No.: 071 Established: Revision no.: 2 Rev. date: Page: 2

Transcription

1 071 Norwegian Oil and Gas Recommended guidelines for additional information from the operators for the annual accounts and audit of the licence accounts Translated version

2 No.: 071 Established: Revision no.: 2 Rev. date: Page: 2 PREFACE These guidelines are recommended by Norwegian Oil and Gas expert network for the finance reference group and Norwegian Oil and Gas committee for taxation and fiscal framework conditions. Furthermore, it has been approved by the director general. The work group has been composed of the finance reference group and Kjell Tore Thorsen, ConocoPhillips, who is responsible for this recommended guideline. The responsible manager in Norwegian Oil and Gas is the taxation and fiscal framework conditions manager, who can be contacted via Norwegian Oil and Gas switchboard at These Norwegian Oil and Gas guidelines have been prepared with broad-based participation from stakeholders in the Norwegian petroleum industry and are owned by the Norwegian petroleum industry, represented by Norwegian Oil and Gas. Norwegian Oil and Gas is responsible for administration. Norwegian Oil and Gas Vassbotnen 1, 4313 Sandnes P.O. Box Stavanger Telephone: Fax: Website: firmapost@norog.no

3 No: 071 Established: Revision no: 2 Rev. date: Page: 3 CONTENTS PREFACE INTRODUCTION Purpose Terminology References Changes made ADDITIONAL INFORMATION FROM THE OPERATOR TO THE ANNUAL ACCOUNTS Additional monthly reporting Additional annual reporting Size of the spare parts inventory that can be expensed for tax purposes Non-deductible costs such as entertaining, membership fees, etc Cessation expenses (shutdown and removal expenses) Lease commitments (operating lease) and other long-term commitments Restructuring Allocations without tax deduction, Section 14-4, third subsection of the Tax Act Environmental reporting Statistics Norway AUDIT OF THE LICENCE ACCOUNTS... 10

4 No: 071 Established: Revision no: 2 Rev. date: Page: 4 1 INTRODUCTION 1.1 Purpose Section 1.3.1, first sentence of the Accounting Agreement states: The Parties are responsible for keeping their own accounts in accordance with Norwegian statutes, rules and regulations and in accordance with generally accepted accounting principles. The Operator s settlements and schedules shall be presented in such a way as to ensure that these conditions can be met. The Operator shall also supply the Non-Operators with other information that they can reasonably request in connection with keeping of the Non-Operators accounts. Section 1.3.1, letters a) through f) of the Accounting Agreement stipulates certain items of information that shall be submitted to the parties periodically. The monthly settlements do not provide sufficient information for the non-operators to meet their obligation to provide information for the notes in the annual accounts, nor sufficient data for the tax return. In addition, companies that are listed on stock exchanges outside Norway have additional requirements for information in the annual accounts (e.g. US GAAP, IFRS). Information in addition to the monthly settlement is therefore necessary. In order to reduce the operator s workload by standardising the reporting and while also improving the flow of information to non-operators, Norwegian Oil and Gas seeks to provide Recommended Guidelines that, among other things, provide a nonexhaustive listing of typical matters that the operator shall give information about. The operator can thus incorporate this in its routines for submitting information. Such information need not necessarily be given as separate accounting information, but may be given in monthly operating reports or other standard reporting. These guidelines provide directions for a recommended reporting frequency for the individual items. Overall reporting shall at all times reflect the varying information requirements imposed on the joint venture participants. It is therefore the operator s duty, in addition to this recommendation for reporting of standard items, to assess which relevant items shall be reported in addition, based on actual incidents or amendments to regulations, etc. These guidelines have been updated based on changes in the Joint Venture Agreement and the Accounting Agreement effective as of 1 January 2007.

5 No: 071 Established: Revision no: 2 Rev. date: Page: Terminology IFRS International Financial Reporting Standards Rskl the Accounting Act NRS the Norwegian Accounting Standards Board FAS Financial Accounting Standards SEC Securities and Exchange Commission US GAAP United States Generally Accepted Accounting Principles 1.3 References Joint Venture Agreement Accounting Agreement The Tax Act Regulations to act relating to petroleum activities 1.4 Changes made The following changes were made in the revision of these guidelines. The guidelines have been entered into a new template as a result of the name change from the Norwegian Oil Industry Association (OLF) to Norwegian Oil and Gas. The chapter division has changed as a result of this. Furthermore, changes have been made in the following Chapters: 2.2: Changed reference to the Tax Act 2.3: Change in deadline for Annual additional reporting 2.3.4: Change in chapter relating to lease commitments

6 No: 071 Established: Revision no: 2 Rev. date: Page: 6 2 ADDITIONAL INFORMATION FROM THE OPERATOR TO THE ANNUAL ACCOUNTS 2.1 Additional monthly reporting - Allocations without tax deduction, Section 14 2, second subsection of the Tax Act. We recommend that the operators give continuous information to the licences on allocations that come under this category. - Information on the sale of fixed assets Information on the sale of fixed assets should accompany the monthly settlement for the licence and as a minimum contain information on the investment year. 2.2 Additional annual reporting The requirements for the individual items are described in further detail in the appendix to these guidelines: Size of the spare parts inventory that can be expensed for tax purposes - Deadline 5 th business day in the month of January. In those cases where the licence has a separate inventory, the operator will report the share of the inventory that could be considered spare parts that can be expensed at the end of the year. This information should be available for the annual report and accounts Non-deductible costs such as entertaining, membership fees, etc. - Deadline by the end of the month of January.

7 No: 071 Established: Revision no: 2 Rev. date: Page: Cessation expenses (shutdown and removal expenses) - This information is critical for the annual report and accounts and should be communicated well in advance of the end of the year, preferably by the end of November. The operator shall submit an annual report to the licensees that comprises all future cessation expenses. Information should be provided on fundamental assumptions for the cost estimates, including whether market prices at the time of estimation were used, whether any adjustments have been made for future development in the market prices, exchange rates for foreign content, etc. The expenses shall include all relevant expenses for conducting the shutdown activities, including support functions such as logistics, HSE and accommodation. The expenses shall be stated in the current NOK value, indicating the portion of foreign currency when this portion is substantial, in which case the foreign exchange rates used must be stated. Cessation expenses shall be stated for each platform (installation) - Shutdown expenses Expenses for platform shutdown and plugging of wells, if relevant. - Removal expenses Expenses for removal of the platform from the shelf, landing and scrapping onshore. - Operating expenses in the cold phase Necessary expenses for maintaining and operating the platform from shutdown until removal. - Time specification for when the individual cessation expenses are incurred (per year) Time specification for when essential expenses are incurred per year. - Content of foreign currency if this constitutes a considerable portion of the expenses for example rig lease Lease commitments (operating lease) and other long-term commitments. This information is necessary for the notes to the annual accounts, in accordance with Sections 7-13 and 7-21 of the Accounting Act, NRS 14 Lease agreements and IAS in addition to FAS and the SEC requirements for companies that report according to US GAAP rules. Due to the complexity of this reporting, in addition to the fact that some companies have short reporting deadlines, we encourage preliminary reporting with a deadline of 15 December. The deadline for final reporting is the 10 th business day in January.

8 No: 071 Established: Revision no: 2 Rev. date: Page: 8 All contractual commitments and lease agreements must be considered, also those entered into as the result of a development decision. The reporting applies for all material commitments. Lease commitments: Non-cancellable contractual commitments for long-term lease contracts (more than 12 months) must be reported. The actual lease of the fixed asset (capital part) of contracts must be reported, not the operations part if the fixed asset is also operated by the owner (lessor). However, as regards material lease agreements, the variable lease which is expensed in the current accounting year should be stated. Only the part of the lease amounts that cannot be avoided (cannot be cancelled) should be reported, and amounts during a potential option period for extension should thus not be included. Reporting of financial lease agreements is not included in this annual reporting and must be reported separately and then contain information about remaining lease payments and the current value of these. The year s capitalised value must also be stated. The estimated lease payment which is due over the course of one year, two or five years and more than five years in the future, respectively, must be specified with both the nominal amount and current value. Cancellable: If the lease agreement includes clauses stating that the agreement can be cancelled, but only by incurring considerable amounts, a fair assessment must be made as to whether this, in reality, means that the contract is not cancellable and should thus be reported. Is it a lease commitment or is it a service? In those cases where the lease agreement does not specifically identify the lease object and/or the lease object is operated by the lessor, the agreement cannot be considered a lease agreement and will therefore have to be considered for reporting like other long-term commitments. Examples of this include helicopter transport to and from the offshore facilities and possibly supply vessels if they have not been identified and the shipowner can replace them with a corresponding vessel. Reporting format: The lease commitment should indicate the type of fixed asset being leased; such as office lease, drilling rigs, special vessels, SAR helicopter. Lease agreements with a duration shorter than one year should not be reported. This also includes when there is less than one year left on long-term lease agreements. The amounts should be shown per year for the next five years and the actual lease payments must be reported for the current year. Other long-term commitments:

9 No: 071 Established: Revision no: 2 Rev. date: Page: 9 For lease agreements that include operation of the fixed asset, for example that a drilling rig is operated by the owner, the portion of contractual operating amounts that cannot be avoided should be reported. This could vary considerably in the individual contracts and must be carefully considered. One possibility that must be considered is whether only the laying-up amounts should be reported because they cannot be avoided. The same requirements apply here for identification and reporting of long-term amounts and per year as for the lease commitments. The current year naturally does not need to be reported. Relationship to the licence: It is a precondition that there is a reasonably direct relationship between the commitment and the licence. This must be considered on a case-by-case basis and, for example, offices for an operator with multiple licences and downstream activities will not be reported, as compared with if the licence is the dominating activity for the operator Restructuring Together with the Accounting Agreement, which is valid from 1 January 2007, this information is sufficiently detailed in the monthly settlement Allocations without tax deduction, Section 14-4, second subsection of the Tax Act. The operator should provide a status of the preliminary reporting submitted over the course of the year (see monthly reporting). Since this information is used in the annual report and accounts, this information should be reported by the 5 th working day in January. Non-financial information required pursuant to the Accounting Act and information requirements for the annual accounts: 2.3 Environmental reporting As regards environmental reporting, it is considered sufficient that non-operators can refer to the operator s annual reports. This was done for 1999 and Norwegian Oil and Gas will consider issuing guidelines if this is not sufficient in the future. 2.4 Statistics Norway Standardisation of data acquisition for Statistics Norway will be covered by other recommendations/measures.

10 No: 071 Established: Revision no: 2 Rev. date: Page: 10 3 AUDIT OF THE LICENCE ACCOUNTS The wording of Section 62 of the Regulations to Act relating to petroleum activities reads as follows: In licences with state participation, the operator shall ensure that the annual settlement for the licence, prepared in accordance with the licence, is audited by a state authorised public accountant. The audit report, in accordance with RS 800, shall be available no later than four months after the end of the financial year. In a letter dated 29 December 1999, the Ministry of Petroleum and Energy stated that the text of the audit report must be given a form and content that are satisfactory, also in the view of the Office of the Auditor General of Norway. We recommend that the appended proposed text (Appendix 2) be used in the statement from the state authorised public accountant. Any specifications, reservations or negative statements shall be incorporated into the recommended text of the statement. The Office of the Auditor General of Norway is aware that the word statement is used in the document for the time being, even though the text of the regulations states audit report".

11 No: 071 Established: Revision no: 2 Rev. date: Page: 11 To the partners in Licence "name" STATEMENT REGARDING ANNUAL SETTLEMENT FOR LICENCE "name" FOR 200X This statement is given in accordance with the Regulations to act relating to petroleum activities of 27 June We have audited the annual settlement as of 31 December 200X for licence "name", showing net annual expenses of NOK xxxxxxx. The annual settlement is based on agreements, including the Accounting Agreement, between the participants in the licence, and shows investments, income and expenses related to joint activities which are credited or charged to the participants, and payments and disbursements and other joint commitments or current assets. The settlement has been submitted by the operator of the licence. We have performed the audit in accordance with generally accepted auditing standards, and submit our statement in accordance with the auditing standard RS 800 Auditor s statement for auditing assignments for special purposes. The auditing standards require that we plan and perform the audit to obtain reasonable assurance that the annual settlement does not contain material misstatements. The audit includes controlling selected portions of the material on which the information in the annual settlement is based, as well as an assessment of the content and presentation of the annual settlement. The audit also includes, to the degree this follows from generally accepted auditing standards, a review of the operator s asset management and accounting and internal control systems. We believe that our audit provides a prudent basis for our statement. In our opinion - the annual settlement is a fair presentation of the year s net expenses and outstanding accounts as of 31 December 20XX in accordance with the accounting principles stipulated in the Accounting Agreement - the operator has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information in accordance with the law and generally accepted accounting principles. (Place, Date) (Firm of accountants) State Authorised Public Accountant