more adversely affected relative to its competitors with drilling fleets that are less concentrated in semi-submersible rigs. Moreover, as the Group s fleet is configured to operate in the midwater segment, a reduction in demand for mid-water drilling would have an adverse effect on the Group. It would also be adversely affected by a reduction in demand for deep-water drilling, as some rigs configured for the deep-water segment (typically those equipped with mooring systems) can also operate in the midwater segment, thereby increasing the number of rigs operating in the midwater segment. Some of the Group s competitors have semi-submersible rigs with generally higher specifications than those in the current fleet of the Group. While the Group does not believe that all higher specification rigs are suited to the midwater segment of the drilling industry, particularly during market downturns when there is decreased rig demand, some higher specification rigs may be more likely to compete with the Group s rigs in obtaining drilling contracts in the segment in which the Group operates. In addition, higher specification rigs may be more adaptable to different operating conditions and have greater flexibility to move to areas of demand in response to changes in market conditions. Furthermore, in recent years, an increasing amount of exploration and production expenditures have been concentrated in deeper water drilling programs and deeper formations, thereby requiring higher specification rigs. This trend is expected to continue and could result in a material decline in demand for the lower specification rigs in the Group s fleet. The Group is well positioned to meet this demand going forward, with one ultra-deepwater semisubmersible rig delivered, and four high-spec ed midwater semi-submersible rigs under construction Charter risks The Group provides its services on the basis of drilling contracts that are awarded through competitive bidding or to a lesser extent through direct negotiations with oil companies. These contracts typically have terms of between one and five years. The ability of the Group to renew contracts or obtain new contracts and the terms of any such contracts will depend, among other things, on market conditions, the specifications, suitability and deployment potential of its rigs, and the contractual terms, including dayrates, that the Group agrees to operate under. The Group may be unable to renew expiring contracts or obtain new contracts for its rigs under contracts that have expired or been terminated, and the dayrates under any new contracts may be substantially below existing dayrates, which could materially reduce the revenues and profitability of the Group. Currently, including the recently established 8 years contracts with Statoil for the four Cat D rigs, the contract revenue backlog is USD 7 billion for contracted future work. Options backlog as of February 2012 was USD 8.7 billion. The Company can provide no assurance that the Group will be able to perform under these contracts due to events beyond its control or that the Group will be able to ultimately execute a definitive agreement in cases where one does not currently exist. In addition, the Group can provide no assurance that its customers will be able to or willing to fulfill their contractual commitments to the Group. Its customers may seek to renegotiate or terminate drilling contracts for any number of reasons, some of which may be beyond the control of the 20

26 Group. The Group can provide no assurance that the contracts included in the contract revenue backlog will generate the specified revenues or that the specified revenues will in fact be generated during the periods indicated. The inability to perform under the Group s contractual obligations or to execute definitive agreements or its customers failure or inability to fulfill their contractual commitments to the Group may have a material adverse effect on the results of operations and cash flows of the Group. The duration of offshore drilling contracts is generally determined by customer requirements and, to a lesser extent, the respective management strategies of the offshore drilling contractors. In periods of rising demand for offshore rigs, contractors typically prefer shorter contracts that allow them to more quickly profit from increasing dayrates. In contrast, during these periods customers with reasonably definite drilling programs typically prefer longer-term contracts to maintain dayrate prices at a consistent level. Conversely, in periods of decreasing demand for offshore rigs, contractors generally prefer longer-term contracts, but often at flat or slightly lower dayrates, to preserve dayrates at existing levels and ensure utilization, while customers prefer shorter contracts that allow them to more quickly obtain the benefit of lower dayrates. To the extent possible within the scope of the requirements of the Group s customers, the Group seeks to have a foundation of long-term contracts with a reasonable balance of shorter-term exposure to the spot market in an attempt to maintain upside potential while endeavouring to limit the downside impact of a decline in the market. However, the Group can provide no assurance that it will be able to achieve or maintain such a balance from time to time. The inability to maintain such a balance could have a material adverse effect on the financial condition and results of operation of the Group. During depressed market conditions, a customer may no longer need a rig that is currently under contract or may be able to obtain a comparable rig at a lower dayrate. As a result, customers may seek to renegotiate the terms of their existing drilling contracts or avoid their obligations under those contracts. In addition, a customer that is the subject of a bankruptcy or other insolvency proceeding may elect to reject its drilling contracts. The likelihood that the Group s customers may seek to terminate a contract is increased during periods of market weakness. Drilling contracts customarily provide for automatic termination or termination at the option of the customer in the event of a total loss of the drilling rig and often include provisions addressing termination rights or reduction or cessation of dayrates if the rig is not delivered to the customer or, in certain circumstances, does not pass acceptance testing within the period specified in the contract, if operations are suspended or interrupted for extended periods due to breakdown of major rig equipment, in situations of unsatisfactory performance, specified safety-related issues, force majeure or other specified conditions, some of which may be beyond the control of the Group. Contracts may provide for standby rates and repair rates in circumstances where drilling operations are interrupted, with the former typically equivalent or substantially equivalent to the dayrate and the latter being limited in time. There may be disputes as to when one or the other of these rates become applicable. The Group could be required to pay penalties, which could be material, if some of its contracts with customers are terminated due to downtime, operational problems or failure to deliver. Some of the Group s drilling contracts may provide for termination at the option of the customer upon a specified period of notice and upon payment of a negotiated termination fee, which may not fully compensate the Group for the loss of the contract. Early termination of a contract may result in a rig being idle for an extended period of time. If the customers cancel some of the contracts and the Group is unable to secure new contracts on substantially similar terms, or at all, the revenues and profitability of the Group could be materially affected. 21

27 Currently, all of the Group s contracts with customers are dayrate contracts. While the Group plans to continue to perform services on a dayrate basis, market conditions may dictate that the Group enters into footage contracts (where the Group is paid a fixed amount for each foot drilled regardless of the time required or the problems encountered in drilling the well) or turnkey contracts (whereby the Group agrees to drill a well to a specific depth for a fixed price and bear some of the well equipment costs). These types of contracts are subject to greater risks than dayrate contracts as the Group would be subject to downhole geological conditions in the well that cannot always be accurately determined and subject the Group to greater risks associated with equipment and downhole tool failures. Unfavorable downhole geologic conditions and equipment and downhole tool failures may result in significant cost increases or may result in a decision to abandon a well project, which would result in the Group not being able to invoice revenues for providing services. The Group s financial condition, operating results and cash flows could be materially adversely affected by early termination of contracts, contract renegotiations or cessation of dayrates under any of the foregoing circumstances Construction risk The Group has been awarded four marine drilling contracts with Statoil for the Cat-D rigs. The rigs are currently under construction by Daewoo Shipbuilding & Marine Engineering Co., Ltd. in Korea. Although the construction contracts are entered into on a turnkey basis and on a back-to-back basis with respect to the specifications outlined by Statoil, the Group has taken on some interface risk and project management. There can be no assurances that delays and cost-overruns will not occur and such events, if occurring, could have a material adverse impact on the financial position and/or results of operations of the Group and could also lead to the cancellation of the marine drilling contracts with Statoil Risk of accidents Offshore drilling units may work in harsh environments. The Group s operations are subject to the usual hazards inherent in drilling for oil offshore, such as breakdowns of vessels, blowouts, reservoir damage, loss of production, loss of well control, punch-throughs, craterings, groundings, collisions, fires, adverse weather conditions and natural disasters such as cyclones, storms and hurricanes. The Group s operations are also subject to accidents, which could be caused by various factors, including human error, adverse weather conditions or faulty construction. The occurrence of any of these events could result in the suspension of drilling operations, damage to or destruction of the equipment involved and injury or death to rig personnel, damage to producing or potentially productive oil formations and environmental damage. Operations also may be suspended because of machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services or personnel shortages. In addition, offshore drilling operators are subject to perils peculiar to marine operations, including capsizing, grounding, collision and loss or damage from severe weather. Damage to the environment could also result from its operations, particularly through oil spillage, extensive uncontrolled fires or a spill, leak or accident involving other hazardous substances that are stored on a rig. The Group may also be subject to damage claims by oil and gas companies or other parties. An accident can have a material adverse effect on the Group s financial condition, and there can be no assurance that the Group will have sufficient insurance against such losses and/or expenses Service life and technical risk The service life of a rig and/or vessel is generally assumed to be more than 40 years, but will ultimately depend on its efficiency. There can be no assurance that the Group s drilling units will be successfully deployed for such period of time. Although the Group took delivery of one ultra- 22

28 deepwater semi-submersible in 2011, and has four high-spec ed midwater semi-submersible rigs under construction, the remaining rigs were all built in the 1970s and 1980s. The capital associated with the repair and maintenance of each rig increases with age. In addition, there may be technical and environmental risks associated with ageing rigs, including operational problems and regulatory requirements leading to unexpectedly high operating/maintenance costs and/or lost earnings, and which may have a material adverse effect on the financial position of the Group Unexpected repair costs The timing and costs of repairs on the Group s drilling units are difficult to predict with certainty and may be substantial. Many of these expenses, such as dry-docking and certain repairs for normal wear and tear, are typically not covered by insurance. Large repair expenses could decrease the Group s profits. In addition, repair time may imply a loss of revenue for the Group Key personnel for operations and profitability The Group s ability to continue to attract, retain and motivate key personnel, and other senior members of the management team and experienced personnel will have an impact on the Company s operations. The competition for such employees is intense, and the loss of the services of one or more of these individuals without adequate replacements or the inability to attract new qualified personnel at a reasonable cost could have a material adverse effect. 2.3 Risks relating the Group s financial situation The Group monitors and manages the financial risks related to the operations of the Group through internal reports and analysis. The Group is exposed to various risks such as market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group seeks to manage these risks by using derivative financial instruments when appropriate. The use of financial derivatives is monitored and approved by the Board of Directors. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes The Group has a significant amount of third party indebtedness The Group has a significant amount of third party indebtedness. A breach of the terms of the Group s loan agreements may cause the lenders to require repayment of the financing immediately and to enforce the security granted over substantially all of the Group s assets, including its rigs. If the Group s operating cash flows are not sufficient to meet its operating expenses and the debt payment obligations of the Group, the Group may be forced to do one or more of the following: (i) delay or reduce capital expenditures; (ii) sell certain of its assets; and/or (iii) forego business opportunities, including acquisitions and joint ventures The Group has exposure for financial covenants The Group s credit and borrowing facilities contain financial and other covenants. There can be no assurance that the Group will be able to meet all such covenants relating to current or future indebtedness contained in its funding agreements or that its lenders will extend waivers or amend terms to avoid any actual or anticipated breaches of such covenants. Failure to comply with its financial and other covenants may have an adverse affect on the Group s financial condition, and also potential increased financial costs, requirements for additional security or cancellation of loans Market risk management The Group s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates (see below). The Group enters into derivative financial 23

29 instruments to manage its exposure to interest rate and foreign currency risk, including but not limited to: forward exchange contracts to hedge the exchange rate risk arising on debt in foreign currency interest rate swaps to mitigate the risk of rising interest rates Foreign currency risk management USD is the functional currency of the Group. The Group is exposed to foreign currency risks related to its operations. The Group s expenses are primarily in USD and NOK. As such, the Group s earnings are exposed to fluctuations in the foreign currency market for USD and NOK. The Company will attempt to minimize these risks by implementing hedging arrangements as appropriate, and uses the foreign currency spot market to buy foreign currencies. The Group is mainly exposed to the currency of Norway (NOK). In addition the Group is exposed to the currencies of Malaysia (MYR), Singapore (SGD), South Korea (KRW) and the European currency (EUR). Contracts are entered into when treasury finds it in line with the overall currency risk strategy. In recent years the strategy has been to buy currency in the spot market. There were no forward foreign currency contracts outstanding as at 31 December Interest rate risk management The Group is exposed to fluctuations in interest rates for USD and NOK. A major part of the Group s interest costs on its bank and bond loans are subject to floating interest rate (LIBOR) plus a margin. Consequently, the Group is exposed to fluctuation in interest rates. Some forward contracts have been entered into to lower risk. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings and by the use of interest rate swap contracts. Under the interest swap contracts the Group agrees to exchange the difference between fixed and floating interest rate amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt and the cash flow exposure on the issued variable rate debt Credit risk management Due to the nature of the Group s operations, revenues and related receivables are typically concentrated amongst a relatively small customer base of international oil and gas companies. The Company continually evaluates the credit risk associated with customers and, when considered necessary, requires certain guarantees, either in the form of parent company guarantees, bank guarantees or escrow accounts. As of 31 March 2012, the three largest customers (Statoil, Wintershall and Petronas) in aggregate accounted for 99.6% of the consolidated operating revenues of the Group. As of 1 May 2012, the three largest customers (Statoil, Total and Petronas) represented 100% of the contract revenue backlog of the Group. The maximum credit risk is equal to the capitalized value of trade receivables and incurred revenue not billed. There is no history of material loss on trade receivables. The Group s short term investments are limited to cash deposits in the Group s relationship banks. Derivative financial instruments are normally entered into with the Group s main relationship banks. 24

30 2.3.7 Availability of funding The Group is dependent upon having access to long term funding. There can be no assurance that the Group may not experience net cash flow shortfalls exceeding the Group s available funding sources nor can there be any assurance that the Group will be able to raise new equity, or arrange new borrowing facilities, on favorable terms and in amounts necessary to conduct its ongoing and future operations, should this be required Borrowing and leverage To the extent income derived from assets obtained with borrowed funds exceeds the interest and other expenses that the Group will have to pay, the Group s net income will be greater than if borrowings were not made. Conversely, if the income from the assets obtained with borrowed funds is insufficient to cover the cost of such borrowings, the net income of the Group will be less than if borrowings were not made. The Group will borrow only when it is believed that such borrowings will benefit the Group and the Group after taking into account considerations such as the costs of the borrowing and the likely returns on the assets purchased with the borrowed monies, but no assurances can be given that the Group will be successful in this respect Value of the drilling units and market rates The value of the drilling units owned by the Group may fluctuate with market conditions. A downturn in the market could have a material adverse effect on the Group s liquidity and may result in breaches of the financial covenants in its loan agreements. In such a case, sales of the Group s drilling units could be forced at prices that represent a potential loss of value Redomiciliation to Cyprus in 2009 Exit tax According to the Norwegian Tax Act Section in 2009, a company that emigrates and ceases to be tax resident in Norway is subject to exit tax. The exit tax is calculated on any potential gain related to the assets, rights and liabilities that the exiting company owned the day preceding the Redomiciliation. The capital gain/loss would be calculated as if the assets, rights and liabilities were realized for tax purposes at this time. In contrast, capital gains on assets or shares of similar domestic transactions are not taxable until they are realized. The Company moved from Norway to Cyprus in May The Company has been advised that the Norwegian exit tax rules in 2009 are in conflict with the EEA Agreement with respect to the principle of freedom of establishment. The Board of Directors is of the opinion that no exit tax should apply to the Redomiciliation. The Company therefore filed a complaint with the EFTA Surveillance Authority (the ESA ). In the tax return for the income year 2009, the Company maintained the view that no exit tax should apply. In the event that the Company has to pay the exit tax, the Company estimated that the tax can be offset against available losses. In 2010, the tax office notified the Company that it is considering assessing an exit tax. On 2 March 2011, ESA sent a reasoned opinion to the Norwegian Ministry of Finance for failing to comply with its obligations under Articles 31, 34 and 40 of the Agreement on the European Economic Area by imposing immediate taxation on companies that transfer their seat or assets and liabilities to another EEA State and on the shareholders of such companies and for breach of the SE regulation. According to ESA, Norway is in breach of the EEA Agreement by imposing an immediate tax on companies, or the shareholders of companies, that transfer their seat to another EEA State. The Authority considers that such immediate taxation penalizes those companies that wish to leave Norway. It results in less favourable treatment compared to companies which relocate or merge 25

31 within Norway. The rules in question are, therefore, likely to dissuade companies from exercising their right of freedom of establishment and, in certain circumstances, they also hinder the free movement of capital. As a result, these rules constitute unlawful restrictions according to EEA law. The Norwegian Government was requested to take the necessary measures to comply with the reasoned opinion within two months. As a consequence, the tax rules in respect of exits to EEA countries were amended with effect from The tax liability on owner and company level for companies relocating to normal tax countries within the EEA was dismantled. For companies relocating to low tax countries within the EEA the exit tax rules will not apply if the company is effectively established in the low tax country. Assets that are taken out of the Norwegian area of taxation will be governed by the existing Tax Act Section 9-14, whereby a payment of the assessed tax for physical assets can be deferred and the tax will not be payable if the exiting company does not realize the physical assets within five years after Redomiciliation. In National Grid (C-371/10) of 29 November 2011 the ECJ found that the treaty provisions prohibits legislation of a Member State which prescribes the immediate recovery of tax on unrealized capital gains relating to assets of a company transferring its place of effective management to another Member State at the very time of that transfer. The legislation of a Member State must provide a choice for the relocating company to defer the payment for the capital gains taxation until subsequent actual realization. The Company is of the opinion that its Redomiciliation to Cyprus in 2009 will not result in payable exit tax. 2.4 Risks relating to the Shares The market price of the Shares may fluctuate significantly in response to a number of factors The share price of publicly traded companies can be highly volatile. The price at which the Shares may be quoted and the price which shareholders may realise for their Shares will be influenced by a large number of factors, some specific to the Group and its operations and some which may affect the industry as a whole or stock exchange listed companies generally. These factors include those referred to in this Section 2 Risk factors, as well as the Group s financial performance, the impact of shareholders being released from lock-in restrictions, stock market fluctuations and general economic conditions. Share price volatility arising from such factors may adversely affect the value of an investment in the Shares. The market price of the Shares may not reflect the underlying value of the Group s net assets. The trading price of the Shares could fluctuate significantly in response to a number of factors beyond the Group s control, including, but not limited to, quarterly variations in operating results, adverse business developments, changes in financial estimates and investment recommendations or ratings by securities analysts, or any other risk discussed herein materializing or the anticipation of such risk materializing. In recent years, the global stock markets have experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies. Those changes may occur without regard to the operating performance of these companies. The price of the Company s Shares may therefore fluctuate based upon factors that have little or nothing to do with the Group, and these fluctuations may materially affect the price of its Shares. 26

32 2.4.2 Future sales of Shares by the Company s major shareholder or any of its primary insiders may depress the price of the Shares The market price of the Shares could decline as a result of sales of a large number of Shares in the market or the perception that such sales could occur, or any sale of Shares by any of the Company s major shareholders or primary insiders from time to time. Such sales, or the possibility that such sales may occur, might also make it more difficult for the Company to issue or sell equity securities in the future at a time and at a price it deems appropriate Liquidity of the Shares As at 29 May 2012, approximately 54.36% of the share capital of the Company was held by the 20 largest shareholders. This may limit the Shares liquidity in the trading market, which could have an adverse effect on the then prevailing market price for the Shares Shareholders may not be able to exercise their voting rights for Shares registered in a nominee account Beneficial owners of the Shares that are registered in a nominee account or otherwise through a nominee arrangement (such as through brokers, dealers or other third parties) may not be able to exercise voting rights and other shareholder rights as readily as shareholders whose Shares are registered in their own names with the VPS prior to the Company s General Meetings. The Company cannot guarantee that beneficial owners of the Shares will receive the notice for a general meeting in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners. Any persons that hold their shares through a nominee arrangement, should consult with the nominee to ensure that any Shares beneficially held are voted in the manner desired by such beneficial owner Dilution Shareholders not participating in future share issues may be diluted and pre-emptive rights may not be available to shareholders, including, but not limited to shareholders resident in jurisdictions with restrictions having the effect that they will not be granted subscription rights in connection with, or be able to subscribe for new shares in, such offerings. The Company may in the future issue warrants and/or options to subscribe for Shares, including (without limitation) to certain advisers, employees, directors, senior management and consultants. The exercise of such warrants and/or options would result in dilution of the shareholdings of other investors Limitations on the ability to make claims against the Company The Company is a European public company limited by shares organised under the laws of the Republic of Cyprus. The Company s directors and executive officers are residents of Cyprus, Norway and the United Kingdom, and a substantial portion of the Group s assets are located in Cyprus and Bermuda. As a result, it may be difficult for investors in other jurisdictions to effect service of process upon the Company, its affiliates or its directors and executive officers in such other jurisdictions or to enforce judgments obtained in other jurisdictions against the Company, its affiliates or its directors and executive officers The Company s investors outside of Norway are subject to exchange rate risk The Shares are traded in NOK and any investor outside of Norway who wishes to invest in the Shares, or to sell Shares, will be subject to an exchange rate risk which may cause additional costs to the investor. 27

33 3 RESPONSIBILITY FOR THE PROSPECTUS This Prospectus has been prepared in connection with the Listing described herein. The Board of Directors of Songa Offshore SE accepts responsibility for the information contained in this Prospectus. The members of the Board of Directors confirm that, after having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. Limassol, 28 June 2012 The Board of Directors of Songa Offshore SE Jens Wilhelmsen (Chairman of the Board) Arne Blystad (Board member) Nancy Ch. Erotocritou (Board member) Erik Østbye (Board member) 28

34 4 GENERAL INFORMATION 4.1 Important investor information In making an investment decision, each investor must rely on its own examination, and analysis of, and enquiry into the Group, including the merits and risks involved. None of the Company or the Managers, or any of their respective affiliates, representatives or advisors, is making any representation to any subscriber or purchaser of Shares regarding the legality of an investment in the Shares by such subscriber or purchaser under the laws applicable to such subscriber or purchaser. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Shares. The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, any significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment of the Shares between the time when this Prospectus is approved and the date of listing of the Placement Shares on Oslo Børs, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, shall under any circumstances create any implication that there has been no change in the Group s affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. Unless indicated otherwise, the source of information included in this Prospectus is the Company. The contents of this Prospectus shall not be construed as legal, business or tax advice. Each reader of this Prospectus should consult its own legal, business or tax advisor as to legal, business or tax advice. If the reader is in any doubt about the contents of this Prospectus, a stockbroker, bank manager, lawyer, accountant or other professional advisor should be consulted. The Company has furnished the information in this Prospectus. The Managers make no representation or warranty, express or implied, as to the accuracy or completeness of such information, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Managers. The Managers disclaim, to the fullest extent permissible by applicable law, any and all liability, whether arising in tort or contract or otherwise, which they might otherwise have in respect of this Prospectus or any such statement. In the ordinary course of their respective businesses, the Managers and certain of their respective affiliates have engaged, and may continue to engage, in investment and commercial banking transactions with the Company. 4.2 Presentation of financial and other information In this Prospectus, all references to NOK are to the lawful currency of Norway; all references to USD, are to the lawful currency of the United States of America; and all references to EUR are to the lawful currency of the members states of the European Union (the EU ) who have adopted the EUR as their sole national currency. Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly. The Group s audited financial statements as of and for the years ended 31 December 2011, 2010 and 2009 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRS). The Group s unaudited financial statements as of and for the three months ended 31 March 2012 and 2011, combined with relevant information in the financial review, have been prepared in accordance with International Accounting Standard ( IAS )

35 The financial statements for the years ended 31 December 2011 and 2010 have been audited by PriceWaterhouseCoopers Limited. The financial statements for the year ended 31 December 2009 has been audited by Deloitte Limited. The Company prepares its financial statements in USD (presentation currency). 4.3 Industry and market data In this Prospectus, the Company has used industry and market data obtained from independent industry publications, market research, and other publicly available information. While the Company has compiled, extracted and reproduced industry and market data from external sources, the Company has not independently verified the correctness of such data. Thus, the Company takes no responsibility for the correctness of such data. The Company cautions prospective investors not to place undue reliance on the above mentioned data. Although the industry and market data is inherently imprecise, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified. 4.4 Cautionary note regarding forward-looking statements This Prospectus includes forward-looking statements that reflect the Company s current views with respect to future events and financial and operational performance. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms anticipates, assumes, believes, can, could, estimates, expects, forecasts, intends, may, might, plans, projects, should, will, would or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements are not historic facts. They appear in Section 7 Market overview, Section 8 Group overview and in Section 11 Operational and financial review, and include statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, financial position, operating results, liquidity, prospects, growth, strategies and the industry in which the Group operates. Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that the Group s actual financial position, operating results and liquidity, and the development of the industry in which the Group operates, may differ materially from those made in or suggested by the forward-looking statements contained in this Prospectus. The Company cannot guarantee that the intentions, beliefs or current expectations upon which its forward-looking statements are based will occur. By their nature, forward-looking statements involve and are subject to known and unknown risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur in the future. Because of these known and unknown risks, uncertainties and assumptions, the outcome may differ materially from those set out in the forward-looking statements. Important factors that could cause those differences include, but are not limited to: the competitive nature of the business the Group operates in and the competitive pressure and changes to the competitive environment in general; earnings, cash flow, dividends and other expected financial results and conditions; the price volatility of oil and gas products; 30

36 technological changes and new products and services introduced into the Group s market and industry; fluctuations of exchange rates; changes in general economic and industry conditions; political, governmental, social, legal and regulatory changes; dependence on and changes in management and failure to retain and attract a sufficient number of skilled personnel; access to funding; legal proceedings; operating costs and other expenses; environmental and climatological conditions; consequences of mergers and acquisitions in our industry, resulting in fewer but much larger and stronger competitors; acquisitions and integration of acquired businesses; and other factors described in Section 2 Risk factors. Please also see Section 2 Risk factors for specific risks that could affect the Group s future results and could cause results to differ materially from those expressed in the forward-looking statements. The information contained in this Prospectus, including the information set out under Section 2 Risk factors, identifies additional factors that could affect the Group s financial position, operating results, liquidity and performance. Prospective investors in the Shares are urged to read all Sections of this Prospectus and, in particular, Section 2 Risk factors for a more complete discussion of the factors that could affect the Group s future performance and the industry in which the Group operates when considering an investment in the Company. These forward-looking statements speak only as of the date on which they are made. Save as required according to Section 7-15 of the Norwegian Securities Trading Act, the Company undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company s behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus. 31

37 5 BACKGROUND FOR THE PRIVATE PLACEMENT The Company resolved to carry out the Private Placement in order to ensure that the desired equity capital was raised in a timely and cost efficient manner. The net proceeds from the Private Placement, which amounted to approximately NOK 614 million, will be used for (i) capex and life enhancement of the rigs currently operating on the Norwegian Continental Shelf for Statoil (Dee, Trym and Delta), (ii) strengthen the Company s balance sheet and (iii) general corporate purposes. The Company intends to fund these purposes with the net proceeds from the Private Placement, existing cash, cash generated from the operating business and existing loan facilities. The exact split for the use of proceeds from the Private Placement is thus not estimated. 32

38 6 THE PRIVATE PLACEMENT AND THE LISTING 6.1 Overview and terms of the Private Placement On 19 April 2012, after close of trade on Oslo Børs, the Company publicly announced that it had engaged the Managers to advise on, and effect, the Private Placement through an over-night accelerated book built offering of Placement Shares directed towards existing shareholders and new investors, raising gross proceeds of up to the NOK equivalent of USD 110 million. The Private Placement was documented by an investor presentation, a term sheet and terms of application. The minimum order and allocation of Placement Shares in the Private Placement was set to the number of Placement Shares equal to an aggregate purchase price of the NOK equivalent of USD 500,000. The final price per Placement Share was to be determined based on, and following, the book-building process by the Board of Directors in consultation with the Managers. Completion of the Private Placement was made conditional upon the Board of Directors making a resolution on the offer price and allocation of the Placement Shares in the Private Placement and the issuance of the allocated Placement Shares. Following close of the book-building period and prior to opening of trade on Oslo Børs on 20 April 2012, the Company publicly announced that the Private Placement was significantly oversubscribed and had raised gross proceeds of NOK 633 million (~USD 110 million), and that an allocation of 35,200,000 Placement Shares at a subscription price of NOK 18 per Placement Share had been made in respect of existing shareholders of the Company and new investors. The allocation of Placement Shares was determined by the Board of Directors, in consultation with the Managers, based on customary allocation criteria such as the investors relative shareholding in the Company, the size of the order, the investor quality, timeliness of the order and applicable selling restrictions in the Private Placement. To facilitate prompt delivery of the allocated Placement Shares versus payment for the same on the payment date 25 April 2012, investors in the Private Placement other than the Major Investors received already listed secondary Shares made available to the Managers by the Lender pursuant to a share lending agreement, in lieu of the Placement Shares to be issued. Consequently, all allocated Shares in the Private Placement other than the Shares allocated to the Major Investors were tradable on Oslo Børs at the time of delivery to the investors. Thereafter, on 26 April 2012, the borrowed Shares were re-delivered to the Lender, and the Placement Shares allocated to the Major Investors were delivered, in the form of the Placement Shares issued pursuant to the resolution by the Board of Directors pertaining to the Private Placement described in Section 6.2 Resolution regarding the Private Placement. Pending the publication of this Prospectus pursuant to which the Placement Shares will be listed, the Placement Shares were issued and registered under a separate ISIN to ensure that they could not be traded on Oslo Børs. 6.2 Resolution regarding the Private Placement Prior to the Private Placement, the Company had an authorised share capital of EUR 33,000,000 divided into 300,000,000 shares with a nominal value of EUR 0.11 each and an issued share capital of EUR 18,448, divided into 167,712,544 Shares with a nominal value of EUR 0.11 each. Accordingly, there remained 132,287,456 shares with a nominal value of EUR 0.11 each in the authorised unissued share capital of the Company. Based on the above, and in accordance with Regulation 5 of the Articles of Association, the Board made on 23 April 2012 the following resolution to issue the 35,200,000 Placement Shares: 33

39 From the authorized unissued share capital of the Company, 35,200,000 ordinary shares with a nominal value of EUR 0.11 each at a subscription price of NOK per ordinary share, are allotted and issued to Arctic, of which 22,560,400 ordinary shares shall be delivered to Spencer and 12,639,600 ordinary shares shall be delivered to Arctic for settlement with Spencer Trading Inc and Perestroika AS with affiliates and related parties (including Frank Mohn AS and Fredrik Wilhelm Mohn). 6.3 Participation of major existing shareholders and members of the Company s management, supervisory and administrative bodies in the Private Placement The following major existing shareholders in the Company participated in the Private Placement: Spencer Trading Inc, a company controlled by Arne Blystad Perestroika AS with affiliated and related parties (including Frank Mohn AS and Fredrik Wilhelm Mohn) The following members of the Board of Directors and the Management participated in the Private Placement: Jens Wilhelmsen (Chairman), through Anchor Capital Management Ltd Asbjørn Vavik (CEO), through Netza AS The Company is not aware of any conflicting interests of any subscriber in the Private Placement that is material to the Private Placement. 6.4 The Placement Shares The Placement Shares rank pari passu in all respects with the existing Shares and carry full shareholder rights in the Company from the time of issuance. The Placement Shares are eligible for any dividends which the Company may declare after said date. The Placement Shares were issued as ordinary shares in the Company pursuant to the Articles of Association and in accordance with the Cyprus Companies Law, Chapter 113. Pending the publication of this Prospectus, the Placement Shares were registered with ISIN CY , which is different from the ISIN of the Company s existing Shares, to ensure that they could not be traded on Oslo Børs. Following the publication of this Prospectus, such Shares will be registered under the same ISIN as the Company s existing Shares, being CY , and automatically become listed and tradable on Oslo Børs. 6.5 Shares following the Private Placement As a consequence of the Private Placement, the number of issued Shares in the Company was increased from 167,712,544 to 202,912,544 Shares, each with a nominal value of EUR The Company has only one class of shares outstanding and all Shares are freely transferable. 34

40 6.6 Dilution Shareholders who did not participate in the Private Placement were diluted with approximately 17.35% subsequent the Private Placement. Prior to the Private Placement Subsequent to the Private Placement Number of Shares, each with a nominal value of EUR ,712, ,912,544 % dilution % 17.35% 6.7 Advisors Arctic Securities ASA, Nordea Markets (a part of Nordea Bank Norge ASA), Pareto Securities AS and SEB Enskilda AS have been retained as managers for the Company in connection with the Private Placement and the Listing. Advokatfirmaet Thommessen AS (Norwegian law) and Harneys (Cyprus law) are acting as legal advisors to the Company in relation to the Private Placement and the Listing. 6.8 Net proceeds and expenses The Company has paid the fees and expenses related to the Private Placement, which amounted to approximately NOK 19 million. Total net proceeds from the Private Placement amounted to approximately NOK 614 million. 6.9 Interests of natural and legal persons involved in the Private Placement The Managers and their affiliates may have interests in the Private Placement as they have provided from time to time, and may in the future provide, investment and commercial services to the Company and its affiliates in the ordinary course of their respective businesses, for which they may have received and may continue to receive customary fees and commissions. The Managers, their employees and any affiliate may currently own existing Shares in the Company. The Managers have received a commission in connection with the Private Placement and, as such, have an interest in the Private Placement. Reference is made to Section 6.8 Net proceeds and expenses Publication of information relating to the Private Placement and the Listing In addition to press releases, which will be posted on the Company s website, the Company will use Oslo Børs information system to publish information relating to the Private Placement and the Listing. 35

41 7 MARKET OVERVIEW 7.1 Introduction The Company operates in the international oil service industry within offshore drilling, and own a fleet of six semi-submersible rigs, five of which currently operate in the midwater segment. Rigs, related equipment and crews are generally contracted on a dayrate basis to oil exploration and production companies. Currently, the Company operates in the offshore crude oil basins in the North Sea, offshore Malaysia and offshore Angola. 7.2 Overview and trends Worldwide proven oil reserves are still dominated by onshore resources; however, larger oil companies have now shifted their focus towards exploring new offshore fields. Consequently, offshore oil production has increased relative to onshore oil production over the last 40 years, and is expected to continue to do so going forward. The fundamental driver of oilfield service and drilling activity is the level of upstream capital expenditures by oil and gas companies. Historically, the level of exploration and production (E&P) capital expenditure has been primarily driven by expectations of future oil and natural gas prices. Levels of capital expenditures in North America are primarily driven by natural gas projects whereas levels of capital expenditure internationally outside North America are primarily driven by oil projects. Additionally, availability of quality drilling prospects, successful exploration, relative production costs, availability and lead-time requirements for drilling and production equipment, the state of reservoir development, and political and regulatory environments also affect drilling programs, and hence demand for drilling services. The market for offshore drilling services is, to a degree, cyclical and volatile, ranging from the highly volatile exploration drilling market to the more stable production drilling market. Oil and gas companies typically set drilling-related capital budgets in November/December of each year. Different types of oil and gas operators have capital budget requirements and strategies that are vastly different with regard to commodity price sensitivities, access to acreage, project size, duration, and technical sophistication limitations. This is important because the level of exposure a drilling company may have to one type of operator over another, particularly in a specific region, might have meaningful implications on the timing and sustainability of its earnings. The Company s customers are generally large international and national oil companies, like Statoil, CNOOC and Shell, which have relatively long lead-time projects and therefore, relatively stable spending. 7.3 E&P spending As a consequence of a solid global economy and a strong increase in oil demand, the general international offshore oil and gas market showed a healthy development from 1995 until The financial crisis in Asia and the oil price collapse in 1998/99 led to a weak market in the period from 1998 to As energy prices increased, this contributed to an improvement during 2001, but the upturn was short as the weakening in global economy negatively influenced the rate of investments in new oil and gas fields, whereas the market for offshore services and modifications was only modestly affected due to the continuous upgrading and production support. This development continued into 2002 and 2003, but from the end of 2003 and during 2004, demand for oil showed a significant improvement. The demand and prices in the offshore modification and services markets provided a favourable market outlook and boosted investments in the industry in the 2004 to 2008 period. 36

42 E&P spending has during the period 2004 to 2008 increased more than 10% each year. This led to increased capacity utilisation in most oil services segments from seismic services, drilling, supply vessel services, subsea services and demand for deepwater equipment and services. In many segments, like for drilling rigs, the market experienced record high day rates and utilisation levels, resulting in increased upgrading and newbuilding activity. Market fundamentals, financial markets and commodity prices recovered strongly during 2009 and 2010, and spending returned rapidly with 11% positive growth in marked another solid year, and at the start of 2012 oil companies indicated a 5% growth, an conservative increase given the production growth targets for the companies, the current outlook for commodity prices and cost escalation. Historically, growth in production volumes and reserves has been one of the top priorities of oil companies. Spending very seldom declines and in both 1999 and 2009, spending only dropped in one year, followed by a solid recovery in the following year. In both years, however, another decline was expected in the year after, but this did not materialise. Long term, as the oil companies production and underlying reserves are falling (although 2009 and 2010 marginally reversed the trend), this issue can only be addressed through increased investments. The figure below illustrates SEB Enskilda Research s estimated development in the global E&P spending for oil and gas companies from 1994 to Exploration spending and share of total spending for oil and gas companies from 1994 to % % USDm % 21% 19% Share exploration % 0 15% Exploration spending (excl. Nat'ls) Share exploration of total E&P Source: SEB Enskilda Research, 12th annual E&P Survey, August 2011 The strategy of the large oil and gas companies has historically been to keep reserve/production ratios (R/P) stable and reserve replacement ratios (RRR) above 100%. Although this strategy has failed over the past six years, it appears now that the decline in RRR has reversed; Organic RRR improved for the fourth year in a row to 113% in 2010, up from 108% in 2009 and 88% in Several years of higher E&P spending are finally starting to pay off. Also, technological advancements and higher oil price have allowed the oil companies to book an increasing share of reservoir reserves. 37

43 RRR ratio from 1994 to 2011 Discoveries from 2003 to 2010 Source: SEB Enskilda Research, 12th annual E&P Survey, August 2011 Source: SEB Enskilda Research, 12th annual E&P Survey, August 2011 The super majors and majors have reduced their production growth ambitions during the past seven years, whereas the independents have increased their production growth targets during the same period. The differences in revisions are likely a natural consequence of the achieved production growth: the super majors and majors have seen organic production drop in this period, whereas the independents have increased these levels. The production targets of all three company groups are still very aggressive given the lack of access to acreage and reduced investments. In addition constraints on equipment and people have intensified during the last two years, after it eased significantly during SEB Enskilda published an updated E&P spending budgets report in January Based on 35 companies that had reported E&P spending budgets for 2012, E&P spending was now estimated to grow by 17% in 2012 compared to the previous forecast of 12%. Development in the global E&P spending for oil and gas companies year on year from 1995 to 2012 Source: SEB Enskilda Research, revised 12th annual E&P Survey, January 2012 The budgets for the 44 companies included in the report show a weighted average increase of 17% from 2011 to Of the 44 companies, 33 have indicated a spending increase; five have declared unchanged spending, while six expect to cut their spending from So far the large oil companies lead the way and budgets indicate an increase of 23%. 38

44 Year on year growth in E&P spending Source: SEB Enskilda Research, revised 12th annual E&P Survey, January 2012 The segments with the biggest increase in spending are the large oil companies and national oil companies, while the only segment for which budgets are mixed is the pure shale gas players in the US. The preference for oil-related projects is also well supported by the significant difference in the performance of the oil price relative to natural gas prices and by the split in the US rig count. Given the outlook for continued high oil prices, illustrated below by the planning and budgeting price for oil used by the participants in the survey, commodity prices are likely to be supportive for growth in investments and activity levels. Budgeting price used by oil and gas companies 1999 to 2011 Source: SEB Enskilda Research, 12th annual E&P Survey, August Oil demand and the oil price Assuming the same correlation between GDP growth and oil consumption growth from , world GDP growth of 3.25% (current IMF estimate) would imply oil consumption growth of 1.2 Mboepd for 2012, in line with estimates of oil demand growth of 1.0 Mboepd by the IEA. Non- OECD countries - the main driver behind increased oil demand have not been severely affected by the economic crisis so far, and the risk of China experiencing a hard landing (below 5% GDP growth) is considered relative small. Longer term, the IEA expect global production capacity to rise from 93.8 Mboepd in 2010 to Mboepd in 2016, an estimated increase of 6.8 Mboepd. 39

45 Oil consumption and world GDP regression Oil consumption and world GDP 2001 to 2012 Source: IEA, IMF, Arctic Securities Source: IEA, Arctic Securities Increasing depletion rates for currently producing fields are also expected to increase demand for drilling services. Average weighted production decline rates for fields past their peak are expected to increase from 6.7% in 2009 to 8.6% in Underlying natural decline rates (without investment to sustain production) are currently much higher at 9%. Decline curves are steeper for smaller fields and average global field size has been declining. Decline rates are also higher for offshore fields and a greater proportion of global production is moving offshore. As at the date of this Prospectus the oil prices are approximately USD 90 per barrel (Brent Blend), over 50% over the the average price since 2000 of USD 59 per barrel, after a decrease from USD 140 per barrel in Strong demand for energy combined with limited supply, OPEC s successful oil market strategy plus supply disruption in key regions like Russia, the Middle East and West Africa, and the risk of gas crisis in North America were the main reasons for the record-high prices in The last financial crisis, which turned into a real economic crisis worldwide, has been regarded as the main reason for the setback in the oil price during the second half of However, since then the oil price has rebounded by almost 200% since the bottom following effective OPEC production cuts and more positive developments in the financial markets. In the last two years, oil prices have been extremely volatile, reaching a high of USD 147 per barrel in July 2008 and lows of less than USD 40 in the end of In addition, the global economic downturn led to a year-over- year decline in demand for oil of 0.5% in 2008 and 1.6% in Falling oil prices and weaker demand outlook in late 2008/early 2009 led to substantial revisions of E&P capital expenditure plans for 2009 and reduced demand for drilling services and revenues for the oil services sector. Since then, however, prices have surged; fluctuating at between USD 100 and 120 since mid On the back of this, E&P spending, and hence demand for drilling services, has increased significantly. Brent oil price 1999 to 2011 Source: Bloomberg 40

46 The 2012 market balance looks softer with current OPEC production almost 0.9 mboepd above IEA s estimated 2012 call-on-opec. However, the EU approved a ban on oil imports from Iran but delayed its full implementation until July 1. According to IEA EU imported 600,000 boepd of Iranian crude for the whole year of China imported on average 500,000 boepd in 2011, and we expect China to join the embargo to avoid a worst case scenario of an Israeli or US attack on Iran, resulting in Iran exports to fall by 1 Mboepd. In Arctic Securities low price scenario the Iran embargo only results in Iranian volumes being diverted from Europe to Asia. In such a scenario if Saudi continues to produce close to 10 Mboepd Brent crude prices could temporarily fall towards USD 100/bbl, but this would increase the risk of a preemptive strike from Israel on Iran with crude prices temporarily surging above USD 140/bbl. The combination of high oil prices, continuing oil demand growth and an increasing decline in production rates will continue to generate demand for drilling services for the foreseeable future. 7.5 Contract drilling and rig classification Most drilling rigs are owned by industry participants that engage in drilling operations as their primary or only activity. The drilling rig industry is populated to a large extent by U.S. industry participants, although Norwegian industry participants have increased their presence in recent years. Drilling rigs are broadly divided into onshore rigs and offshore rigs. Offshore rigs are in turn categorized by rig design and drilling capability at various water depths. Jack-ups Semi-submersibles Drillships Jack-ups are mobile bottom-supported self-elevating drilling platforms that stand on three legs on the seabed. When the rig is to move from one location to another, it will jack itself down on the water until it floats, and will be towed by a supply vessel or similar to its next location. A modern jack-up will normally have the ability to move its drill floor aft of its own hull (cantilever), so that multiple wells can be drilled at open water locations or over wellhead platforms without repositioning the rig. Ultra premium jackup rigs are rigs with enhanced operational capabilities which can work in water depths >300ft. Semi-submersible rigs are floating platforms and feature a ballasting system that can vary the draft of the partially submerged hull from a shallow transit draft, to a predetermined operational and/or survival draft (50-80 feet) when drilling operations are underway at a well location. This reduces the rig s exposure to ocean conditions (waves, winds, and currents) and increases stability. Semisubmersible rigs maintain their position above the wellhead either by means of a conventional mooring system, consisting of anchors and chains and/or cables, or by a computerized dynamic positioning system Drillships are ships with on-board propulsion machinery, often constructed for drilling in deep water. They are based on conventional ship hulls, but have certain modifications. Drilling operations are conducted through openings in the hull ( moon pools ). Drillships normally have a higher load capacity than semisubmersible rigs and are well suited to offshore drilling in remote areas due to their mobility and high load capacity. Like semi-submersible rigs, drillships can be equipped with conventional mooring systems or DP systems. Drilling at water depths of less than 400 feet generally requires drilling barges or jackup rigs. Drilling barges are used primarily for inland, shallow water drilling. This form of drilling typically takes place in lakes, swamps, rivers, and canals. Jackup rigs are similar to drilling barges, with the difference that once a jack-up rig is towed to the drilling site, three or four legs of the rig are lowered until they rest on the sea floor. This allows the working platform to rest above the surface of the water, as opposed to a floating barge. Jackup rigs are only suitable for shallow waters, as extending these legs beyond a certain depth would be impractical. 41

47 8 GROUP OVERVIEW 8.1 Corporate information Songa Offshore is a European public company limited by shares organised under the laws of the Republic of Cyprus. It was incorporated on 18 April 2005 as a Norwegian public limited liability company and converted to an SE on 12 December The conversion into an SE was effected through a merger between Songa Offshore ASA and Songa Offshore Cyprus Plc. With effect from 11 May 2009, the survivor of the merger, Songa Offshore SE, transferred its registered office to Cyprus in accordance with Article 8 of the SE Regulation and Section 7 of the SE Act (the Redomiciliation). The Company is registered with the Cyprus Registrar of Companies with business registration number SE 9 and is subject to the laws of Cyprus, and in particular the Cyprus Companies Law. The Company s principal place of business is in Limassol, Cyprus. Its registered main office is 8, John Kennedy Street, IRIS House, Off. 740B, Limassol, visiting address is 25 Kolonakiou Street, Zavos Kolonakiou Centre, Block B, Flat 101, 4103 Limassol, Cyprus, telephone , telefax and its web address is The Company s shares have been listed on Oslo Børs since 26 January 2006 under the ticker code SONG. Songa Offshore also has offices in Oslo and Stavanger (Norway), Houston (Texas, USA), Singapore, Kuala Lumpur (Malaysia), Luanda (Angola) and Perth (Australia). The Company had a total of 469 employees as of 31 December 2011, whereof 356 employees offshore based. The Group is engaged in the business of owning and operating offshore drilling rigs and other vessels to be used in the exploration and production of hydrocarbons. The Group owns 6 semisubmersible rigs and 4 newbuildings (Cat D). With a highly experienced management team, the Company s vision is to provide a flexible and reliable drilling service to its customers. The rig operations are run from Singapore, Limassol (Cyprus), Stavanger (Norway), Luanda (Angola) and Kuala Lumpur (Malaysia). 8.2 History and development Songa Offshore AS was founded in January 2005 with the purchase of the two semisubmersibles, Mata Redonda and La Muralla. The rigs were purchased from the Mexican company, IPC. The Mata Redonda was renamed Songa Venus and La Muralla was renamed Songa Mercur. In April 2005, Songa Offshore ASA was founded. The shares of Songa Offshore ASA were listed on the Norwegian OTC list in May 2005, under ticker code, SONG. In connection with the bond financing, the Company issued warrants traded on the OTC list under ticker code, SONW. The rigs were delivered to Songa Offshore in June 2005, and were moved to Galveston, where the company began preparing the rigs for work. Later same year Songa Offshore purchased the drillship Glomar Robert F Bauer, the rig was renamed Songa Saturn and delivered November Songa Saturn entered a 14 month shipyard stay in Turkey for refurbishment and re-certification. The drill ship thereafter went to work offshore Equatorial Guinea. End of October 2005 Songa Offshore purchased 20.2% of the semi submersible Deepsea Bergen. Songa Offshore recruited an experienced, highly respected industry management team in September 2005 headquartered in Houston, Texas. By Q3 2006, Songa left their marketing office 51

48 in Houston and moved its operations office to Singapore where the Company could have greater access to operations of the rigs. Songa Offshore was listed on Oslo Børs 26 January Early March 2006 Songa Offshore purchased the semisubmersible drilling rig Stena Dee, which was renamed Songa Dee. During Q Songa Venus was transported to Singapore and underwent a major re-fit and upgrade in preparation for a 1+1 year contract with ENI and Inpex in Australia commencing October same year. The Songa Mercur was also taken to Singapore to undergo upgrade work in order to commence operations in Australia, the rig entered into a 1+1 year contract with Santos commencing operations in Australia July In November 2006, the Company sold its interests in the rig Deepsea Bergen to a group of investors. The sale price was USD 53.5 million, generating a profit of USD 19.1 million. In January 2007, Songa Offshore purchased from Odfjell Drilling the midwater semi submersible Deepsea Trym for USD million. Odfjell Drilling is currently operating the rig now named Songa Trym working for Statoil in Norway until July 2012.Songa Offshore will during the summer 2012 take over the operation of the rig. In Q2 2008, Songa Offshore entered into an agreement with Odfjell Drilling to acquire the Ocean- Ranger semisubmersible Deepsea Delta with an acquisition price of USD million. The rig is currently operated by Odfjell Drilling for the 3 year contract with DNO/Wintershall, which started up in Q Songa Offshore will, as with Songa Trym, take over the operation of the rig during the summer of In September 2008, Songa Offshore corporate operations and finance groups established a new corporate headquarter located in Limassol Cyprus. In December 2008 the Company was converted to a European public company limited by shares (SE). In May 2009 Songa Offshore was redomiciled to Cyprus, and it is currently registered in Limassol, Cyprus. In March 2010, Songa Offshore entered into an agreement with the shareholders of Deepwater Driller Ltd to invest USD 50 million in new equity into Deepwater Driller and thereby received a 31.25% ownership in the company. Deepwater Driller owned a 6th generation Friede & Goldman ExD ultra-deepwater semi submersible drilling rig under construction at Jurong Shipyard Pte Ltd in Singapore which later was named Songa Eclipse. In September 2010, Songa Offshore sold the drillship Songa Saturn to a wholly owned subsidiary of PetroSaudi Oil Services Ltd for net sales proceed of USD 260 million. In January 2011, Songa Offshore increased the ownership in Deepwater Driller with an additional 20.6% of the outstanding shares, owning a total of 51.9% of the shares in the company. The seller of the shares was Petrolia Invest AS. The construction contract was later novated to Songa Eclipse Ltd. In early July 2011, Songa Offshore received and accepted a Letter of Award from Statoil for two new build Cat D semi submersibles with firm terms of 8 years each and with options that could extend this period to 20 years. 52

49 In July 2011, Songa Offshore purchased the remaining shares in Deepwater Driller Ltd. and Songa Eclipse Ltd. from Sector Umbrella Trust and Pareto World Wide Offshore AS. Songa Offshore received a Letter of Award (LOA) from Total the same month for Songa Eclipse. The LOA was for a 18 month plus 1 well firm term in Angola in direct continuation of rig delivery from Jurong Shipyard. In August 2011, Songa Offshore announced that the Company had finalized a new bank facility of USD 420 million to be used to finance the delivery of Songa Eclipse. Additionally, Songa Offshore received a firm offer on a USD 100 million bank facility and where this facility was used as a partfinance of the first instalment on the 2 Cat D semi submersibles ordered from DSME shipyard. In November 2011, Songa Offshore issued a 5 year senior unsecured bond of NOK 1,400 million. A part of the amount was used to finance the first instalment on the second Cat D ordered from DSME. In February 2012, Songa Offshore s 100% owned subsidiary, Songa Rig AS, received and accepted a Letter of Award (LOA) from Statoil for two additional newbuild Cat D semisubmersible rigs. This award follows the agreement of July 2011 between Songa Rig AS and Statoil for the first two Cat D rigs. The contract period is for eight years with an aggregated value of USD 2.66 Billion, with options for extensions of another 12 years (4x3 years) per rig. The following gives a brief overview of the main events in the history and development of the Group. Year Event 2005 Company founded and listed on the Norwegian OTC list Songa Venus and Songa Mercur acquired from IPC Songa Saturn acquired from GlobalSantaFe 2006 Listed on Oslo Børs in January Songa Dee acquired from Stena Songa Venus and Songa Mercur underwent major refitting and upgrading in Singapore 2007 Songa Trym acquired from Odfjell Drilling 2008 Songa Delta acquired from Odfjell Drilling New corporate headquarters established in Limassol, Cyprus Converted to Societas Europaea, Songa Offshore SE 2009 Songa Offshore SE redomiciled to Cyprus 2010 USD 50million investment in Deepwater Driller Ltd, the owner of UDW rig Songa Eclipse. Songa Offshore holds a 31.25% stake Songa Saturn sold 2011 Increased ownership in Songa Eclipse to 100% Awarded 18 months contract plus 1 firm well for Songa Eclipse with Total E&P in Angola following delivery from Jurong in August Awarded contracts for two harsh midwater semi submersible rigs with Statoil on 8 year tenors, to be constructed at DSME in South Korea 2012 Awarded contracts for two additional harsh midwater semi submersible rigs with Statoil on 8 year tenors, to be constructed at DSME in South Korea 53

50 8.3 Legal structure of the Group Songa Offshore is the parent company of the Group. The Company is an operating company and is dependent on the other entities/subsidiaries in the Group. Legal structure: Parent company with subsidiaries (all 100% owned or controlled). 8.4 Description of the main companies in the Group Below are descriptions of the main companies in the Group, i.e the companies that either owns the rigs, is a party to the drilling contracts or to which the revenue goes Songa Rig AS Songa Rig AS is a limited liability company incorporated in and existing under the laws of Norway, with company registration number The company is wholly owned by Songa Offshore and was established on 24 June 2008 and is located in Stavanger, Norway. The company s purpose is to operate the Group s drilling rigs operating on the Norwegian continental shelf, i.e. Songa Dee and Songa Delta and Songa Trym when the operation of the latter two is taken over by Songa Offsore in summer 2012 as well as the four Cat-D rigs following delivery by the yard and commencement of the marine drilling contracts with Statoil Songa Management AS Songa Management AS is a limited liability company incorporated in, and existing under the laws of, Norway, with company registration number The company is wholly-owned by Songa Offshore and was established on 16 February 2006 and is located in Stavanger, Norway Songa Management Ltd Songa Management Ltd. is a limited liability company incorporated in and existing under the laws of, Cyprus, with company registration number HE Songa Offshore Drilling Ltd. Songa Offshore Drilling Limited is a limited liability company incorporated in and existing under the laws of, Cyprus, with company registration number HE

51 8.4.5 Songa Offshore Pte. Ltd. Songa Offshore Pte. Limited is a limited liability company incorporated in and existing under the laws of, Singapore, with company registration number R Songa Delta Ltd. Songa Delta Limited is a limited liability company incorporated in and existing under the laws of Cyprus, with company registration number HE The company is wholly-owned by Songa Offshore and was established on 7 August 2008 and is located in Limassol, Cyprus. The company owns the drilling rig Songa Delta, and has no employees. The company also has a branch office in Hamilton, Bermuda Songa Eclipse Ltd. Songa Eclipse Limited is a limited liability company incorporated in and existing under the laws of, Cyprus, with company registration number HE The company owns the drilling rig Songa Eclipse, and has no employees. The company also has a branch office in Hamilton, Bermuda Songa Endurance Ltd. Songa Endurance Ltd. (previously Songa Tor Ltd.) is a limited liability company incorporated in, and existing under the laws of, Cyprus, with company registration number HE Songa Equinox Ltd. Songa Equinox Ltd. (previously Songa Odin Ltd.) is a limited liability company incorporated in, and existing under the laws of, Cyprus, with company registration number HE Songa Enabler Ltd. Songa Enabler Ltd. is a limited liability company incorporated in, and existing under the laws of, Cyprus, with company registration number HE Songa Encourage Ltd. Songa Enabler Ltd. is a limited liability company incorporated in, and existing under the laws of, Cyprus, with company registration number HE Songa Offshore Malaysia Songa Offshore Malaysia Sdn. Bhd. is a limited liability company incorporated in, and existing under the laws of, Malaysia, with company registration number D 8.5 The Company s object and business strategy The Company s object As stated in the Memorandum of Association, the object of the Company is ownership, acquisition and operation of vessels, rigs and offshore installations, as well as other related business. The Company may also acquire and own shares, securities and ownership interests in other companies. The Group s mission is to be the provider of safe and superior performance, to its clients and shareholders, in offshore drilling operations. This will be accomplished with competent and experienced personnel delivering high quality performance to its clients. The main objective of the Group, as a commercial entity, is to increase the economic value of the Group for the owners of the Company, who rely on the Group to provide them with a satisfactory return on capital employed. 55

52 In achieving this objective, the Group s goal is to provide services in its field of expertise, in accordance with the highest standards of professional excellence and commercial integrity and in compliance with all relevant laws, regulations and guidelines. Consideration must be taken for the rights and interests of others, and the health, safety and job satisfaction of all of Songa employees. The Group will at all times strive to be a good corporate citizen of each country in which it operates, and to obey the laws, respect the customs and beliefs, and preserve the environment and culture of each such country. The Group seeks to understand the aims and objectives of the clients for which the Group performs services, and endeavors at all times to assist its clients to achieve these aims The Company s strategy The Group is now operating 6 rigs and have 4 semisubmersible rigs to be constructed at the DSME shipyard in South Korea. The Group has during 2011 secured many new contracts for its rigs, and has increased the order backlog during the last 12 months from USD 1.1 billion to USD 7.1 billion. It has been a strategy for the Group to secure long term contracts for a majority of the Groups rigs, and by that securing good earnings visibility. The Board of Directors summarizes the strategy going forward in the following main points: Deliver the rigs under construction with high quality and on time and budget. Continue to deliver top class commercial and operational management of the Group s rigs. Grow the Company through adding new assets. 8.6 QHSE ( Quality, Health, Safety and Environment ) policy The nature of the Group s activities requires a high degree of expertise, experience and reliability with an overall emphasis on performing these services with the highest degree of safety. The Group s prime objective is to consistently provide drilling and associated services in a manner that conforms to or exceeds contractual and regulatory requirements. To achieve this objective, it is the Group s policy to establish, document and maintain an efficient and effective quality assurance program in accordance with applicable international standards. The Group seeks to conform its work to contractual and regulatory requirements (particularly those requirements that relate to safety) on the basis of objective evidence of quality. Compliance with the Group s Corporate Quality & Safety Management System Manual is mandatory for all personnel at all levels of the Group. The Corporate Quality & Safety Management System Manual describes the quality assurance program of the Group and is designed to ensure that all quality and regulatory requirements are recognized and that a consistent and uniform control of these requirements is adequately maintained. The Group seeks to incorporate guidance from the International Marine Contractors Association (the IMCA ) and the International Association of Drilling Contractors (the IADC ). The addition of documented procedures periodically, their implementation and the monitoring of the quality management system of the Group is the responsibility of the Chief Executive Officer, who is also ultimately responsible to ensure the delivery of quality conforming products and services. The Group seeks to continually develop the Group s quality management and improvement systems, by identifying the expectations and needs of its customers and by processes including data collection and experience feedback from users of the systems, both onshore and offshore. 56

53 Songa Offshore is certified according to the International Safety Management (ISM) Code Health, safety and the environment (HSE) The Group always puts people and the environment first. Hence major focus has been put on working environment and behaviour based safety. The Group focuses continuously on competence management and a systematic approach to work that can include potential hazardous situations. The Group considers Risk Management to be a core activity in the Company and are actively using the Quality and Safety Management System to improve the working environment for the crew. A companywide campaign to focus on behaviour based safety contributes to heighten the safety awareness and also bonds crew and management through teambuilding sessions. Both health and welfare for all employees are important factors and the Group works to motivate the crew by ongoing campaigns and initiatives. The Board of Directors would like to thank all employees of Songa Offshore for their hard work and good efforts in The Group has established a QHSE annual plan which includes a set of corporate objectives for the year 2012 together with the supporting rig specific objectives and key performance indicators (KPI) as set by Songa Offshore management. All Songa Offshore personnel are expected to work as a team in order to successfully achieve these objectives and KPIs. The KPIs consists of detailed performance criteria within the following areas; Quality & HSE, Operations, Client satisfaction, Rig Maintenance and Rig budget adherence. The main objective for corporate organisation is to standardize a common approach for all our operations, within the company. Songa acknowledges that there are various standards of compliance depending on where we operate these requirements must be handled by the regions in conjunction to corporate standards. Songa common minimum standards for all our activities worldwide are described through a robust and efficient QSMS system Environmental system The Group always puts people and the environment first. Hence major focus has been put on working environment and behaviour based safety. The Group has certified both the companies and the rigs according to ISM (International Safety Management) Code. The ISM certificate is valid for 5 years, subject to yearly audits, which has to be conducted by the flag state or a recognized organization (Such as DNV or ABS) to be valid for the 5 year period. In highly regulated areas the local authorities has additional requirements (Norway, UK & Australia) were the HSE Case (in Norway the AOC) is a requirement. The HSE case has to be acknowledged before we are able to operate on the respective continental shelf. Songa Offshore has adapted the IADC guidelines for the preparation of an HSE Case. The company is also a member of the IMCA, which issues maritime standards and provide experience transfer between the marine industry. Penal provision for lack of complying with marine regulations can be detention of unit during a shipyard stay. The penal provision during petroleum activities in areas, such as the Norwegian Continental shelf, can result in immediate stop of operation, if the regulators considers the breach for very serious to people or the environment. Environmental reporting The Group has placed great emphasis so that the rigs meet all statutory requirements for emissions, pollution and environmental impact. The Group strives to comply with all classification society, flag state, national and international regulations, but more importantly the International Maritime Organization (IMO) requirements with regards to Environmental Issues. The IMO has 57

54 adopted the Marpol International Convention for the prevention of pollution. All our rigs are certified and holds the following certificates; IOPP (International Oil Pollution Prevention), IAPP (International Air Pollution Prevention) and ISPP International Sewage Pollution Prevention). The Group has also been audited against the International Safety Management (ISM) Code and has received the Document of Compliance (DOC) Certificate by American Bureau of Shipping (ABS) which essentially means the Group s Quality Safety Management System suffices international requirements of all facets of safety, health and the environment. With regards to the Group s compliance of these organizations regulations, the Group fulfils accepted international standards for environmental considerations. For further information about the Group s environmental policy, we refer to the Company s webpage Waste management system The Group seeks to ensure that all waste and waste products generated as a result of the Group s operations are disposed of in a safe and efficient manner, without harm to employees, the environment or third parties and in compliance with relevant environmental guidelines and legislation. The Group s management is ultimately responsible for the application of the Group s waste management system, with all employees sharing responsibility for its implementation. The Group seeks to achieve the objectives of the waste management system through waste elimination or minimization, waste recovery or recycling and safe and efficient disposal methods and their application. The Group seeks to commit all necessary resources to ensure adequate and appropriate disposal of waste in accordance with the Group s waste management procedures. Consideration is given to (a) the nature and quantity of waste, (b) the environmental impact of relevant waste disposal methods at the particular location (c) the waste products that will be generated (and their subsequent disposal) when purchasing raw materials (including the containers and packaging containing the raw material) and (d) exposure of personnel to accumulations of waste and strategies for personnel protection. The Group believe that the Group provides adequate training to employees in waste minimization and handling. The Group also audit waste control and disposal methods on a periodic basis to ensure compliance with the Group s waste management procedures and relevant new technology. Type and quantity of energy and raw materials consumed Drilling with Non-Aqueous Drilling Fluid (NAF): High-speed shale shakers will be used to provide an average of less than 20% wet weight mud on cuttings over the NAF Sections of the well. Upon completion of drilling with NAF based fluids, the drilling fluid is returned to the supplier for reconditioning and re-use. Drill cuttings: Discharged to sea through a shunt pipe placed below the sea surface. The discharge depth is set and selected to achieve maximum dilution effects and to minimize impacts upon the surface waters. Deck Drainage: Spillage of diesel, cleaning solvents or mud chemicals will be cleaned up completely using absorbent pads and low toxicity biodegradable detergents. Deck drainage, wash down water and machinery space drainage will be processed through an oil-water separator as required and in accordance with rules and regulations. Sewage: The drilling units are equipped with sewage treatment units; all sewage is properly treated prior to disposal at sea. 58

55 Galley wastes: Food waste will be macerated to less than 25 mm and discharged to the sea at a distance of more than 12 nautical miles (22 km) from shore. Quantity of retuned waste oil and emission due to rig activity 2011 Atmospheric Emissions Vessel Fuel consumed m3 Waste oil m3 SO2 (T) NOx (T) CO (T) Dee Eclipse Mercur Venus Songa Trym and Songa Delta are not included as they are not managed by the Group Action taken or planned to be taken to eliminate or deduce environmental damage Environmental Procedures are integrated within Songa Offshore s units Quality & Safety Management System. Incidents are covered in the specific procedure for each area the Group operate. Additionally all Songa Offshore Vessels have classification society approved Ship Oil Pollution Emergency Plan (SOPEP). The purpose of these plans is to provide guidance to the Master and Officers on board the Mobile Offshore Drilling Units (MODUs) with respect to the steps to be taken when pollution incidents have occurred or is likely to occur. Effective planning ensures that the necessary actions are taken in a structured, logical, and timely manner. These plans and procedures are written in accordance with the requirements of Regulations 26 of Annex I of the International Convention for the Prevention of Pollution from ships 1973, as modified by the Protocol of 1978 relating thereto. The SOPEP contains all information and operational instructions required by the Guidelines. These Plans have been approved by the Administration and no alteration or revision shall be made to any part of the plan without prior approval of the Administration. The plan is designed to link into the Corporate Crisis Management Plan for dealing with oil pollution emergencies. The Offshore Installation Manager will be backed up on-scene by managementappointed personnel as the circumstances and the position of the rig at the time of the incident require. Regular exercises will ensure that the plan functions as expected and that the contacts and communications specified are accurate. Such exercises may be held in conjunction with other shipboard exercises and appropriately logged. 8.7 The rig fleet The Group s asset base as of the date hereof consists of six semisubmersible drilling rigs and four semisubmersible rigs under construction at DSME. A summary of the technical details of each of these units are set out below. For a detailed overview of the rig and equipment, please refer to the Company s web site at 59

56 Songa Delta Rig: Semi-submersible drilling rig, winterized Built: 1981, Rauma Repola Oy, Pori Finland Design: Modified Ocean Ranger design Upgraded: 1996, 2011 Flag: Norwegian Class: DNV + 1A1 Column Stabilized Unit Water depth: 2,300 ft Drilling capacity: 25,000 ft Accommodation: 100 The Songa Delta is an "Ocean Ranger" design column stabilized, semi-submersible drilling unit, capable of operating in water depths up to 2,300 feet, using 15k BOP system. Songa Delta was built in 1981 and upgraded in 1996 and The rig is currently managed by Odfjell Drilling and is operating for Wintershall / Det norske oljeselskap. Songa will take over the operational responsibility for the rig in summer 2012 and the rig will then commence a four year contract with 1 year option for Statoil. Songa Trym Rig: Semi-submersible drilling rig, winterized Built: 1976, Verdal/Bergen Design: Modified Aker H-3 Upgraded: 1996, 2002, 2005 Flag: Norwegian Class: DNV Class A1 Column Stabilized Unit Water depth: 1,312ft Drilling capacity: 25,000 ft Accommodation: sick berths The Songa Trym is a self propelled type Aker H-3 modified semi submersible drilling unit, capable of operating in water depths up to 1,312 feet using a 18-3/4", 10k BOP and 21 OD riser. Songa Trym was built in 1976 and upgraded in 1996, 2002 and The rig is currently being managed by Odfjell Drilling and is operating for Statoil on the Troll field. Songa will take over the operational responsibility for the rig in summer Songa Dee Rig: Semi-submersible drilling rig, winterized Built: 1984, Mitsubishi Heavy Industries, Ltd. Design: Mitsubishi type MD-602 enhanced Upgraded: 2004 Flag: Marshall Islands Class: DNV Class A1 Column Stabilized Unit Water depth: 1,800 ft Drilling capacity: 30,000 ft Accommodation: sick berths The Songa Dee is a Mitsubishi type MD-602 enhanced design stabilized, semi submersible drilling unit, capable of operating in water depths up to 1,800 feet using a 18-3/4" x 15k BOP with 21" OD riser, and is winterized for work in arctic conditions. Songa Dee was built in 1984 and upgraded in The rig is currently on a 5 year firm contract with Statoil operating on the Gullfaks field. Songa has full operational responsibility and management of the rig. 60

57 Songa Venus Rig: Semi-submersible drilling rig Built: 1975, Bethlehem Steel Corporation Design: F&G L-900 Upgraded: 2005, 2006 Flag: Marshall Islands Class: ABS Water depth: 1,500 ft Drilling capacity: 25,000 ft Accommodation: 110 The Songa Venus is an F&G L-900 design semisubmersible drilling unit, capable of operating in water depths up to 1,500 feet using a 18-3/4", 10k BOP and 21"OD riser. Songa Venus was built in 1975 and upgraded in 2005 and The rig commenced operation for Petronas in Malaysia on October Songa Mercur Rig: Semi-submersible drilling rig Built: 1989, Vyborg Shipyard JSC Design: F&G 9500 Upgraded: 1999, 2006, 2007 Flag: Marshall Islands Class: DNV Water depth: 1,200 ft Drilling capacity: 25,000 ft Accommodation: 120 The Songa Mercur is F&G 9500 design semisubmersible drilling unit, capable of operating in water depths up to 1,200 feet using a 18-3/4" x 15k BOP with 21" OD riser. Songa Mercur was built in 1989 and upgraded in 1999 and 2006/2007. Songa Eclipse Rig: DP Semi-submersible drilling rig Built: 2011, Jurong Shipyard, Singapore Design: F&G ExD Upgraded: - Flag: Marshall Islands Class: ABS DP Class 2+ Water depth: 10,000 ft (outfitted 7,500 ft) Drilling capacity: 40,000 ft Accommodation: 164 The Songa Eclipse is an ultra-deep water rig, delivered in August 2011, and is a well proven design being the 10th out of a series of 11 rigs of the same design being built. In 2011, Songa Offshore increased its ownership in Songa Eclipse to 100%. The rig was awarded 18 months contract plus 1 firm well (plus 3x1 year options) with Total in Angola following delivery from the yard. 61

58 4 x Cat-D rigs under construction Rig: Semisubmersible drilling rig, harsh environment Built: Planned delivery 2014 and 2015, Daewoo Design: GVA 4000 NCS Upgraded: Flag: Class: 1A1 Column Stabilized Drilling unit, DP-3 Water depth: 1,640 ft Drilling capacity: 28,000 ft Accommodation: 130 The Cat D rigs are designed in collaboration with the industry, based on proven technology. All four contracts with Statoil are for 8 year firm plus 4 x 3 years options. Flexibility of the Cat D design allows for the rig to be equipped for deep water mode and winterization for work in the Arctic. Statoil has awarded the contract for the two first Cat D rigs on behalf of the participants in the Troll license, while the other two Cat D rigs will be used in the Barents Sea and the Åsgard, Nome & Heidrun fields. 8.8 Contractual status Offshore drilling contracts in general The Company expects its future contracts for the provision of offshore drilling services to vary in their terms and conditions. The Company may obtain drilling contracts either through competitive bidding or through direct negotiations with oil companies. Drilling contracts generally provide for a fixed day rate that is payable regardless of whether the drilling results in a successful well. Drilling contracts usually provide for lower rates for days on which the rig is in transit or drilling operations are interrupted by adverse weather conditions or other conditions beyond the Company s or the customer s control. Likewise, the Company may receive lower day rates or no day rates at all, for periods during which drilling is restricted or interrupted as a result of equipment breakdowns. Under typical drilling contracts, such interruptions in drilling operations that accumulates to more than one to two days per month result in a loss of day rate, and longer interruptions (typically lasting for more than 15 to 30 consecutive days) may permit the oil company to cancel the drilling contract. The Company typically would continue to incur full operating costs during any interruptions in the operation of its rigs. Certain interruptions caused by technical breakdowns may be covered by the Company s insurance. However, the Company has a policy of not having Loss of Hire insurance. Some day rate contracts provide for the payment of performance bonuses. Payments under day rate contracts are expected to account for the most substantial portion of the Company s revenues. As a result, it is unlikely that the Company will realize revenues from its rigs for periods during which they are not under contract or are not in use due to repairs or maintenance. Under day-rate contracts, the Company will be responsible for all operating expenses of its rigs, including wages, supplies, insurance, repair and maintenance costs and the fees payable under its rig management contracts with third parties. The duration of day rate contracts generally encompasses either the drilling of a single well or group of wells or a stated calendar period (the latter being known as term contracts ). Drilling contracts may usually be terminated by the customer if the rig is destroyed or lost, if the performance of the contractor does not meet the contractual obligations, or if drilling operations are suspended for a set period of time due to a breakdown of equipment or certain events beyond the control of the parties. 62

59 8.8.2 The contracts The graph below shows the contracts for the drilling fleet: Songa Dee Songa Dee has completed its Marathon and Lundin programs, and commenced its contract with Statoil. As part of a Contractual Optional agreement, Statoil Petroleum AS exercised its right to extend the Songa Dee contract from the original 3 years to a 5 year firm contract plus one optional year. This increased the contract value to USD 620 million for the firm part of the contract. Songa Trym Songa Trym is fixed on a contract with Statoil that will run until 1 July In July 2011 the rig was awarded a contract from Statoil for the use of Songa Trym for a 3 years firm plus 2x1 year option Drilling Contract on the Norwegian Continental Shelf. The firm part of the contract has an aggregated revenue value of approximately USD 462 million inclusive a rig upgrade element and an associated yard stay prior to contract commencement. The yard stay and contract with Statoil will commence in direct continuation of the rig's current commitment and subsequent demobilization from Statoil Troll license mid Songa Offshore will undertake full rig management and operations responsibility of the Songa Trym from current Odfjell Drilling Management at time of transition between contracts. Songa Delta Songa Delta is fixed on a contract with Wintershall and Det norske oljeselskap at a day rate of USD 460,062 per day including escalation clauses. The contract is firm for three years until May 2012 with no option periods. In March 2011, the rig was awarded a contract from Statoil for the use of Songa Delta for a 3 years firm plus 1 year option Drilling Contract on the Norwegian Continental Shelf. As part of a Contractual Optional agreement, Statoil exercised its right to extend the contract with Songa Delta in March The contract was extended from the original 3 years to a 4 year firm contract plus one optional year. This increased the contract value from USD 422 million to USD 542 million for the firm part of the contract, and remains inclusive of a rig upgrade element and an associated yard stay prior to contract commencement. 63