PROSPECTUS REGISTRATION DOCUMENT FOR THE NJORD GAS INFRASTRUCTURE AS NOK EQUIVALENT 10,000,000,000 SECURED TERM NOTE PROGRAMME

Transcription

1 PROSPECTUS REGISTRATION DOCUMENT FOR THE NJORD GAS INFRASTRUCTURE AS NOK EQUIVALENT 10,000,000,000 SECURED TERM NOTE PROGRAMME Arrangers UBS Investment Bank and The Royal Bank of Scotland 6 June 2011

2 IMPORTANT NOTICE RISK FACTORS PERSONS RESPONSIBLE IMPORTANT INFORMATION DESCRIPTION OF THE ISSUER EUROPEAN GAS MARKET THE GASSLED ASSETS REGULATORY FRAMEWORK OF GASSLED MATERIAL APPROVALS AND AGREEMENTS DESCRIPTION OF THE GUARANTOR FINANCIAL INFORMATION RELATING TO GASSLED FINANCIAL INFORMATION ON THE ISSUER FINANCIAL INFORMATION ON THE GUARANTOR TAXATION ANNEX 1 ANNEX 2 ANNEX 3 ANNEX 4 ANNEX 5 ARTICLES OF ASSOCIATION OF NJORD GAS INFRASTRUCTURE AS ARTICLES OF ASSOCIATION OF NJORD GAS INFRASTRUCTURE HOLDING AS DEFINITIONS ANNUAL REPORT FOR THE YEAR 2010 FOR NJORD GAS INFRASTRUCTURE AS CONSOLIDATED ANNUAL REPORT AND ANNUAL REPORT FOR THE YEAR 2010 FOR NJORD GAS INFRASTRUCTURE HOLDING AS

3 IMPORTANT NOTICE Please see Annex 3 for an index of definitions used in the prospectus. This Prospectus has been prepared by the Issuer (Njord Gas Infrastructure AS) in connection with the offering and listing of NOK equivalent 3,797,800,000 Bonds issued by the Issuer at the Oslo Stock Exchange. The Issuer has furnished the information in this Prospectus, in order to provide information to the investors that are offered the Bonds. This Prospectus must be read in connection with the Annexes to the Prospectus and other documents incorporated by reference. This Prospectus has been prepared to comply with the Norwegian Securities Trading Act and related secondary legislation, including EC Commission Regulation EC/809/2004. The Financial Supervisory Authority of Norway has reviewed and approved this Prospectus in accordance with the Norwegian Securities Trading Act Section 7-8. The Prospectus has been prepared solely in the English language. The information contained herein is as of the date hereof and subject to change, completion and amendment without notice. Neither the delivery of this Prospectus nor the Bond Issue or the listing of the Bonds at any time after the date hereof shall, under any circumstances, create an implication that the information contained herein is complete or correct as of any time subsequent to the date hereof or that the affairs of the Issuer have not since changed. In accordance with section 7-15 of the Norwegian Securities Trading Act, every significant new factor, material mistake, or inaccuracy relating to the information included in the Prospectus, which is capable of affecting the assessment of the Bond between the date of the Prospectus and the time of the listing of the Bonds on the Oslo Stock Exchange, will be included in a supplement to the Prospectus. An investment in the Issuer and the Bonds involves inherent risks. Potential investors should carefully consider the risk factors set out in section 1 "Risk Factors" in addition to the other information contained herein before making an investment decision. An investment in the Bonds 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 their investment. The contents of this Prospectus are not to be construed as legal, business or tax advice. Each reader of this Prospectus should consult with its own legal, business or tax adviser as to legal, business or tax advice. If you are in any doubt about the contents of this Prospectus you should consult your stockbroker, bank manager, lawyer, accountant or other professional adviser before making any investment decision. All inquiries relating to this Prospectus must be directed to the Issuer or the Arranger. No other person is authorised to give any information about or to make any representations on behalf of the Issuer in connection with the Bond Issue. If any such information is given or made, it must not be relied upon as having been authorised by the Issuer or the Arranger. The distribution of this Prospectus and subscription of Bonds may, in certain jurisdictions, be restricted by law, and this Prospectus may not be distributed into or used for the purpose of, or in connection with, any offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. No action has been or will be taken in any jurisdiction other than Norway by the Issuer or the Arranger that would permit a public offering of the Bonds, or the possession or distribution 3

4 of any documents relating thereto, in any jurisdiction where specific action for that purpose is required. Accordingly, this Prospectus may not be used for the purpose of, and does not constitute, an offer to sell or issue, or a solicitation of an offer to buy or subscribe for, any securities in any jurisdictions in any circumstances in which such offer or solicitation is not lawful or authorised. The Issuer and the Arranger require persons in possession of this Prospectus to inform them about and to observe any such restrictions. Explicitly, the Bonds are not being offered and may not be offered or sold, directly or indirectly, in the United States of America, Canada, Japan or Australia or to or for the account of any resident of the United States of America, Canada, Japan or Australia. Each prospective investor must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, applies for, offers or sells the Bonds or possesses or distributes this Prospectus and must obtain any consent, approval or permission required by it for acquiring the Bonds. None of the Issuer, the Guarantor, the Arrangers, or the Bond Trustee accept responsibility to investors for the regulatory treatment of their investment in the Bonds (including (but not limited to) whether any transaction or transactions pursuant to which Bonds are issued from time to time is or will be regarded as constituting a "securitisation for the purposes of Directive 2006/48/EC (as amended) (the "CRD") and the application of Article 122a to any such transaction) in any jurisdiction or by any regulatory authority. If the regulatory treatment of an investment in the Bonds is relevant to an investor's decision whether or not to invest, the investor should make its own determination as to such treatment and for this purpose seek professional advice and consult its regulator. Prospective investors are referred to Section 1.13 of the Securities Notes for further information on Article 122a. The terms and conditions of the Bond Issue as set out in this document shall be governed by, and construed in accordance with, Norwegian law. The courts of Norway, with Oslo District Court as the legal venue, shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Bond Issue or this Prospectus. 4

5 1 RISK FACTORS In addition to the other information set out in this Prospectus, the following risk factors should be carefully considered by investors when deciding what action to take in relation to the Bond Issue and by others when deciding whether to make an investment in the Bonds. Any of the risks described below could have a material adverse impact on the Issuer and Gassled s business, financial condition and results of operations and could therefore have a negative effect on the trading price of the Bonds and affect a prospective investor s investment. The information below does not purport to be exhaustive. Additional risks and uncertainties not presently known to the Issuer or that the Issuer currently deems immaterial may also have an adverse material effect on the Issuer's and Gassled's business, financial condition and operating results. If this occurs, the price of the Bonds may decline and investors could lose all or part of their investment. 1.1 Risks related to the Issuer Limited operating history The Issuer was incorporated on 25 January 2010 and has a limited operating history. Only very limited historical financial information is currently available for the Issuer. The cash flow of the Issuer will predominantly be generated by the income from the Participating Interests. However, no assurance can be given that the historical Gassled income will provide investors with an accurate indication of the financial performance of the Issuer. Gassled was established in 2003 and has a limited operating history in its present form. Thus, its past operating results may not serve as an adequate basis to judge its prospects and future results. The various parts of Gassled have different operation history and life span. Although most of the Gassled Assets are mature assets with a long operation history and stable management by Gassco, no assurance can be given that this trend will continue or that future results will correspond to the previous performance of the Gassled Assets. As detailed in section 4.3, the Participating Interest decreased from 1 January 2011 to 8.036% in Gassled, to 3.890% in Zeepipe Terminal JV and to 5.160% in Dunkerque Terminal DA in accordance with the principles set out in the Participants Agreement. Further, the level of participation of the Issuer in future project investments may alter its Participating Interest. As such, the historical financial performance of the Participating Interests will not be directly comparable to the Issuer after 1 January Dependence on Gassled income The Issuer has no significant assets except for the Participating Interests. A significant decrease in future bookings of Gassled may significantly reduce future revenue. While the regulatory framework (see section 7) seeks to preserve the income of the Issuer in the event that the Issuer does not invest in additions of new gas transport assets into Gassled, there can be no assurance that such additions will not affect income of the Issuer. 5

6 1.1.3 Risk related to the Issuer's minority share in the Gassled Assets and control of Gassled by the Norwegian state The Participating Interest is a minority interest. As a result of being a minority stakeholder, the Issuer will not alone be able to control or block the outcome of matters submitted for the vote of the participants in Gassled and therefore has very limited influence on the operations of Gassled. This includes the choice of operator and sub-contractors that operate and maintain Gassled, which could have an impact on expenses and operating costs of Gassled and as such the profits from the Participating Interests. The Norwegian state controlled entities Petoro and Statoil together currently hold approx. 75% of the Gassled Assets. As a result of this, the Norwegian state will, although not having absolute voting control, have the ability to significantly influence decision making within Gassled. The goals of the Norwegian state as an indirect participant and those of the other Gassled Participants may not always remain aligned. For a further description of the risks related to the Norwegian state, see Section Risks related to the Guarantee Agreement As part of the security securing the Bonds the Guarantor has entered into the Guarantee Agreement with the Security Agent. The Guarantor has no other business other than the ownership of all shares in the Issuer and the Guarantor receives all its revenues from the Issuer. However, no assurance can be given that the Guarantor will not expand its exposure to other businesses in the future or otherwise incur liabilities not related to the Issuer or Gassled. No assurance can be given that the Guarantor will remain liquid and able to service claims arising from the Guarantee Agreement Risk of disputes, proceedings and litigation The Issuer as a Gassled Participant or otherwise may from time to time be involved in disputes and legal proceedings. Such disputes and legal proceedings may be expensive and time-consuming, and could divert management s attention from the Issuer s business. Furthermore, legal proceedings could result in rulings against the Issuer and the Issuer could be required to, inter alia, pay damages, which can consequently have a significant negative impact on the Issuer s business, prospects, operating results or financial condition Exchange rate risk Gassled Participants can receive Cash Calls in four currencies, NOK, EUR, GBP and USD. For all payments above the equivalent of NOK 50 million, Gassco makes Cash Calls to the Gassled Participants in the currency in which the invoice is raised. The majority of cash payments are NOK denominated. As cash is generally called by Gassco before the expenditure is expected, exposure to exchange rate fluctuations is between the dates the participant translates NOK into the currency of the Cash Call to the date the cost is recorded by Gassco in the following month. Any deviation is recovered via the tariff mechanism in the following year. Although the Issuer's functional currency is NOK and exposure to currency risk is limited, no assurance can be given that currency variations will not adversely affect the results of Gassled or the Issuer. 6

7 1.1.7 Conflict of interest Certain directors or officers of the Issuer may hold employment or and may also be directors or officers of other entities, as further described in section of this Registration Document, and as such may, in certain circumstances, have a conflict of interest requiring them to abstain from certain decisions. Conflicts, if any, will be subject to the procedures and remedies of the Norwegian Private Limited Liability Companies Act. 1.2 Risks related to the Gassled Assets Risk related to operations, maintenance and upgrading Gassled consists of an extensive system of pipelines, associated platforms, processing plants and receiving terminals, located on shore and off shore. The components of the transport system were constructed by different contractors at different times, and require different monitoring and maintenance operations. The pipelines that form the essential part of the system are located on the seabed at varying depths and in varying bottom conditions, making any maintenance and upgrading costly and time consuming. Furthermore, the North Sea and the Norwegian Sea experience harsh weather conditions and other natural risks which may affect the operations and maintenance of the Gassled Assets. The Gassled Assets include receiving and processing facilities on shore in Norway, the United Kingdom, France, Belgium and Germany. The processing and receiving facilities were constructed by various contractors at different times and process large volumes of dry and rich gas daily. Some of these facilities have reached or are approaching the end of their scheduled life expectancy. Consequently, the facilities need maintenance and upgrading to continue safe operations. Although the Gassled Assets are maintained according to current industry standards, there is a risk that some assets at some point may require major additional upgrading or maintenance not foreseen today. No assurance can be given that current operating performance can be continued as the components near the end of their scheduled life expectancy. The Issuer does not operate or maintain the Gassled Assets. The Gassled Assets are managed by Gassco, which in turn procures technical services from certain subcontractors, most of whom are operators on the NCS and Gassled Participants. The liability of Gassco and the subcontractors is limited, and they are dependent on key personnel, equipment and systems being available. The Issuer has no or only limited influence on the choice of operator or subcontractors, as well as on their performance. The contractual arrangements which Gassled has in relation to the operation and maintenance of the Gassled Assets are set out in the Operating Agreement with Gassco, and technical services agreements with (i) Statoil, (ii) ConocoPhillips Norge AS, (iii) Centrica Onshore Processing UK Ltd, (iv) GDF Suez E&P Norge, and (v) Total E&P UK plc and Elf Exploration UK plc. Certain other services agreements have also been entered into. The aforementioned agreements do not guarantee Gassled a right to damages from the relevant counterparty in the case of an operational or maintenance failure. No assurance can be given that the operations of Gassled will not be negatively affected by operator or subcontractor error or negligence or operational incidents. 7

8 1.2.2 Risk of operational disruptions, catastrophes, natural disasters, or sabotage The main risk to any submarine hydrocarbon transport system in the operational phase is third party damage, as a result of which Gassled would be exposed to consequent availability risk. Protection against such damage is provided by the pipeline outer shell, combined with external protection by burial in the seabed or rock dumping over the installed pipeline, depending on the local seabed conditions. It is possible that pipeline damage will occur as a result of failure to maintain adequate external protection. Gassled is a party to crossing agreements with the owners of cables and pipelines which cross or are crossed by pipelines forming part of the Gassled Assets. The agreements may contain mutual indemnities against damage to a party's cable or pipeline caused by the other party's operations and these may be subject to liability caps. The occurrence of an accident, natural catastrophe or act of deliberate sabotage at one of the Gassled facilities could threaten, disrupt or destroy a significant portion or all of Gassled's transport capacity for a significant period of time. Certain of these events could also result in the prepayment of the Bonds in accordance with the terms of the Common Terms Agreement. Gassled and the Issuer could incur losses and liabilities arising from uninsured events, including damage to the Gassled's reputation, and/or suffer substantial losses in operational capacity, which could have a material adverse effect on the Issuer s business, prospects, operating results and financial condition General environmental risks The operations of Gassled involve significant environmental and regulatory risks as a result of the hazardous materials handled and the greenhouse gases produced. Both the transport and the processing of gas may have effects on the environment that may negatively affect the results and reputation of Gassled. Flaring and ground water pollution may cause environmental damages that Gassled could be required to address. Noise, vibration and other forms of disturbance are also considered environmental issues by the authorities and may have adverse consequences. The Gassled operations are subject to various environmental, health and safety laws and regulations that impose operational compliance and remediation obligations. Operational compliance obligations can result in significant costs to install and maintain pollution controls, fines and penalties resulting from any failure to comply and potential limitations on the ability to operate. Serious or repeated failure to comply with such laws and regulations can ultimately result in the Gassled licences being revoked. Environmental remediation obligations can result in significant costs associated with the investigation and clean-up of contaminated properties or water bodies as well as claims for damage to property. In addition, the Gassled Participants may face claims of injury to persons resulting from exposure to hazardous materials from the operation of the transport system or of adverse impacts of natural resources resulting from these operations. If a spill or other contamination results from the production, processing, export or storage of natural gas or another hazardous material, the Gassled Participants could be exposed to significant environmental liabilities. Claims could be brought against the Gassled Participants even if the spill or contamination was caused by or attributable to a third party or a party acting on behalf of the Gassled Participants. Any or all of these hazards, as well as possible legal liability arising from 8

9 them, could have a material adverse effect on the Issuer's financial condition and results of operations, and the ability to make payments of principal of and interest on its indebtedness, including the Bonds, or the value of the Security Interests. It is not possible to estimate exactly the amount and timing of all future expenditures related to environmental matters because of: possible future discovery of new environmental conditions or additional information about existing conditions; uncertainties in estimating pollution control and any future clean-up costs; uncertainty in quantifying liability under environmental laws that impose liability without fault on potentially responsible parties; and the evolving nature of environmental laws and regulations and their interpretation and enforcement Risk related to emissions of gases in the atmosphere The operations of Gassled involve emissions of certain gases into the atmosphere, including but not limited to carbon dioxide, nitrogen oxide, methane, non-methane volatile organic compounds and sulphur dioxide. For such emissions, Gassled is dependent on required authorisation from the authorities with regard to emission caps, quotas and other requirements. Gassled currently operates within the allowed limits set for emission of gases into the atmosphere, but no assurance can be given that such limits will not be altered in the future or that cost of such emissions will remain unchanged. A number of legislative and regulatory measures to address greenhouse gas emissions are in various phases of discussion or implementation. The technology for emission reduction is also in a state of rapid development, and may lead to regulatory measures favouring a certain technology or method for reducing emissions from gas processing. These measures could result in increased costs (including a potential tax on emissions) to (i) operate and maintain the respective facilities used for the upstream operations and midstream operations; (ii) install new emission controls on the facilities used for the upstream operations and midstream operations; and (iii) administer and manage a greenhouse gas emission program. In addition, these measures could impact the consumption of natural gas by Gassled's customers, thereby affecting Gassled operations. Gassled also operates facilities to capture and store carbon (CCS-facilities). Such facilities involve complex solutions to capture and store carbon gases to reduce emission into the atmosphere. Although Gassled operates its CCS-facilities in accordance with industry standards, no assurance can be given that events leading to unexpected emissions or other environmental incidents may not occur in the future Risk related to life expectancies and decommissioning costs The various elements of Gassled have a range of life expectancies. Some components are at, or approaching, the end of their scheduled life expectancy. Although Gassco and the Gassled Participants have an understanding of the system s life expectancies, events may lead to the life expectancy being shorter than anticipated. 9

10 The costs in connection with decommissioning of the Gassled Assets shall pursuant to the agreements governing Gassled and the operation of the Gassled Assets be borne by the Shippers in proportion to each Shipper's share of the total reserved capacity over the life of the relevant asset. For volumes shipped before 2003, the liability of Shippers is subject to the agreements that were in force at that time. No assurance can be given that the costs and schedule for removal of the installations are correctly anticipated, and this may have an adverse affect on the cash flow profile. The Gassled Participants are jointly and severally liable for any Gassled Assets decommissioning costs not covered by Shippers for any reason Shipper counterparty risk The income generated by the Gassled Assets is derived from a limited number of producers of gas on the NCS. If a Shipper becomes insolvent or defaults on its payment obligations to Gassled, this could have a material adverse effect on the financial condition and results of operations of the Issuer, the ability to make payments of principal and interest on the Bonds, or the value of the Security Interests. The Gassled operating procedures require that bookings are made to Shippers with appropriate financial solidity requirements, but there can be no assurance that one may not experience increased losses in the future. The solidity of counterparties may be weakened and the counterparty risk may increase due to events beyond Gassco or the Issuer's control or events not related to the energy market Other counterparty risk Gassled Participants: Gassled is an unincorporated joint venture regulated by agreements and the Norwegian petroleum legislation. The Gassled Participants are liable towards each other and private third parties on a pro rata basis in accordance with their respective ownership share. They are jointly and severally liable for certain statutory liabilities and liabilities towards the Norwegian state. Upon default by a participant on its obligations, whether in connection with the ordinary business of Gassled or upon the dissolution of Gassled and decommissioning of the Gassled Assets, the liability of other participants may increase. Although the Gassled Participants are, or are wholly owned by, substantial companies with considerable trading history, no assurance can be given that these risks can be fully mitigated. A majority of the Gassled Participants are also large shippers of gas in the Gassled Assets. There can be no assurance that the interests of a participant that is also a significant Shipper will be aligned with those of the Issuer. Gassco: Gassco is responsible for making and collecting payments on behalf of the Gassled Participants, for entering into agreements on behalf of Gassled and for ensuring proper operation of the transport and processing system. Any non-performance by Gassco of its obligations may result in the participants suffering losses. Since Gassco's liability vis-à-vis the Gassled Participants is limited, no assurance can be given that this risk can be fully mitigated. Other counterparties: The Gassled Participants are in general also subject to counterparty risk vis-à-vis counterparties not operating as Shippers or contractors on the NCS, which may affect the liquidity or financial performance of the Issuer. 10

11 1.2.8 Future volume risk The Gassled Assets earn income from booked transport and processing capacity for which income is determined by the tariff regulations, cf. Section The demand for bookings on the Gassled Assets may fluctuate over time following changes in the gas price, transport costs and demand for gas from the NCS in Europe. No assurance can be given as to the future level of demand. The levels of gas reserves and future development projections may also influence the bookings on the Gassled Assets. The gas reserves identified on the NCS will at some point become depleted, and although current estimated levels of gas reserves are expected to provide substantial throughput beyond 2030, no assurance may be given that such estimates will prove to be accurate. This may adversely affect the shipped volumes and consequently bookings on the Gassled Assets Insurance Gassled Participants are required to obtain insurance relating to the Gassled Assets, which the Issuer has in place. The Issuer intends to establish three core insurance covers incorporating: Gassled JV operating insurance cover for physical loss and damage in compliance with all laws and contractual obligations per section 9 of the Gassled Participants Agreement. The basis of this cover will be the programme prepared by AON on an annual basis for Gassco with any further cover as advised by the Issuer s insurance advisers Business interruption cover for loss of gross profit following material damage to ensure the Issuer is able to meet its contractual and financial obligations in such event. Such insurance will provide a level of income, after allowance for a deductible, reflective of the forecast Gassled income and the expected minimum financial obligations of the company Corporate insurance cover for corporate risks including damage, theft, personal liability and director s insurance Although the Issuer has taken out insurance against certain risks and losses, not all operating risks are insurable and the coverage is subject to exclusions and limitations. The occurrence of any events that affect Gassled operations and are not fully covered by insurance could have a material adverse effect on the financial condition and results of operations of the Issuer, the ability to make payments of principal and interest on the Bonds, or the value of the Security Interests. 1.3 Regulatory risk and Norwegian state risk Norwegian state risk The Norwegian state has a controlling influence in the two largest Gassled Participants, Petoro and Statoil. These participants also ship a significant amount of the gas transported by Gassled. The Norwegian state also owns 100% of the Gassled operator Gassco, and is involved in various other oil and gas operations on the NCS. Furthermore, all major aspects of the operations of Gassled are subject to regulations and approval or licence requirements set by various Norwegian government entities. This includes the Gassled tariffs. The Norwegian government is also responsible for 11

12 supervising and controlling activities on the NCS. The Norwegian state also decides the tax regime for the NCS and other Norwegian based income and activities. With a substantial presence in all aspects of Gassled operations, the Norwegian state can exert significant influence on Gassled and the activities on the NCS in general. There can be no assurance that the interests of the Norwegian state, whether as an owner of gas reserves and general commercial participant or as responsible for regulating, supervising and taxing the activities on the NCS, will be aligned with those of the Issuer and not adversely affect the operations or income of Gassled or the Issuer. In addition, Gassled is also indirectly exposed to the credit risk of the Norwegian state by having the state as counterparty in various aspects and through different entities Reasonable return and tariffs Gassled has no other income than the tariffs paid for gas transport and processing. The tariffs for bookings on the Gassled Assets are set out in the Tariff Regulations, laid down by the MPE. The Tariff Regulations are designed to cover actual operating costs and capital costs for the facilities, as well as a reasonable return on capital invested. The Norwegian government has for over 20 years maintained stable and predictable framework conditions for the oil and gas industry, but no guarantee can be given that this framework or the tariffs themselves will remain unchanged. The reasonable rate of return component of the tariff was set for the existing Gassled Assets upon inception of Gassled in The tariff income from future additions to the transport system will be determined by the rate of return set at the discretion of the MPE at the time such assets are included in Gassled. On 1 January 2011 there was a reduction to the K element (as regulated in the Tariff Regulations) for Area D Exit and Kollsnes Area D Entry. These reductions are pre-agreed changes that were determined at the 2003 formation of Gassled. The Issuer is not aware of any other planned tariff decreases expected in the future. No assurance can be given that a return lower than the historical rates of return may not be applied on future investments in additional Gassled Assets or in relation to any discussion of the economic impact of an extension of the Gassled Licences or that the Tariff Regulations are not in any other way adversely altered Modification and revocation of licence The Gassled Participants were granted by the MPE to operate Gassled when Gassled was established in The licences are valid until 31 December 2028, with the exception of the licences for (i) Tampen Link, which expires 30 September 2032; (ii) Langeled, which expires 31 December 2035; (iii) Norne Gas Transportation System, which expires 31 December 2020; and (iv) Kvitebjørn Gas Pipeline, which expires 31 December Application for licence term extension for Kvitebjørn until 10 September 2031 has been submitted to the MPE. 12

13 The licences are necessary to own or operate the Gassled Assets. However, the licences are subject to terms imposed by the MPE. The MPE may under certain circumstances set out in the Petroleum Act revoke or modify such terms, which may force the Issuer to divest its interest in Gassled, or adversely change the operating results of Gassled or the Issuer. Although the Gassled Participants may seek to agree an extension of the Gassled licences with the MPE, there can be no assurance that the licences will be extended upon or before their stated expiry, or if extended on which terms extension will be granted. The Issuer was on 1 February 2011 granted consent by the MPE to acquire the Participating Interests subject to conditions as described in section 8.1. While the Issuer expects to satisfy these conditions, any failure to do so may have adverse consequences for the Issuer including the possibility of revocation of the licences Default and non-performance under the Participants' Agreement Upon a default of its payment obligations under the Participants' Agreement the Issuer may lose its rights in the Participating Interest. Initially a defaulting party loses its voting rights, and if the default continues it may be forced to sell the Participating Interest to any interested Gassled Participants on a pro rata basis. Upon failure by any Gassled Participant to pay Cash Calls, regulations currently in place provide that non-defaulting Gassled Participants, including the Issuer, are liable to pay their pro rata share of a defaulting Gassled Participant s Cash Call Governmental approvals The Gassled Participants hold and may need various permits, consents and other approvals for the operation and upgrading of the Gassled Assets. Some of the permits, consents and other approvals that have been obtained contain certain continuing conditions, including the obligation to renew or extend the permit, consent or approval by a certain date. Failure to satisfy such conditions could prevent the operation of the Gassled Assets or result in fines or other additional costs. The Gassled Assets have been designed and constructed to comply, insofar as can be reasonably controlled, with the conditions of current permits, consents and approvals; however, there can be no assurance that the Gassled Assets will be able to operate within the limits established by the current or future permits, consents or other approvals. The Gassled Assets could be adversely affected if regulatory changes or new permit, consent or other approval conditions were implemented which impose more comprehensive and stringent compliance requirements Change of laws and regulations Gassled's operations are subject to numerous requirements under the laws and regulations in the various countries the systems assets are located. The Issuer cannot predict the impact of new or changed laws or regulations relating to health, safety, the environment or other concerns or changes in the way that such laws or regulations are administered, interpreted and enforced, which can materially impact the operations of Gassled. Any breach of such requirements could also result in fines or other substantial costs and/or constraints on the operations of the Gassled Assets, which could have an adverse impact on the income of the Issuer. 13

14 1.3.7 Taxation The tax regime and rates applicable to the Issuer as of the date of this Prospectus is described in section 4.10 and section 13. There is a risk that both taxation regimes and taxation rates may change in the future exposing the Issuer to additional tax liabilities which could adversely affect the Issuers financial situation Operating and investment expenditure balancing payments Estimates for operating and investment expenditure (the O and I tariff elements as regulated by the Tariff Regulations) for the transport system are set and fixed at the beginning of each calendar year to the extent that actual expenditures incurred differ from those estimated, participants will be charged/compensated for the difference in the following year s tariff. Such differences can occur in instances when either actual costs incurred or the actual capacity booked differs from the assumptions made at the time of setting the tariffs. In years in which there is an underestimation of operating expenditure participants will not fully recover expenses incurred until the following fiscal year Capital expenditure variances Gassled participants are obliged to fund all non-discretionary capital expenditure proposed by Gassco as operator. Large discretionary capital expenditure projects are funded at the discretion of the participants. Capital expenditure projects put forward by Gassco to participants can be, between proposal and implementation, subject to change both in terms of quantum and also the classification of expenditure between discretionary and non-discretionary. Accordingly the Issuer cannot offer assurances around long term capital expenditure forecasts or its expected long term capital expenditure funding requirement. 1.4 Risks related to the Guarantor As the Guarantor is a single purpose company, whose only operations and activity is the holding of shares in the Issuer, all risks related to the Issuer should be considered relevant also in relation to the Guarantor. 14

15 2 PERSONS RESPONSIBLE 2.1 Responsibility statement The Board of Directors of Njord Gas Infrastructure AS accepts responsibility for the information contained in this Registration Document. The Board of Directors hereby declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Registration Document is, to the best of our knowledge, in accordance with the facts and contains no omissions likely to affect its import. London, 6 June 2011 Board of Directors Tore Ingebrigt Sandvold, Chairman Paul John Moy, Board member Mark Andrew Gilligan, Board member Gautier Michel Jean-Francois Chatelus, Board member 2.2 Disclaimer: Arrangers UBS Limited and The Royal Bank of Scotland plc have acted as joint lead bookrunners and Arrangers for the Issuer in connection with the issue of the Bonds and their subsequent listing on Oslo Stock Exchange. This Registration Document is prepared by the Issuer, and UBS Limited and The Royal Bank of Scotland plc have not separately verified the information contained in this Registration Document and accordingly make no guarantees, representations, recommendations or warranty, express or implied, and do not accept any responsibility in respect of the accuracy, adequacy, reasonableness and the completeness of the information contained in the Registration Document or any other information, notice or document provided in connection with the Bonds or their distribution or their listing on Oslo Stock Exchange. None of the Arrangers undertakes to review the financial condition or affairs of the Issuer during the life of the arrangement contemplated by this Registration Document, nor advises any investor or potential investor in the Bonds of any information coming to the attention of any of the Arrangers which is not included in this Registration Document. London, 6 June 2011 UBS Limited The Royal Bank of Scotland plc 15

16 3 IMPORTANT INFORMATION 3.1 Forward-looking statements This Prospectus may contain certain "forward looking statements" with respect to certain of the Issuer s plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward looking. Such forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the Issuer's control including among other things, Norwegian domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of regulatory authorities, the impact of competition, inflation, and deflation; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in capital, or accounting standards, and tax and other legislation and regulations in the jurisdictions in which the Issuer and its affiliates operate. This may for example result in changes to assumptions used for determining results of operations or re-estimations of reserves for future policy benefits. As a result, the Issuer's actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in the Issuer's forward-looking statements. Save as required by applicable laws and regulations, the Issuer undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make. 3.2 Third party information Where information has been sourced from a third party, the information has been accurately reproduced and as far as the Issuer is aware and able to ascertain from information published by that third party, no facts have been omitted which can render the information inaccurate or misleading. Third party sources are identified where applicable. 3.3 Documents on display Copies of the following documents will be available for inspection at the Issuer s registered office during normal business hours on Monday to Friday each week (except public holidays) for a period of 12 months from the date of this Prospectus: the Articles of Association and Memorandum of Incorporation of the Issuer; the Articles of Association and Memorandum of Incorporation of the Guarantor; this Prospectus (consisting of a Summary, a Registration Document and Securities Notes) the Common Terms Agreement relevant publications regarding the Bond rating by Standard&Poors historical financial information on the Issuer historical financial information on the Guarantor 16

17 4 DESCRIPTION OF THE ISSUER 4.1 Incorporation, registered office and registration number The Issuer s legal and commercial name is Njord Gas Infrastructure AS. The Issuer is a Norwegian private limited liability company organised under Norwegian law according to the Limited Liability Companies Act of The Issuer s registered organisation number with the Register of Business Enterprises in Norway is The Issuer was established on 25 January The business purpose of the Company, as stated in the Articles of Association section 3, is to invest in gas infrastructure assets related to the NCS. The Issuer s registered head office is at Haakon VII s gate 8, 4005 Stavanger, Norway. The Issuer s telephone number is Statutory auditor and audit committee The Issuer's statutory auditor is Ernst & Young, with address Vassbotnen 11 Forus, P.O. Box 8015, 4068 Stavanger, Norway. The auditor is a member of Den Norske Revisorforening (the Norwegian Institute of Public Accounts). The Issuer will elect an audit committee at the annual general meeting for Business description of the Issuer General The Issuer does not operate any business other than holding and managing the Participating Interest. As such, the following description focuses on Gassled and the Gassled Assets Gassled Gassled is an unincorporated joint venture (and not a legal entity under the Norwegian Partnership Act of 1985). The rights and obligations of the Gassled Participants are set out in the Establishment Agreement and the Participants Agreement as detailed in section 8.2, and the Petroleum Act and appurtenant regulations. Gassled Assets transport and process gas from the NCS to buyers in continental Europe and the United Kingdom. A technical description of Gassled Assets is contained in section 6. Gassled Participants were granted or assigned licences from the MPE to operate Gassled. The licences for the majority of Gassled Assets are valid until 31 December 2028, with the exception of the following licences and corresponding expiry dates: Tampen Link (expires 30 September 2032); Langeled (expires 31 December 2035); Norne (expires 31 December 2020); and Kvitebjørn (expires 31 December ). 2 Application for licence term extension until 10 September 2031 has been submitted to the MPE. 17

18 4.3.3 Participating Interest As at the date of the Prospectus, the participating interest of the Issuer comprised an 8.036% share in Gassled JV, a % share of Zeepipe Terminal JV and a % share of Dunkerque Terminal DA. As agreed at the time of the formation of Gassled, the participating interest in Gassled of the Norwegian state (held on behalf of the state by the state owned company Petoro) was increased effective from 1 January 2011, and the other participants participating interests were decreased correspondingly. As such, the Participating Interest held by Njord Gas Infrastructure from 1 January 2011 decreased from 9.401% in Gassled JV, from 4.606% in Zeepipe Terminal JV and from 6.111% in Dunkerque Terminal DA to present levels. The participants and their respective participating interest in Gassled at the date of the Prospectus and from 1 January 2011 are set out in the following table. Table Gassled Participants Participant Previous Interest (percent.) Interest from 1/1/2011 (percent.) Petoro Statoil ExxonMobil / Njord Gas Infrastructure Total Shell Norsea Gas ConocoPhillips Eni DONG GdF RWE Dea The Participating Interest will vary subject to the Issuer s level of investment participation in future discretionary project investments of Gassled and in the event pipelines or transport related facilities not owned by Gassled are included in Gassled Revenues The Gassled Participants receive revenues in the form of tariff payments from the Shippers. The Shippers pay for all booked capacity, including booked capacity that is not utilised, in the form of tariffs for gas shipped or a capacity fee in respect of gas processing activities for capacity booked. Tariffs are established in real terms and subject to annual indexation by CPI. The tariffs and capacity fees are regulated by the Norwegian state through the MPE. The regulatory framework is described further in section 7. The level of tariffs and capacity fees are established to: 18

19 Enable a full pass-through of operating and capital maintenance costs to Shippers; Enable full recovery of the capital cost of the Gassled Assets over the licence periods; and Enable participants to earn a reasonable real rate of return on capital. For the existing Gassled Assets, the components of the tariff reflecting the recovery of capital and return on capital have been set for the duration of the licence period. This aspect in conjunction with the full pass through of costs provides the Issuer with a high degree of visibility over tariffs over the licence period. Revenues are collected by Gassco monthly in arrears from Shippers and paid to the Gassled Participants on the same day Access and booking Shippers must obtain approval from Gassco to access the Gassled system. To do so Shippers must demonstrate a duly substantiated reasonable need to bring gas onshore or process gas and sufficient financial strength. Shippers are required to book capacity in advance. The process for booking capacity is managed by Gassco on behalf of the Gassled Participants in accordance with the rules and processes set out in the Booking Manual. The Gassled Participants currently enjoy certain preferential booking rights for their duly substantiated reasonable needs, limited upwards to twice the owner s participating interest in the pipeline network in question, with spare capacity offered to the market, including non-participants. Refer to section 7.3 for further description of the Petroleum Regulations. Qualified Shippers may also trade excess booked capacity on a secondary market bilaterally or via a market facilitated by Gassco. The MPE is currently reviewing preferential booking rights. While the result of this process is yet to be announced, possible outcomes include the restriction or abolition of such rights. Bookings are made during two booking rounds each year, in April and September, when long term (annual) blocks and medium term (monthly) blocks may be booked. Short term (daily) bookings can be made up to five weeks ahead. Bookings are made on a ship or pay basis, meaning that Gassled Participants receive revenue regardless whether all the capacity that has been booked for any period is utilised or not Gassled operations Gassled is an unincorporated joint venture and has no separate administration and no employees. Gassco, a company wholly owned by the Norwegian state was appointed operator for the Gassled transport system by the MPE on 20 December Gassco s functions and responsibilities are set out in the Norwegian Petroleum Act, the Petroleum Regulations and in the Gassled Operating Agreement. Key features of the Operating Agreement are described in section Gassco has no participating interest in Gassled. Gassco s functions comprise: 19

20 System management: responsible for the technical maintenance and operation of the Gassled system, financial management, developing work programmes and budgets. In this function, Gassco takes direction from participants via the Management Committee; Capacity management: responsible for the allocation of Gassled capacity; System operations: responsible for planning gas flows and quality of deliveries of Norwegian gas; and Infrastructure development: role in planning future pipelines and transport-related facilities including processing plants and receiving terminals. Other than in respect of system management, Gassco acts independently of the Gassled Participants. Figure Structure of Gassled Operations Norwegian state regulation (MPE) Regulation Gassco Operating Agreement Gassled System TSP Contracts Marketplace terms and conditions Participants Agreement Technical Service Providers Shippers Participants Gassled operating and capital expenses Operating and capital maintenance costs of Gassled are funded through Cash Calls on the Gassled Participants. Cash Calls typically occur twice monthly and are collected by Gassco. The expenses funded by Cash Calls are largely recovered from Shippers through the tariff in the year they are incurred, or in the subsequent year through balancing payments. Cash Calls are not netted off against tariff revenues Gassled competitive position The Gassled pipeline system is a natural monopoly which required enormous initial investment. In 2009, Gassled transported circa 97 bcm of natural gas to Europe and the UK. This accounted for 93.6% of the total production of natural gas in Norway, with the remainder comprising sales to Norway (1.3%), sales to re-injection (1.8%) and processing for LNG (3.3%) 3. 3 Source: Norwegian Petroleum Directorate facts

21 Gassled transports gas from fields connected to the existing pipeline system. For such fields, Gassled pipelines remain the essential, and in almost all cases, the sole provider of gas transport infrastructure to enable delivery of gas production to processing facilities in Norway, and export markets in Europe and the UK. Due to the relative cost of alternative forms of gas transport from these fields, Gassled is well placed to remain the sole provider of transport infrastructure to such fields for the foreseeable future. The development of new fields on the NCS may require the development of additional gas transport capacity. Alternatives may include one or a combination of the development of new pipelines, the development of new (or expansion of existing) onshore processing facilities and development of LNG processing and export facilities. New pipelines may connect to the Gassled system and may ultimately be incorporated into Gassled. The ultimate course of development and therefore the share of Gassled in transporting Norwegian gas production will depend on factors such as proximity of the gas fields to the existing Gassled system, the size of the reserves, expected availability of transport capacity in Gassled and the relative capital costs of such development. 4.4 Management and Supervisory Bodies Board of Directors The Board of Directors comprises at least four members, including an independent director (being a person who is not an employee or a shareholder or associate of the Issuer, the Guarantor or the Sponsors. The following table lists the members of the Board of Directors as at the date of this Prospectus, their roles and experience. 21

22 Table the Board of Directors Name Position Other Roles & Experience Tore Sandvold Chairman Member of the Board of directors of Schlumberger, Teekay Corporation, Lambert Energy Advisory Ltd.and The Energy Policy Foundation of Norway Significant industry experience from the Ministry of Petroleum and Energy During 2001 to 2002 served as Chairman of the board of Petoro MBA and an MSc in Finance from the University of Wisconsin, and also been a research assistant at the University of Wisconsin and the Norwegian School of Management Paul Moy Member Global Head and Chief Investment Officer for the infrastructure and private equity investment activities of UBS Global Asset Management Over 21 years of investment industry and infrastructure experience, Dr. Moy brings extensive principal investment, investment banking and advisory experience in the infrastructure sector, specifically relating to electricity generation, transmission and distribution, gas, water, toll roads, ports, rail, telecommunications and waste management Non-executive director of Southern Water, Northern Star Generation and Collgar Wind Ptyl BA from the University of Newcastle, Australia and a PhD from James Cook University, Australia. Gautier Chatelus Member Responsibility for the energy and airports sectors with CDC Infrastructure, including the origination, analysis and execution of investment opportunities and the ongoing management of acquired assets. Previously with Total SA, where he held various positions from 2003 to 2009, most recently as Vice-President for the United Arab Emirates Significant experience in the public sector, including Head of the Energy Transport and Utilities department in the Direction de la Prévision of the French Ministry of Economy and Finance ( ), Manager for the Trans-European Networks with the Ministry of Transportation ( ) and 5 years experience from the National Institute for Research on Transportation ( ) Engineering Degrees from Ecole Polytechnique (Paris) and Ecole des Ponts et Chaussées (Paris), in addition to a Post graduate Diploma (DEA) in Economic analysis and policies from EHESS. Mark Gilligan Member Regional responsibility for the Infrastructure Asset Management business of UBS in Europe, including the origination, analysis and execution of investment opportunities and the ongoing management of acquired assets within the region Responsibility for Infrastructure Asset Management capital raising activities of the business in Europe Worked six years as an engineering geologist and ten years as a lawyer specialising in environmental and corporate law within the natural resources and infrastructure sectors Worked on various petroleum facilities at site level and has completed US Occupational Safety & Health Administration training BSc (Hons) in geology from the University of New South Wales, Australia and degrees in law - an LLB (Hons) from the University of Technology Sydney, and an LLM from the University of Sydney. The business address of the members of the board of directors is C/o Njord Gas Infrastructure AS, Haakon VII s gate 8, 4005 Stavanger, Norway. 22

23 4.4.2 Management The Issuer is establishing a technically and operationally competent management team in Stavanger, Norway which will manage the Issuer s activities. As at the date of the Prospectus, the Issuer is in the process of recruiting employees. The Issuer intends to employ five to ten persons with relevant experience and skills to manage the functions of the Issuer and meet its obligations as a Gassled Participant and the NCS. Management will comprise personnel with responsibility for the following functions: accounting, technical, financial, and analytical and corporate support. To date the company has appointed a technical director, Arnulf Østensen, to the management of Njord Gas Infrastructure. Østensen has 38 years of experience in the Norwegian gas sector. Most recently he was Executive Vice President, Technical Operations at Gassco, operator of the Gassled system. Prior to his position at Gassco, Østensen held various positions within Statoil, Phillips Petroleum and Det Norske Veritas. Østensen will also act as interim CEO for the company until a suitable candidate has been appointed. The business address of the management is C/o Njord Gas Infrastructure AS, Haakon VII s gate 8, 4005 Stavanger, Norway Conflicts of Interest Members of the board of directors Paul Moy and Mark Gilligan are currently employees of UBS, which acts as joint lead bookrunner and joint lead Arranger for the Issuer in connection with the issue of the Bonds and their subsequent listing on Oslo Stock Exchange, and which also owns shares in the Guarantor. Certain directors or officers of the Issuer may also be directors or officers of other oil and gas related companies from time to time. Conflict of interests might arise in respect of the above mentioned matters. Conflicts, if any, will be subject to the procedures and remedies of the Norwegian Private Limited Liability Companies Act. As far as the board and the Company are aware of, there are otherwise no conflicts of interest between any duties to the Company of the members of the administrative, management of supervisory bodies, and their private interests and/or duties. The members of the Board of Directors have not been associated with any bankruptcies, receiverships, or liquidations for the last five years. None of the directors have been subject to any official public incrimination or sanctions by statutory or regulatory authorities (including designated professional bodies), or been disqualified by a court from acting as a member of the administrative, management or supervisory body of any company or from acting in the management or conduct of the affairs of any company, or convicted of any fraudulent offences, for the last five years (or ever). There is no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any member of the administrative, management, supervisory bodies or executive management has been selected as a member of the administrative, management or supervisory bodies or member of senior management. There are no family relationships between any members of the Board of Directors. 23

24 When recruiting management, the Issuer and Board of Directors will seek to ensure management are not subject to potential conflicts of interests between their duties as management of the Issuer and their private interests and/or duties and comprises reputable individuals. 4.5 Corporate governance The Norwegian Code of Practice of Corporate Governance issued by the Norwegian Corporate Governance Board (Norsk Utvalg for Eierstyring og Selskapsledelse) is principally intended for companies whose shares are listed on regulated markets in Norway or unlisted companies with broadly held ownership whose shares are the subject of regular trading. Since the Issuer is 100% owned by the Guarantor the company is not within the target group which is expected to comply with the Norwegian Code of Practice of Corporate Governance. 4.6 Major shareholders and share capital The Issuer is 100% owned by the Guarantor. The share capital consists of 9,143,950 equal shares, each with a par value of NOK 100, fully paid up and registered. The total share capital is NOK 914,395, Legal and arbitration proceedings There are no and have not been any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware), since the establishment of the Issuer which may have, or have had in the recent past, significant effects on the Issuer or the Issuer s financial position or profitability. 4.8 Significant changes in financial or trading position Since establishment of the Issuer significant changes to the Issuer s financial and trading position relate solely to its entry into a sale and purchase agreement with ExxonMobil on 13 April 2010 (as described below) to acquire the Participating Interest. The principal changes relate to financing of the acquisition and establishment of the Board of Directors and the ongoing management recruitment process. 4.9 Insurance Gassco sets the minimum insurance requirements for participants in Gassled. To fulfil these requirements, the Issuer has in place an insurance policy from 25 May designed to meet the Gassled minimum requirements. In addition to the insurance coverage required by Gassco, the insurance coverage procured by the Issuer extends to business interruption insurance, providing the issuer with a level of protection against lost earnings from unplanned interruptions, as further specified and subject to the terms and conditions of the insurance agreements. The insurance taken out by the Issuer does not provide cover for events of terrorism. 24

25 4.10 Taxation of the Issuer General As an unincorporated joint venture, Gassled is not a taxable entity. Rather, Gassled participants are directly liable for the tax on their respective share of income from Gassled. The tax attributable to the Participating Interests is calculated in accordance with the Norwegian petroleum tax and corporation tax regimes. While certain elements of Gassled are located in tax jurisdictions other than Norway, income arising from the majority of these assets is taxable only in Norway. The Issuer will not receive any carry forward tax losses in respect of the Gassled Assets. The Guarantor will be subject to the corporation tax regime in Norway. Section 13 provides further information on the Norwegian petroleum and corporate tax systems as applied to the Issuer and the Participating Interests Norwegian Petroleum Taxation Offshore activities Tax rules for offshore petroleum activities are based on the ordinary Norwegian corporation tax system, with some special deviations and features according to the Petroleum Taxation Act. In addition to the ordinary petroleum tax of 28%, there is a special tax of 50% for upstream petroleum activities. Both the ordinary petroleum tax and the special tax are based on net profits from the relevant activities, but certain special conditions apply in respect of calculating the taxable income from petroleum activities. Historically, approx. 85% of the income from Gassled has been allocated offshore as only income from certain processes within Area C has been subject to onshore taxation. Onshore activities The financial income or loss which is not allocated to offshore activities is allocated to the onshore activities. Onshore activities are taxed according to the ordinary corporate tax regime with a tax rate of 28% on net profits in the relevant fiscal year. Losses in a fiscal year allocated to onshore activities can be carried forward without time limits. However, such losses are not interest bearing and any unused losses will not be paid out in cash by the Norwegian State as under the petroleum tax regime Approval of transfer of the interest in the Gassled Assets by the Ministry of Finance The Issuer's acquisition of the Gassled Assets was subject to approval of the tax consequences of the transaction by the Norwegian Ministry of Finance according to the Petroleum Taxation Act Section 10. On 2 February 2011 the transaction was approved and a conditional approval was granted by the Ministry of Finance including the following conditions as they relate to the Issuer: No change to the existing tax base in relation to offshore Gassled Assets. 25

26 The assets onshore are not subject to the conditions set by the Ministry of Finance. The tax basis for these assets will not continue and the Issuer will be entitled to a step up to the value paid to acquire these assets. 26

27 5 EUROPEAN GAS MARKET 5.1 Historical demand evolution European natural gas demand has steadily increased over the last decade, reaching approx. 550 bcm in 2008, from approx. 400 bcm in This trend has been primarily driven by the expansion of the gas distribution grid in many European countries and the increased use of gas-fired power production to meet electricity demand growth. At the same time it has been necessary to comply with more stringent pollution constraints where such constraints have favoured the use of natural gas as an alternative to coal fired electricity generation. The growth in consumption has resulted in the use of both European indigenous gas resources as well as increase in imports, particularly from Russia and Algeria, and more recently Liquefied Natural Gas (LNG). The International Energy Agency 3 predicts that indigenous European gas production will continue to decline. Natural gas production from the Netherlands is expected to decline gradually through 2030, while gas production from the United Kingdom is expected to continue its significant fall from 115 bcm in 2000, to 73 bcm in 2008, to less than 20 bcm in Norway, which is second to Russia as the largest exporter of natural gas to the European Union is expected by the International Energy Agency to remain an important supplier to European markets. As the traditional European Union gas producers (Netherlands, UK) continue to decline, gas supply will increasingly be met by the traditional suppliers to Europe (Russia, Norway, Algeria) and by new pipelines from the Caspian and the Middle East and by LNG imports. 5.2 Expected future demand for NCS gas According to a report by the European Union of the Natural Gas Industry ( Eurogas ), total energy consumption in the European Union over the next 25 years is expected to increase by only 0.5% per annum. However, because natural gas burns more cleanly than other fossil fuels (by producing fewer greenhouse gases per unit of energy), its use for electricity generation is expected to increase. Eurogas 4 expects natural gas consumption in the European Union countries to increase by 1.5% per annum from approx. 485 bcm in 2005 to approx. 695 bcm in During this period, the share of natural gas out of total primary energy consumption is expected to increase from approx. 24% to approx. 30% of total energy demand. The proximity of the NCS to the demand centres of northwest Europe provides a significant cost advantage in terms of transportation over alternative sources of natural gas, thus establishing the NCS as a significant and cost-effective source of gas for United Kingdom and Continental Europe. In particular, the proximity of the NCS to the United Kingdom and the transition of the United Kingdom to being a net importer of natural gas favours gas delivered from the NCS. According to the UK Department of Energy & Climate Change 5 the United Kingdom started exporting natural gas in 1993 but did not become a net exporter of gas until Exports grew rapidly with the opening of the Bacton-Zeebrugge interconnector in 1998 and in 2003 net exports reached their peak. In 2008 and 2009, the United Kingdom was a net importer of approx. 24 bcm and approx Natural Gas Demand and Supply, Long Term Outlook to 2030, published November UK Energy in Brief 2009, Department of Energy & Climate Change, first published July

28 bcm of natural gas on consumption figures of approx. 94 bcm and approx. 87 bcm respectively. Import figures are expected to increase, supported by growing levels of gas consumption and declining domestic gas production. 5.3 Supply of natural gas on the NCS Norway is currently the world s sixth largest producer and 2nd largest exporter of natural gas and is expected to maintain a significant role in Continental Europe and the United Kingdom s gas supply portfolio in light of the large amount of untapped gas resources both in respect of discovered fields and yet-to-find resources. Fields connected to the Gassled system are characterised by high levels of volume reserves. Approx. 2,600 bcm gas existed in the fields under production or discovered as of 31 December 2010 according to the NPD. 6 Furthermore, continued exploration will ensure that new fields are added. Undiscovered resource volumes are forecast to be approx. 1,255 bcm as of 31 December 2010, by the NPD. 6 The NPD predicts that further field developments and discoveries on the NCS will provide gas production well beyond 2030, in contrast to other natural gas production areas in the North Sea. The diminishing supplies from previous key European suppliers reinforces the increasing dependence Continental Europe and the United Kingdom are expected to place on Norway as a supplier of natural gas. 6 Presentation called The Shelf in 2010, issued by the NPD on 13 January

29 6 THE GASSLED ASSETS 6.1 General Gassled Assets comprise the majority of gas transport and processing infrastructure on the NCS including: approx. 7,737 kilometres of offshore pipelines and five associated riser platforms that transport gas to Continental Europe and the United Kingdom; two gas processing plants on the Norwegian coast for treatment and compression of the gas; four gas receiving terminals in Continental Europe and the United Kingdom that monitor and regulate the gas pressure and temperature before allowing it to continue downstream; and interests in two additional gas terminals, the Dunkerque and Zeepipe terminals. Figure Map of the Gassled Assets 29

30 Source: Gassco. As of 31 March 2011 The Gassled Assets are divided into nine main areas designated A to I, each representing an area of pipelines or a processing facility. These areas are remunerated through a set of tariffs applicable to each individual area, which Shippers pay against booked capacity. Figure Gassled tariff Areas Area Main component Purpose Available Capacity (mcm/day) A Statpipe Rich gas transport from the Statfjord and Gullfaks fields to Kårstø (Area C). Area A is also connected directly to the United Kingdom via the Tampen Link (Area F) B Åsgard Transport Rich gas transport from the Halten Nordland field to Kårstø C Kårstø Onshore gas processing facility 88.0 D Export Pipelines Export route to United Kingdom and northwest Europe for gas from all Areas of the Gassled network (other than Areas F and I) E Kollsnes Onshore gas processing facility dedicated to the Troll gas field F Tampen Link Connection linking Area A to United Kingdom 26.9 G H Kvitebjørn Gas Pipeline Norne Gas Transport System The table below sets out historical utilisation rates compared to total available capacity: Figure Gassled historical bookings and utilisation Rich gas transport 26.5 Rich gas transport 7.0 I Gjøa Gas Pipeline Rich gas transport 16.7 Area 2008 capacity (mcm/day) Utilisation rate 2009 capacity (mcm/day) Utilisation rate 2010 capacity (mcm/day) Utilisation rate A % % % B % % % C % % % D % % % E % % % F % % % G % % H % % I % 30

31 Area D is the main exit point for gas leaving the NCS, delivering in excess of 95% of total gas transported by Gassled each year, and represents a reasonable proxy for total demand and bookings for the Gassled network. Figure below provides an overview of Gassled Area D bookings for 2008 and for the most recent round of bookings in % of the Area is currently booked until 2020 and over the continued life of the asset further bookings can be expected, as evidenced by the evolution of the booking profile between 2008 and Figure Gassled Area D Bookings MSm³/day Bookings 2008 Bookings The Gassled network has total gas export capacity into northwest Europe (including the United Kingdom) of mcm/day and in 2009 delivered approx. 99 bcm of gas exports into the region, equal to 16% of overall European demand. Currently Germany is the largest end consumer of Norwegian gas, followed by the United Kingdom and France. 6.2 Pipeline assets The gas flows from production installations to process plants, where natural gas liquids are separated out and exported by ship. The remaining dry gas is piped on to receiving terminals in continental Europe and the United Kingdom. The pipeline and riser platforms are operated by Gassco, which in turns enters into a TSP agreement with different operators on the NCS to run and maintain the pipelines and platforms. The following table summarises certain technical aspects of the pipeline assets. 31

32 Table 6.2 Gassled Pipeline Assets Pipeline Description Gassled Area Statpipe rich gas Åsgard Transport Statpipe dry gas (I) Statpipe dry gas (II) Statpipe dry gas (III) Zeepipe (I) Zeepipe (I) Zeepipe (II A) Operational since 1985, the pipeline carries rich gas from the Statfjord field in the North Sea to Kårstø. Two submarine tie-ins have been made to this line, bringing gas in the one case from the Veslefrikk and Brage fields and in the other from Gullfaks.. The pipeline carries rich gas from the Åsgard field in the Norwegian Sea to Kårstø processing plant. Flexible risers from the floating Åsgard B gas platform tie into an export riser base on the seabed, which forms the starting point for the Åsgard Transport line. The riser base also provides launching facilities for pigs used either to clean the line internally or to inspect its condition. Pipelines from the Norne Heidrun and Draugen fields are tied into Åsgard. Operational since The pipeline runs over land and through three submarine tunnels from Kårstø to Kalstø and on to the Draupner S platform in the North Sea. Operational since The pipeline runs for 155 kilometres from the Heimdal platform to Draupner S. Operational since From To Length (km) Diameter (inches) TSP A Statfjord Kårstø Statoil B Åsgard Kårstø Statoil D Kårstø Draupner S riser D Heimdal Draupner S riser The pipeline runs for 203 kilometres from Draupner S to Ekofisk. D Draupner S Operational since October 1993, the pipeline runs for 814 kilometres from the Sleipner area to the receiving terminal at Zeebrugge. A 30-kilometre pipeline with an internal diameter of 30 inches from the Sleipner area to the Draupner S platform. The pipeline runs for 303 kilometres from the processing plant at Kollsnes to the Sleipner area. Operational since Statoil Statoil Ekofisk Statoil D Sleipner Zeebrugge Statoil D Sleipner Draupner S D Kollsnes Sleipner riser Statoil Statoil

33 Pipeline Description Gassled Area Zeepipe (II B) The pipeline runs for 304 kilometres from Kollsnes to Draupner E. Operational since Europipe I The pipeline runs from the Draupner E riser platform in the North Sea to a receiving terminal at Dornum. The terminal at Dornum is connected to the metering station at Emden by a 48-kilometre pipeline with an internal diameter of 42 inches. Operational since Europipe II Operational since 1999, the pipeline transports gas from the Kårstø processing complex to the receiving facilities at Dornum. From To Length (km) D Kollsnes Draupner E riser D Draupner E riser Diameter (inches) TSP Statoil Dornum Statoil D Kårstø Dornum Statoil Franpipe The system runs for 840 kilometres from the Draupner E riser platform to the receiving terminal at Port Ouest in Dunkerque. Operational since D Draupner E riser Dunkerqu e Statoil Norpipe Vesterled Oseberg Gas Transport Langeled The system runs from the Ekofisk field to the receiving facilities at Emden. A compressor platform, B-11, is located one-third of the way from Ekofisk to boost pressure in the line if required. Norpipe has been operational since A 20 year life extension study was submitted to the Norwegian authorities, and a life extension has been granted until 2028 The system runs from the Heimdal Riser platform to the receiving terminal at St Fergus. A 38-kilometre pipeline links Heimdal Riser with the Frigg Norwegian Pipeline (FNP). The tie-in point is about 54 kilometres downstream of the Frigg field. The Frigg pipeline has been operational since The design life of the Frigg pipeline has been exceeded. Vesterled has been operational since The pipeline transports gas for 109 kilometres from the Oseberg field to the Heimdal Riser platform. Operational since The system starts from the processing plant at Nyhamna on the mid-norwegian coast. Its northern leg carries gas to the Sleipner East field. Operational since Langeled is integrated with Norway s existing gas pipeline system at Sleipner East. Gas can be blended here to ensure the right quality, with exports 33 D Ekofisk Emden Conoco- Phillips D Heimdal riser D Oseberg Heimdal riser D Nyhamna Easington terminal St. Fergus Total E&P Statoil 1,200 42/44 Centrica Storage Ltd

34 Pipeline Description Gassled Area Tampen link allocated between the United Kingdom and continental Europe as required. The southern leg of Langeled is pipeline from the Sleipner East hub to the receiving terminal at Easington on the English east coast. Langeled ranks as the world s longest underwater gas pipeline The pipeline ties Statfjord into Britain s existing Far North Liquids and Associated Gas System (Flags), which runs to St Fergus in Scotland. Operational since From To Length (km) Diameter (inches) TSP F Statfjord Flags Statoil Kvitebjør n gas export Norne Gas Transport System Gjøa Gas Pipeline The pipeline transports rich gas to the Kollsnes processing plant from Kvitebjørn. Operational since The pipeline runs for 126 kilometres to tie the Norne field in the Norwegian Sea into the Åsgard Transport pipeline. Operational since A 130 kilometre, 28" pipeline for the transport of rich gas from the Gjøaplatform to the Flags pipeline on British Continental Shelf G Kvitebjør n platform H Norne Åsgard Transport I Gjøa platform Kollsnes Statoil Statoil Flags GDF Suez E&P Norge 34

35 6.3 Riser platforms Draupner S and Draupner E riser platforms The Draupner S and E platforms in the North Sea form a key hub in Norway's network of submarine gas pipelines, with pressure, volume and quality monitoring of gas flows as their most important functions. Draupner S was installed in 1984 as part of the Statpipe system. It tied the Statpipe lines from Heimdal and Kårstø together for onward transmission of dry gas to Ekofisk. Draupner E was installed in 1994 as part of the Europipe I gas trunkline system from the Sleipner fields to Emden. The TSP for Draupner S and Draupner E is Statoil. The riser platforms form part of Gassled Area D Heimdal riser The Heimdal riser platform in the North Sea is tied back to, and operated as an integrated part of, the Heimdal platform. It serves as a hub for allocating gas from the Oseberg Gas Transport line, as well as from Huldra, Heimdal and Vale, between Statpipe and Vesterled. The TSP for the Heimdal riser platform is Statoil, and the riser is part of Gassled Area D B-11 compressor platform The B-11 compressor platform stands in the German sector of the North Sea, southeast of the Ekofisk centre, and serves as a compressor station on the Norpipe gas line to Emden. The TSP for the B-11 compressor platform is Conoco Phillips and is part of Gassled Area D. 6.4 Processing plants Kårstø The Kårstø processing complex north of Stavanger plays a key role in the transport and treatment of gas and condensate (light oil) from central parts of the NCS. The first gas reached the complex on 25 July 1985 through a pipeline from the Statfjord field in the North Sea, and the first dry gas (gas from which condensate and other impurities have been removed) was piped on to Emden in Germany on 15 October that year. The TSP for Kårstø is Statoil. This facility separates the rich gas arriving in the Statpipe and Åsgard Transport pipelines into its various components. It also handles unstabilised condensate piped from the Sleipner area. These flows yield methane, ethane, propane, iso and normal butane, naphtha (natural gasoline) and stabilised condensate. Propane is stored in two large artificial rock caverns with a combined capacity of tonnes. Ethane, normal and iso butane, naphtha and stabilised condensate are held in tanks. Dry gas methane and some ethane is transported on through Statpipe dry gas/norpipe and Europipe II, while the natural gas liquids and condensate are exported by ship. Kårstø is one of the 35

36 world s largest producers of liquefied petroleum gases propane and butanes and this LPG is shipped to customers world-wide. The facility had 638 ship calls in 2006 to load LPG, naphtha and stabilised condensate Kollsnes The gas processing plant at Kollsnes forms part of the Troll Gas development, and became operational on 1 October The TSP for Kollsnes is Statoil. The processing capacity at Kollsnes has been increased several times since the facility became operational. Today the daily processing capacity is up to 143 million cubic metres of gas and 69,000 barrels of NGL, piped in from the Troll, Kvitebjørn and Visund fields. 7 The increased capacity at Kollsnes is a result of several investments. In 2004 a new NGL extraction plant started up, in 2005 a new compressor was installed on the Troll A platform and in 2006 a sixth export compressor became operational at Kollsnes. The treatment process at Kollsnes involves separating out the NGL, and compressing the dry gas for export via Statpipe, Zeepipe, Europipe I and Franpipe. The Vestprosess system ties Kollsnes to the oil refinery at Mongstad with a pipeline for NGL. Gas has been delivered from the Troll processing plant to the nearby Kollsnes Industry Park since Receiving terminals Dornum The Europipe receiving facilities (ERF) at Dornum on the north German coast reduce the pressure of the gas and heat it up. After metering, the gas enters the Netra downstream transport system Emden The Europipe metering station (EMS) at Emden checks gas quality and meters its volume before transferring it to the downstream transport operators. This station is remotely-operated from the control room at the ERF, 48 kilometres away Norsea gas terminal Gas pressure and temperature are regulated at the Norsea gas terminal before it passes through a treatment plant to remove hydrogensulphide. After metering and quality control, the gas is delivered to the transport operators downstream of the terminal Easington This part of Gassled started on 1 June The TSP for the terminal at Easington is Centrica Storage Ltd. The Langeled pipeline from the Sleipner East hub connects to the receiving terminal at Easington. After arriving at the terminal, the gas is regulated to the correct pressure and temperature before being passed to the downstream transport operator. 7 Source: 36

37 6.5.5 St. Fergus The receiving terminal at St Fergus in Scotland is located 61 kilometres north of Aberdeen and began operating in It receives dry gas through the Vesterled system as well as rich gas from the British Frigg pipeline. The TSP for the facility at St. Fergus is Total E&P UK Zeepipe terminal The Zeepipe receiving terminal stands in the port area of Zeebrugge in Belgium, about five kilometres from landfall. This facility removes possible residual liquids and solids, and regulates gas pressure and temperature. In addition, it meters volume and checks quality before the gas continues to the transport operator downstream of the terminal. The Zeepipe terminal also remotely operates the Franpipe receiving terminal at Dunkerque in France. Zeepipe Terminal JV (joint venture) was established on 7 September 1988 and owns the receiving facility for the Zeepipe system. The joint venture has no employees and work is organised through the Management Committee. Gassco serves as operator for the joint venture Dunkerque terminal The Dunkerque terminal is remotely operated from the Zeepipe terminal. The terminal is owned by Dunkerque Terminal DA, a Norwegian partnership. The terminal performs flow-, pressure- and temperature control. Gassco serves as operator for the joint venture. 37

38 7 REGULATORY FRAMEWORK OF GASSLED 7.1 Government treaties Laying pipelines from Norway to the gas markets in continental Europe and the United Kingdom, as well as the establishment of receiving terminals for such pipelines, have been subject to international bilateral treaties between Norway and each of the landfall states. The treaties regulate inter-state issues such as jurisdiction over the facilities and right to tax the pipeline and terminal owners. They form the legal basis for application of Norwegian law on the Gassled facilities situated on the sea or land territory of foreign states. 7.2 The Petroleum Act The Norwegian Petroleum Act was enacted on 29 November This act provides the general legal basis for the Norwegian petroleum activities and regulates exploration, development, production, decommissioning and pipeline transport. Key aspects of the act relevant to the Issuer include: The Norwegian government (the MPE for practical purposes) is to issue detailed regulations and to stipulate conditions for any approval under the act. The MPE may appoint a party to assume extended operator responsibility for the overall operation of upstream pipeline networks and associated facilities. A change of operator can only be made on a reasonable basis and requires MPE action or consent. The MPE has appointed Gassco to assume these responsibilities for an indefinite period. Installing and operating upstream petroleum transport facilities on the NCS requires a licence from the MPE. The licence is granted for a specific term and is subject to conditions. In the MPE approval of 20 December 2002 for the establishment of Gassled, the licences for the facilities which formed Gassled were extended with a term expiring in The expiry date for certain facilities included into Gassled since 2003 may deviate. Where several participants share a licence to perform petroleum activities, which includes the right to own and operate pipeline facilities, then such participants will be jointly liable towards the Norwegian state for any economic liability towards the state resulting from such joint activities. The transfer of an interest in a licence for petroleum activities requires the approval of the MPE. This applies also to a transfer of an ownership interest in Gassled. The MPE may extend licence terms upon application. While it is possible for the MPE to grant an extended licence period for the transport system, it is under no legal obligation to do so. An extension may be subject to new conditions in favour of the Norwegian government, such as increased state participating interest. 7.3 The Petroleum Regulations The Petroleum Regulations are detailed regulations adopted by the Norwegian Cabinet pursuant to the Petroleum Act. 38

39 The Petroleum Regulations implement the European Union gas directive 98/30 EC provisions on access to upstream pipelines, stipulating the rules for access to the Gassled pipeline network and facilities. The main rule (section 59 of the regulations) establishes the principle of open-access to upstream pipeline networks and facilities whereby parties with a duly substantiated reasonable need of transport and/or processing shall have right of access to upstream pipeline networks and facilities on an objective and non-discriminatory basis. Section 61 of the Petroleum Regulations provides certain preferential access rights to the Participants in Gassled. Notably, owners of a network or facility have priority for their duly substantiated reasonable needs capped at a level implied by twice the owner s interest in the particular network or facility. In July 2008, the MPE invited Shippers and Gassled participants to present proposals for adjustments to the access system. While there has been no outcome from the MPE to date, the review may result in the reduction or abolition of preferential booking rights of the Gassled participants in the near future. This does not affect the Issuer as it is not a Shipper. Capacity allocated in the primary market may according to section 64 of the Petroleum Regulations be transferred to any purchaser (secondary market) who fulfils the requirement of being a natural gas undertaking or eligible customer with a duly substantiated reasonable need. Gassco is obliged to establish and run a marketplace for such secondary trade in capacity. 7.4 The Tariff Regulations General The Gassled tariff principles for the right to use capacity in the Gassled Assets are set out by the MPE in the Tariff Regulations (Regulations Regarding the Establishment of Tariffs for the Use of Certain Installations). The regulation entered into force on 1 January The regulation stipulates that the Shipper must pay an input or an output tariff, within each of the defined geographical zones, as well as tariff for processing services, in accordance with a formula. Gassled is divided into nine different areas for access, exit, processing and tariff purposes as described in section 6.1. Shippers pay for booked capacity in the network, or on actual shipped volumes, whichever is higher. A right to use booked capacity comprises a right to deliver natural gas at entry points and to receive gas at exit points or processing in Areas C and E. The Shipper does not receive a refund for unused capacity, but excess capacity can be sold and bought in the secondary market. The secondary market is administered by Gassco. Gassco issues monthly invoices to all Shippers. The main principles of the Tariff Regulations are to allow for full recovery of operating costs and capital costs and provide the owners with a "reasonable return" on capital investments in Gassled. Payment for the right to use capacity is based on a formula set out in the Tariff Regulations based on principles set out in the Petroleum Regulations. The tariffs for each year are set by Gassco based on the tariff formula. Unit tariffs are set for each separate tariff area and for each service at the Kårstø plant according to the formula and definitions in the Tariff Regulations. 39

40 The formula is: t = (K + I/Q + U) x E + O/Q where: Element Description Detail K I U Fixed part of the capital element per unit Annual element calculated for investments to maintain the system Element calculated for investments related to extensions of the system Investment costs and a return for capacity expansions Represents the fixed real tariff elements attributable to the initial Gassled assets. These amounts were fixed at the respective dates at which various assets were incorporated into Gassled and are unique to each asset. These tariffs have been established for the full life of the licence period. Therefore, in relation to the initial asset base, the Issuer is exposed to over and under recovery of returns in the event actual booked volumes vary from amounts forecast at inception. If further assets are added to Gassled, additional K elements unique to these assets will be set by the MPE at the point they are added. Represents large investment expenditure to maintain the system (which is not captured under the O element below). The element is calculated to deliver the participant a return of the capital invested plus a pre tax real unlevered return of 7.0% per annum over the remaining life of the relevant licence. Any over or under recovery against the 7.0% return is adjusted each year. Therefore the Issuer does not bear any capacity or booking volume risk in relation to this element. Represents the remuneration for new investments leading to expansion of the system (has not been used to date) E Escalation factor Represents the value to inflate the investment element of the tariff to present day prices based on the Norwegian consumer price index. O Forecast operating costs Represents total operating costs including insurance costs and below threshold operating investments (see below) for the relevant tariff year. Q Estimated aggregate capacity bookings for the year in question The operating cost item allows 100% pass-through of cost, where any cost over and under-runs are corrected in the following year. Below threshold operating investments, which refer to essential capital expenditure amounts below NOK 40m to NOK 250m (the amount depends on the area) are remunerated in the year in which they are incurred, with any over/under billing corrected in the following year. See Section below for further details on the compensation of capital expenditure. Represents estimated capacity bookings for each Area used to transform monetary value of I and O into unit costs Capital expenditure compensation Capital expenditure has historically been driven by project investments to improve and expand Gassled. Capital expenditure falls into two categories: Discretionary capital expenditure principally relates to large, expansionary projects; and Non-discretionary capital expenditure projects which are essential to maintain the integrity and proper operation of the existing network. 40

41 Broadly speaking, investments related to health and safety matters to meet governmental or regulatory requirements and investments to maintain Gassled s system integrity or to ensure it meets current capacity booking obligations are categorised as essential, non-discretionary capital expenditure. The size of the project investment, the Area to which it relates and the nature of the expenditure (essential or discretionary) determines the element of the tariff formula through which Gassled Participants are remunerated. The figure below highlights the capital expenditure threshold for each Area: Figure Categories of capital expenditure by Gassled Area and type 8 Non-essential capital expenditure Essential capital expenditure Discretionary capital expenditure Total investment size (NOKm, real) A B C D E F G H I A B C D E F G H I = Area dependent limits recouped annually through O element = Recouped through I element. Participant may elect to opt out = Recouped through I element. No opt out possible Investment below the Area threshold in the above figure is deemed as operating expenditure and is compensated in the current year through the O element. Investment above the Area threshold is deemed as capital expenditure and is compensated through the I element of the tariff formula. Gassled Participants have full discretion on participation in discretionary capital expenditure. The Participants Agreement sets out the principles to be applied in such circumstance, with the overarching principle being that the net present value of a non-participants interest in Gassled will not be diluted as a result of non-participation Reasonable return The governing main rules for the tariff in the Tariff Regulations are stipulated in section 63 of the Petroleum Regulations which sets out that: " the capital element must be so stipulated that the owner can expect a reasonable return on the capital invested". In the official commentary to section 63 in the Royal Decree issuing this regulation, it is further stated that: " Tariffs for newer pipelines have been stipulated in order for the owners to expect a real return of seven percent before tax on the total capital. The stipulation of the return for 8 Area I effective from 1 October

42 pipelines and connected facilities is based, among other factors, on the principle that profits shall as a main rule be allocated to the producing fields." 9 The above principle is stated in regulations and is thus from a legal perspective subject to possible future amendments by the Norwegian authorities. Except in the event of an amendment of a confiscatory or nationalisation nature the Gassled Participants have no constitutional or other legal guarantee that "reasonable return" will always equal "a real return of seven percent before tax on the total capital". The principle of "reasonable return" may be subject to possible modification by future governments. Any change in the reasonable return will impact tariffs applied to future investments in Gassled and new assets brought into Gassled. 7.5 Decommissioning liabilities Operators on the NCS are responsible for costs in connection with the decommissioning of facilities. The Participants Agreement describes the allocation of decommissioning costs relating to the facilities owned by Gassled. Costs of future decommissioning of Gassled s facilities shall generally be charged to the Shippers. In respect of pre-gassled activities, the Shippers will be responsible for decommissioning costs where such liability has been placed with the Shippers under the relevant pre-gassled transport agreement. An allocation of decommissioning costs between Gassled and pre-gassled activities shall be made with a split date of 1 January 2003, or the date when an asset was included in Gassled, whichever is the later. In respect of pre-gassled activities, the Shippers will be responsible for decommissioning costs where such liability has been placed with the Shippers under the relevant pre-gassled transport agreement. As between the Gassled Participants and the participants of the pre-gassled systems, the costs shall be allocated in proportion to (i) cumulative reserved capacity in the relevant part of the Gassled Assets from 1 January 2003 (or the date when an asset was included in Gassled, whichever is the later) and up to the date of the decommissioning for the Gassled Participants, and (ii) cumulative throughput in the relevant part of the Gassled Assets from start up of the relevant facilities up to and including 31 December 2002 for the pre-gassled participants. Any part of the decommissioning costs not recovered from the Shippers shall be allocated among the Gassled Participants pro rata to each participants participating interest from 1 January 2003 and up to the date of the decommissioning. 9 Unofficial translation. 42

43 7.6 Licence extension In light of the expected useful life of and the ongoing demand for the Gassled Assets, it is possible that the MPE may seek to agree extensions to the Gassled Licences with the Gassled Participants, including the Issuer, in advance of their expiration dates. The potential occurrence, timing and terms of any potential extension are not known today and will be a matter for negotiations and be subject to agreement between the Gassled Participants, including the Issuer, and the MPE at the relevant point in time. Any discussion in relation to the possibility of a licence extension will be conducted in accordance with the covenants set out in the paragraph of the Common Terms Agreement. 43

44 8 MATERIAL APPROVALS AND AGREEMENTS The following contracts and licences have been entered into or are held by the Issuer and are, or may be, material to the Issuer. They contain obligations or entitlements that are, or may be, material to the Issuer as at the date of this document. 8.1 Licences The establishment of Gassled (based on the Establishment Agreement) was approved by the Norwegian government and stipulation of the government s conditions for such approval was set out in a letter dated 20 December 2002 from the MPE. Inclusions of facilities since 1 January 2003 have been subject to separate approvals by the MPE. In a letter dated 1 February 2011, the MPE notified the Issuer and ExxonMobil of the following consents: Consent for the transfer of ExxonMobil s percent participating interest in Gassled, percent in Zeepipe Terminal Joint Venture and percent in Dunkerque Teminal DA to NGI; and Consent to mortgage the participating interests pursuant to Petroleum Act Section 6-2 first paragraph. The letter sets out certain ongoing obligations of the Issuer and ExxonMobil. In relation to the Issuer, these include the following requirements: To maintain an organisation with certain technical and analytical capabilities and meet licensee requirements in respect of environment, health and safety. To seek the Ministry s approval prior to any material amendments to the credit facilities of the Issuer or Guarantor. To seek approval prior to amending the articles of association of the Issuer or Guarantor where such amendment would affect areas of operation. 8.2 Agreements in relation to Gassled Establishment Agreement The Establishment Agreement was entered into on 20 December 2002 by and between the parties who transferred ownership interests in Europipe II, Franpipe, Norpipe, Norsea Gas Terminal (Emden), Oseberg Gas Transport, Statpipe, Vesterled, Zeepipe and Åsgard Transport into the newly established Gassled joint venture. These parties received a participating interest in Gassled as well as a participating interest in the Zeepipe Terminal Joint Venture and the Dunkerque Terminal DA. The parties transferred all rights and obligations to Gassled that they held as an owner in the relevant joint ventures and entities. 44

45 8.2.2 Participants Agreement The Participants Agreement was executed by the same parties and on the same date as the Establishment Agreement. The objective of this agreement is to regulate the rights and obligations between the Gassled Participants. Key terms of the agreement relevant to the Issuer include: The Issuer holds an undivided share of all assets, rights and obligations of Gassled in proportion to its ownership interest and will receive income accruing to Gassled in the same proportion. The Issuer is required to provide the funds necessary to cover its share of all expenses and liabilities which are incurred by Gassled. Monthly Cash Calls issued by the operator shall be paid by the participants in advance of the operator making payments to third parties. The Issuer is liable on a several basis, pro rata to each participant s ownership interest. Upon failure by any Gassled Participant to pay Cash Calls, Gassco may request the Issuer to pay their pro rata share of a defaulting Gassled Participant s Cash Call. The Issuer will ultimately in such an event have the right to acquire its pro rata share of the defaulting part. The Management Committee is the governing body of Gassled. The Issuer is entitled to appoint one representative and a deputy with voting power in proportion to the Participating Interest. Gassco is also represented on the Management Committee, but without voting rights. Investment decisions are made by voting in the Management Committee. A participant voting against investment in a new facility or main improvement of a facility has the right not to participate in such investment. An exception applies to non-discretionary investments. If the Management Committee votes in favour of investment in a new facility or main improvement of a facility, the Participating Interest shall be adjusted to reflect participation or lack of participation in such investment when the facility becomes operational. If additional facilities are included in Gassled, the Participating Interest shall also be adjusted to reflect such inclusion. The Management Committee shall supervise and control Gassco s activities and may issue instructions for their performance. Removal and abandonment costs shall be charged to the Shippers according to rules proposed by Gassled and approved by the authorities. The Issuer may assign in whole or in part its Participating Interest. The assignor shall guarantee as principal debtor for any and all obligations of the assignee relating to the Participating Interest which is being assigned. The Management Committee may at the request of the assignor consent that such guarantee shall not be required, if the assignee in the opinion of the Management Committee has sufficient financial reserves to fulfil its obligations as a party in Gassled. Such consent shall not be unreasonably withheld. A Gassled Participant may withdraw from Gassled, but remains responsible for any liabilities incurred up to the effective date for the withdrawal. 45

46 The Management Committee is the governing body of Gassled, and may discuss and decide on any matter concerning Gassled. The Management Committee may discuss and decide on matters concerning the Dunkerque Terminal and the Zeepipe Terminal as far as the Gassled Participants are concerned. The Management Committee has established subcommittees to review and recommend solutions in specific areas. These subcommittees are not given decision making authority. Key terms rights and obligations of the Issuer in relation to the Management Committee include: Each Gassled Participant appoints a member and a deputy member to the Management Committee. The Operator may also appoint a member and a deputy member to the Management Committee (who shall be the chairman). Such member has no voting rights. Each party has a voting power in proportion to its Participating Interest. The Norwegian state and Petoro, as manager of the State s Direct Financial Interest (SDFI), may oppose a decision of the Management Committee which would not respect the conditions and requirements regarding the state s depletion policies or the state's financial interests, as specified in the relevant licenses comprising Gassled. As a result of being a minority participant, the Issuer will not alone be able to control or block the outcome of matters submitted for vote of the Management Committee and therefore has limited positive control over the operations of Gassled. Petoro and Statoil together currently hold approx. 75 % of the Gassled. Although not having absolute voting control, together they have the ability to significantly influence Gassled decisions Operating Agreement The Operating Agreement regulates the management and operation of Gassled by Gassco. A revised Operating Agreement took effect from 1 January The revision brings the Operating Agreement in line with the new standard production licence joint operating agreements that were introduced for the majority of the Norwegian production licences in Key terms of the agreement relevant to the Issuer include: Gassco shall be responsible for the administration and the daily management of Gassled. As the operator, Gassco shall be responsible for the system operation and the overall supervision of Gassled. Gassco shall realise no profit or loss in its function as operator. If the Gassled Participants suffer a loss arising from Gassco s performance of its functions as operator, Gassco shall only be liable for such losses if it is the result of wilful misconduct or gross negligence of the managerial or supervisory personnel of the operator. Gassco shall under no circumstances be liable for loss caused by delay in or interruption of gas deliveries to Gassled. All activities that Gassco performs on behalf of Gassled shall be conducted in accordance with the Operating Agreement and the decisions of the Management Committee. Gassco represents Gassled externally. It has the right and duty to enter into necessary agreements in the name of Gassled, and pay all expenses incurred by activities pursuant to the Operating Agreement. 46

47 Gassco has the authority to enter into transport and processing agreements on behalf of Gassled within the physically available capacity of Gassled (a more closely defined term) within the mandates and standard terms. Gassco shall have a program in place setting the objectives and targets for operations. Such targets and plans shall be approved by the Management Committee. Gassco shall present to Gassled for approval a recommendation for the physically available capacity, and it shall develop and implement procedures for allocating and curtailing capacity. Gassco shall develop procedures so that it provides its services on a neutral and nondiscriminatory basis. Each Shipper shall be given equal access to relevant information held by Gassco in respect of activities in terms of time, quality and quantity. However, no Shipper or Gassled Participant shall be given access to information regarding gas sales and marketing activities of other Shippers. Gassco is responsible for the technical operations of Gassled, but is authorised to delegate particular aspects of its responsibilities to subcontractors and TSPs. The agreements with the TSP shall be presented to Gassled for approval. The TSP shall perform the daily technical operation of the applicable facilities Gassco agreements with technical service providers Gassco has entered into agreements with service providers for technical assistance in operating parts of the Gassled Assets. These agreements are entered into by Gassled; either by Gassled directly, by joint ventures in transport systems that were included in Gassled in 2003, or by Gassco acting on behalf of Gassled. Key terms of the agreement relevant to the Issuer and arrangements with the TSPs include: The TSP shall be responsible for the daily technical operation, maintenance, repair, replacement and modification of that part of the system for which it is responsible. Remuneration of the TSPs applies a no-gain-no-loss principle, except one for which an annual fixed fee has been agreed. The TSP is only liable for losses suffered by the parties to the joint venture which are due to the performance of its function as service provider, and the loss is the result of wilful misconduct or gross negligence of the managerial or supervisory personnel of the TSP. The TSP shall under no circumstances be liable for loss caused by delay in or interruption of gas deliveries to the transport system. The main TSP agreements can be terminated by either party by twelve months notice. Agreements that regulate the provision of services other than the TSP services have also been executed. These agreements are entered into by Gassled; either by Gassled directly, by joint ventures in transport systems that were included in Gassled in 2003, or by Gassco acting on behalf of Gassled. The agreements mostly relate to services provided to Gassled in the various onshore facilities. 47

48 8.2.5 Approval by the MPE for the establishment of Gassled The approval of the establishment of Gassled by the Norwegian government, and stipulation of the government s conditions for such approval, was set out in a letter dated 20 December 2002 from the MPE to the Gassled owners. Key terms of the letter relevant to the Issuer include the following: All amendments to the Establishment Agreement and the Participants Agreement are subject to MPE approval; Initial ownership interests in the Gassled Assets were fixed by the MPE; Stipulated the increase in the government s ownership interest (through Petoro) from 1 January 2011; Rights of the MPE to change the operator; and Licence period for the affected transport systems was extended to 31 December The Dunkerque Terminal DA Dunkerque Terminal DA is owned 65% by the Gassled Participants and was established on 9 February Dunkerque Terminal DA owns the receiving terminal for the gas pipeline to Dunkerque, France. Gassco serves as operator for the joint venture, and chairs the Management Committee. GDF SUEZ owns the remaining 35% of the Dunkerque Terminal DA. The Dunkerque Terminal DA is governed by a joint venture agreement. The terminal is designed and built to receive, handle and redeliver natural gas transported to Dunkerque through Franpipe (previously named NorFra) Zeepipe Terminal JV Zeepipe Terminal JV was established on 7 September 1988 and owns the receiving facility for the Zeepipe pipeline at Zeebrugge, Belgium. The joint venture has no employees and work is organised through Gassled s Management Committee. Gassco serves as operator for the joint venture. The Zeepipe Terminal JV is owned 49% by the Gassled partnership, and 51% by Fluxys SA Terms and Conditions for Shippers In order to be approved as a Shipper, a company agreement must be concluded between the Shipper and Gassco. This binds the Shipper to observe Gassled s Terms and Conditions. The Terms and Conditions is a standard document which is not negotiated at each Transport Agreement. Generally applicable amendments to the Terms and Conditions are subject to the approval by the MPE. The Terms and Conditions with appendices, together with the bookings made by the respective Shipper and the relevant parts of the shipper manual, constitute the Transport Agreement. The Transport Agreement is entered into between Gassco on behalf of Gassled and the respective Shipper. The Transport Agreement is governed by Norwegian law and approved by the MPE. Key aspects of the Terms and Conditions relevant to the Issuer are: 48

49 Gassled has the obligation to receive gas at the agreed entry point, and to handle, transport and redeliver the gas at the agreed exit point. Gassco establishes the rules for reservation, allocation, release and adjustment of capacity in the Booking Manual, as applicable at any time. The Shippers submit to Gassco a request for transport services in Gassled. If the operator of Gassled agrees to such request, a booking is established. Based on such booking, the respective Shipper is allocated a booked capacity in Gassled, containing a booked exit capacity. The obligation to handle, transport and redeliver gas up to the booked exit capacity constitutes Gassled s transport commitment. Such transport commitment applies for the agreed booking period. The applicant must have a "duly-substantiated reasonable need" for gas transport capacity, and that he has appropriate financial strength. The applicant must comply with the "Qualification procedure" contained in the Booking Manual. The applicant, in the assessment of Gassco, must have a minimum creditworthiness as assessed annually, or more often if deemed necessary by Gassco. The applicant must have either (i) have a minimum credit rating of BBB/Baa; (ii) benefit from a parent company guarantee where the parent has a minimum credit rating of BBB/Baa; or (iii) benefit from a bank guarantee equivalent to 24 months of the relevant tariff where such bank has a minimum credit rating of A-. In the event a Shipper does not provide the security satisfactory to Gassco within 14 days, Gassco may terminate the contract with immediate effect. In addition, the Shipper grants Gassled a first and prior lien upon the gas being transported or processed in order to secure payment of any amount due by the Shipper. Gassled must operate, maintain and repair the transport system in a reasonable and prudent manner. Gassled may in any year within the months April to November reduce the transport services for maintenance purposes down to zero. The nominations of maintenance are made for each area of Gassled. For Areas A, B, D, F, G, H and I the maintenance period is at most 20 days, provided that the reduction in the transport commitment shall not exceed the sum of the booked exit capacity for 12 days. For Kollsnes and Kårstø processing plants the length of the maintenance period is unlimited, provided however, that Gassco must use all reasonable efforts to minimise the duration of the maintenance period to coincide with the maintenance period for Area D and other relevant areas. The risk of loss and damage to the gas of the Shipper shall at all times remain with the Shipper. Gas not complying with the Gassled quality requirements ("off spec" gas) at the entry point may be refused by Gassco. That is also the case if gas is delivered in a commingled stream that is off spec. The Shipper is liable for any direct costs or losses caused by delivering off spec gas. Gas redelivered at the exit point shall meet the Gassled specifications. The Shipper may refuse to take gas at the exit point which is not accepted by a downstream transporter. In such case the operator of Gassled shall at Shipper s cost take the necessary operational action to dispose of such gas. However, if gas redelivered at the exit point does not meet the Gassled specifications, such disposal costs will be borne by Gassled. Throughout the period when the Shipper has booked capacity, the Shipper must pay the tariff for the booked capacity, or for the actual transport of the booked Quantity, whichever is the higher. The obligation to pay the tariff is suspended during any period where Gassled 49

50 is not providing transport services, including periods of planned maintenance, shut down due to safety, system integrity or environmental protection, force majeure, and when the Shipper is curtailed in areas A, B or H and thus cannot use its booked capacity in area C or vice versa. Abandonment and removal costs, including clean-up costs, of any part of the transport system shall be paid by the Shipper according to a method and allocation to be proposed by Gassco and approved by the MPE. Damages and expenses resulting from environmental pollution, explosion, fire or any other event arising out of the escape of gas, shall be borne by the Shippers, unless such damages and expenses are caused by gross negligence or wilful misconduct of managerial or supervisory personnel of Gassled or Gassco, their contractors or subcontractors, in which event Gassled shall indemnify the Shippers. Gassled shall arrange insurances related to Gassled as well as third party insurance to cover its liability under the Transportation Agreement. The Shipper is liable for arranging all insurance related to its property as well as third party insurance. As long as a party is rendered unable to perform its obligations under the Transportation Agreement due to events of force majeure, such party shall be relieved from its liability for failure to perform such obligations. However, a party rendered incapable of making a payment that is due, is not relieved from the obligation to pay interest for the force majeure period until payment is made The Booking Manual The Booking Manual forms a part of the framework for the interface between shippers and Gassled. The booking principles have been established in accordance with the principles set out in the Petroleum Regulations. Each booking made by a shipper results in a contractual commitment to Gassled. The Booking Manual sets out the principles applied to primary bookings of capacity rights and the associated secondary capacity markets. These principles include: Ability to Use (AtU): A shipper s right to book entry capacity and exit capacity is limited by that shippers ability to reach the exit points and the shipper s maximum ability to use the entry point; Qualified Need: A shipper must have a duly substantiated reasonable need (DSRN) in order to be allocated available capacity. The concept of DSRN has been further specified in the Booking Manual under the concept of qualified need which takes into account production rights; Capacity Allocation Key (CAK) addresses situations where requests exceed available capacity; Capacity Allocation addresses preferential allocations of capacity; and Specific principles applied to certain booking areas of Gassled. The Booking Manual also describes procedures for the application of the capacity booking rules laid down in the Petroleum Regulations. 50

51 Operations Manual The Operations Manual sets out the operational regulations related to the respective rights and obligations of Gassled and the Shipper under the Terms and Conditions. The contents include: Rules and procedures for the forecasting and nominations of capacity are included in the Operations Manual; Quality requirements applicable at the respective entry points and exit points are also defined in the operational regulations; Rules for measurements, testing and analyses at the respective entry points and exit points are included. There is also included a detailed a description of the measurement facilities; and Procedures regarding the allocation of gas between the respective Shippers are included Tie-in and similar agreements Several tie-in agreements with different owners of facilities connected with Gassled have been entered into. These agreements may regulate liability, allocation of tax depreciation rights and other issues of a varied nature Crossing agreements A large number of crossing agreements are in force as the majority of the crossing agreements remains in force until one of the pipelines have been removed or abandoned. A review of the various agreements shows that Gassled acts both in the capacity as the crossing party and as the affected party. Some of the agreements are from the pre-gassled period and due to this there are a few agreements where Gassled now acts both in the capacity as the crossing party and as the affected party. Agreements entered into after the establishment of Gassled are based on a standard crossing agreement. In respect of the crossing agreements not based on the standard, there are various liability regimes applicable to the period after the laying operation is completed. The most common liability regime in use is a "knock for knock" principle comparable to the liability regime in the crossing agreements based on the standard agreement Terminal leasehold agreements Gassled and the Dunkerque and Zeepipe terminal joint ventures are not the owners of the land upon which the onshore receiving terminals and gas plants are constructed. The land areas occupied by such facilities are instead subject to long term lease agreements. 8.3 Agreements in relation to the Issuer Common Terms Agreement and related financing agreements The Issuer has on 1 June entered into a Common Terms Agreement with Norsk Tillitsmann ASA as Bond Trustee. Under the Common Terms Agreement the Issuer may issue one or more series of 51

52 Bonds, all ranking pari passu, up to a total maximum amount of NOK equivalent 10,000,000,000. The bonds issued under the Common Terms Agreement may be denominated in NOK, EUR, GBP or USD and may or may not be index-linked. The initial series of bonds of approximately NOK 3,797,800,000 comprise NOK 300,000,000 of % CPI linked bonds, NOK 550,000,000 of % nominal bonds, GBP 165,000,000 of % nominal bonds, and USD 265,000,000 of % nominal bonds. All series of bonds, including the issue of subsequent series of bonds, will be governed by the terms and conditions set out in the Common Terms Agreement. In the event certain series of Bonds are issued, the Issuer may enter into swap agreements in order to hedge inflation and currency exchange rate risks arising from such issuance. The Issuer covenants that a standby liquidity facility of at least NOK 250,000,000 will remain in place at all times the Bonds are outstanding. The terms and conditions of the initial series of Bonds are described in the respective Securities Notes applicable to such series Standby Liquidity Facility Agreement with DnB NOR Bank ASA The Issuer has on 1 June entered into a Standby Liquidity Facility Agreement with DnB NOR Bank ASA in respect of a facility in the amount of NOK 250,000,000. The purpose of the Standby Liquidity Facility is to enable the Issuer to pay Cash Calls, taxes and ordinary operating expenses of the Issuer, to the extent funds are not available in the Collection Account. The Standby Liquidity Facility may be drawn by an amount in excess of NOK 5,000,000 in increments of NOK 1,000,000. Up to 5 tranches may be outstanding at any time. The Standby Liquidity Facility Agreement will terminate three years from the date of the agreement. The lender may request prepayment and cancellation of the Standby Liquidity Facility if (i) a major portion of the Gassled Assets is destroyed and is not replaced, (ii) the Issuer, the Guarantor, the Gassled Licenses or the Participating Interests are nationalised, (iii) Gassled is dissolved, (iv) a major portion of the Gassled Assets is sold, or (v) a material amendment to the Gassled Licences or restructuring of the Gassled JV occurs. The interest rate for the Standby Liquidity Facility is NIBOR (1, 3 or 6 months) plus a margin of 0.6% per annum. The amounts outstanding under the Standby Liquidity Facility shall be secured by the same security as the Bonds but shall rank in priority before the Bonds Agency and Intercreditor Agreement The Issuer has on 1 June entered into an Agency and Intercreditor Agreement with the Guarantor, Norsk Tillitsmann ASA (as Bond Trustee, Calculation Agent and Security Agent), DnB NOR Bank ASA (as lender, account bank and paying agent), UBS International Infrastructure Fund Holding Coöperatie U.A., CDC Infrastructure SA. and the swap providers (together the Secured Parties ). The purpose of the Agency and Intercreditor Agreement is to (i) regulate Norsk Tillitsmann ASA's rights and obligations as the Security Agent for the Secured Parties, (ii) regulate and co-ordinate the Secured Parties' right to enforce (by way of giving instructions to the Security Agent) the 52

53 security issued in favour of the Secured Parties, and (iii) allocate any payments received by the Security Agent under the Transaction Documents among the Secured Parties. Under the Agancy and Intercreditor Agreement only the Security Agent may enforce the security granted by the Security Documents on behalf of the Secured Parties. In the event of any conflict between the provisions of the Common Terms Agreement and the Agency and Intercreditor Agreement the provisions of the Agency and Intercreditor Agreement shall have best priority Guarantee Agreement with the Guarantor The Guarantor has on 1 June entered into a Guarantee Agreement with the Security Agent, pursuant to which the Guarantor guarantees, in favour of the secured parties (including the Bondholders, Bond Trustee, Security Agent and the lender of the Standby Liquidity Facility), the due and punctual performance by the Issuer of all the Issuer's obligations and liabilities under the Transaction Documents. The Guarantee is an on demand guarantee, whereby the Guarantor undertakes to pay any amount claimed by the Security Agent within 5 Business Days of the Security Agent's first written demand. The total liability of the Guarantor equals the Issuer's liability under the Transaction Documents, and the Guarantee shall remain in force until any amounts payable under the Transaction Documents have been paid Sale and Purchase Agreement with ExxonMobil The Issuer agreed to acquire the Participating Interests from ExxonMobil pursuant to a sale and purchase agreement dated 13 April 2010, as amended on 25 November According to the agreement, the Issuer acquired 10 : (i) 9.428% participating interest in the Gassled Joint Venture, including its interest in the relevant licences to install and operate facilities awarded in accordance with the Petroleum Act Section 4-3; (ii) % participating interest in the Zeepipe Terminal Joint Venture; and (iii) % participating interest in the Dunkerque Terminal DA. Under the terms of the agreement the Issuer retains exposure to the financial and operating performance of the Participating Interest from 1 January If there is a breach of the representations and warranties in the Sale and Purchase Agreement, the Issuer would have a claim against ExxonMobil if it was able to show that it had suffered a loss. The representations and warranties are limited to certain matters only. 10 The percentages were later amended due to the inclusion of the Gjøa Gas Pipeline into Gassled 53

54 9 DESCRIPTION OF THE GUARANTOR 9.1 Incorporation, registered office and registration number The Guarantor s legal and commercial name is Njord Gas Infrastructure Holding AS. The Guarantor is a Norwegian private limited liability company organised under Norwegian law according to the Limited Liability Companies Act. The Guarantor s registered organisation number is The Guarantor was established on 25 th January The company is a holding company whose purpose, as stated in the Articles of Association section 3, is to own the shares of Njord Gas Infrastructure AS and other companies investing in gas infrastructure assets related to the Norwegian continental shelf. The Guarantor s registered head office is at Haakon VII s gate 8, 4005 Stavanger, Norway, Norway. The Guarantor s telephone number is Subsidiaries and major shareholders The Guarantor is the parent company of the Issuer and holds 100% of the shares in the Issuer. The issued share capital of the Guarantor is held by the UBS International Infrastructure Fund Holding Coöperatie U.A. and CDC Infrastructure SA. The UBS International Infrastructure Fund is a closed end investment vehicle comprised of four English limited partnerships and managed by Infrastructure Asset Management, a business unit of UBS Global Asset Management. Investors in the fund have committed USD 1.52 billion in equity capital for a minimum period of 15 years, with an option to extend the fund to 20 years. The fund has completed four infrastructure investments to date and is a committed long term infrastructure investor. Caisse des Depots et Consignations ( CDC ) is a French independent institution created in 1816, supervised by the parliament, whose activity includes for instance civil administration pensions and France savings plans management, and a unique long term investor aiming to be a catalyst for economic development and general interest. CDC Infrastructure SA is the wholly-owned subsidiary of CDC, dedicated to direct investment in infrastructure assets, and is composed of eight infrastructure professionals with a combined 100 years of infrastructure experience. CDC has an investment horizon from 10 years and to their end of the asset s life. 9.3 Business description of the Guarantor The Guarantor does not operate any business other than holding of the shares in the Issuer. 9.4 Statutory auditor and audit committee The Issuer's statutory auditor is Ernst & Young, with address Vassbotnen 11 Forus, P.O. Box 8015, NO-4068 Stavanger, Norway. The auditor is a member of Den Norske Revisorforening (the Norwegian Institute of Public Accounts). The Guarantor is not required by law to elect an audit committee. The Guarantor does not have nor does it contemplate to elect an audit committee. 54

55 9.5 Management and supervisory bodies The board of directors of the Guarantor comprises the same individuals as the board of directors of the Issuer as set out in section The Guarantor has no management or employees. As the board of directors of the Guarantor comprises of the same individuals as the board of directors of the Issuer, reference is made to section regarding a description of possible conflicts of interests concerning the members of the board of directors. 9.6 Corporate governance The Norwegian Code of Practice of Corporate Governance issued by the Norwegian Corporate Governance Board (Norsk Utvalg for Eierstyring og Selskapsledelse) is principally intended for companies whose shares are listed on regulated markets in Norway or unlisted companies with broadly held ownership whose shares are the subject of regular trading. Since the Guarantor is 100% owned by UBS International Infrastructure Fund Holding Coöperatie U.A. and CDC Infrastructure SA, the company is not within the target group which is expected to comply with the Norwegian Code of Practice of Corporate Governance. 9.7 Legal and arbitration proceedings There are no and have not been any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Guarantor is aware), during a period covering at least the previous 12 months which may have, or have had in the recent past, significant effects on the Guarantor and/or the Guarantor s financial position or profitability. 9.8 Significant changes in financial or trading position Since establishment, significant changes to the Guarantor s financial and trading position relate solely its entry into a sale and purchase agreement with ExxonMobil on 13 April 2010 (as described above) to purchase the Participating Interest and corresponding financing of the transaction. 9.9 Material agreements The Guarantor has not entered into agreements that are material or contain obligations or entitlements that are, or may be, material to the Guarantor as at the date of this document, except (i) the Guarantee Agreement with the Security Agent, (ii) the Agency and Intercreditor Agreement with the Issuer, the Facility Provider, the Bondholders and the Security Agent (cf Clause hereof) and (iii) the Share Pledge and Receivables Assignment Agreement with the Security Agent in respect of all shares in the Issuer and all claims of the Guarantor against the Issuer. The Guarantee Agreement is described in section hereof, and the Agency and Intercreditor Agreement and the Share Pledge and Receivables Assignment Agreement are described in the Securities Notes. 55

56 10 FINANCIAL INFORMATION RELATING TO GASSLED The following section provides information to assist in understanding the financial position of the Issuer on the date of listing and historical financial performance of Gassled. However, this information should not be considered a substitute for audited historical financial information and accounts and the Issuer's actual future financial condition, performance and results may differ materially from the results implied by the historical information provided below Financial performance As noted above, the financial performance of the Issuer prior to listing does not reflect the expected future performance due to the material change in business in respect of the acquisition of the Participating Interest. Following the date of listing, the financial performance of the Issuer will reflect the underlying financial performance of Gassled, the level of participation of the Issuer in Gassled and the operational cost and financial structure of the Issuer Historical financial performance of Gassled Gassled is an unincorporated joint venture and is therefore not required to prepare financial statements. Consequently, Gassled does not have an income or cash flow statement. Instead Gassco on behalf of Gassled prepares monthly tariff and billing statements for the participants of Gassled. The following historical financial information has been compiled using the monthly tariff and billing statements provided by Gassco. Importantly, these figures are based on certain assumptions and do not reflect nor substitute for the process required for compiling financial accounts in accordance with generally accepted accounting principles. The figures have not been the subject of an audit, and if such audit were to occur, these figures may be subject to amendment. Table 10.2: Gassled historical financial information Year to 31 December (NOK million) Revenue 26,175 26,345 28,267 26,306 Operating Costs (4,358) (6,401) (4,584) (4,982) Capital Expenditure (3,031) (3,890) (3,417) (3,714) Notes: The Gassled Assets comprise the Gassled JV interests, a 49% interest in the Zeepipe Terminal JV and a 65% interest in the Dunkerque Terminal DA. Historically, the Gassled JV generated approx. 97% of the cash operating result of the Gassled Assets. 56

57 Participation of the Issuer in Gassled At the date of listing, the Issuer owned a 8.036% share in Gassled JV, a % share of Zeepipe Terminal JV and a % share of Dunkerque Terminal DA In the absence of any amendments to the Participating Interest from future discretionary project investments of Gassled and in the event pipelines or transport related facilities not owned by Gassled are included in Gassled where Issuer does not participation in such investments pro rata to the shares described herein. 57

58 11 FINANCIAL INFORMATION ON THE ISSUER The Issuer s principal business relates to its holding in, and management of, the Participating Interest. The Issuer was established on 25 January 2010 and prior to its acquisition of the Participating Interest did not carry on any business activities Financial position The Issuer s share capital and debt obligations as at the date of listing, and a description of each are set out in Table Table 11.1: Issuer share capital and debt facilities Capital Authorised Amount (NOK equivalent) Issued / Drawn Amount (NOK equivalent) Description Share Capital N/A 914,395,000 Total share capital comprising 9,143,950 equal shares, issued and full paid up, each with a par value of NOK % of the share capital of the Issuer is held by the Guarantor. Shareholder Loan 2,000,000,000 1,212,127,600 Loans provided by the Sponsors in proportion to their interests in the share capital of the Issuer at the date of the issue. The loans are unsecured and subordinate to all other debt obligations of the Issuer, and are denominated in NOK, USD and EUR and hence the NOK equivalent will vary due to fluctuations in exchange rate Bond 10,000,000,000 3,797,800,000 Senior secured open bond issuance comprising (1) % 300 million Norwegian Kroner denominated CPI linked bonds each denominated NOK1 issued or to be issued at 100 % of par on or about 9 June 2011, (2) % 550 million Norwegian Kroner denominated bonds each denominated NOK1 issued or to be issued at 100 % of par on or about 9 June 2011, (3) % 165 million GBP denominated bonds each denominated GBP1 issued or to be issued at 100 % of par on or about 9 June 2011, and (4) % 265 million USD denominated bonds each denominated USD1 issued or to be issued at 100 % of par on or about 9 June. Refer section Standby Liquidity Facility 250,000,000 0 Revolving credit facility terminating on 1 June bearing interest at NIBOR plus a margin of 0.6% on drawn amounts. Refer section The drawn amounts have been applied to fund the purchase of the Participating Interest from ExxonMobil as described in section 8.3.4, to meet the cost of fees and expenses associated with the purchase and establishment of the Issuer and Guarantor, to establish cash reserve accounts in accordance with the Bond and working capital requirements of the Issuer. 58

59 11.2 Historical financial information Audited financial statements of the Issuer in respect of the year ending 31 December 2010 are enclosed in Annex 4. As the Issuer did not carry on any business activities prior to its acquisition of the Participating Interest, these statements do not reflect the assets and operations of the Issuer as of, and following from, the date of listing. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board (IASB), EU-approved and in accordance with the Norwegian Accounting Act 3-9. The selected financial information set out in Table 11.2 should be read in conjunction with the audited financial statements and the notes to those statements, set out in Annex 4.The selected financial information has been derived from the audited financial statements of the Issuer for the year ended 31 December Table 11.2: Selected financial information for period ending 31 December 2010 Financial Information 2010 NOK Operating result (2,045,239) Net income (2,037,741) Total Equity 13,062, Total Debt (1,263,449) Table 11.3: Cross reference list Annual report Njord Gas Infrastructure AS Page Income Statement 8 Balance 9 Cash Flow Statement 11 Notes to Annual Accounts 12 Auditor s Report Statement of audited historical financial information The historical financial information for 2010 has been audited Last year of latest financial information The last year of audited financial information is Including share capital increase of NOK 15,000,000 that was resolved on 22 December

60 11.5 Statement of no material adverse change There has been no material adverse change in the Issuer s prospects since the date of its last published audited financial statements. 60

61 12 FINANCIAL INFORMATION ON THE GUARANTOR The Guarantor s sole business relates to its holding of share capital in the Issuer. The Guarantor was established on 25 January 2010 and prior to its acquisition of the Issuer and the Issuer s acquisition of the Participating Interest, did not carry on any business activities. At the date of listing, the Guarantor had total share capital comprising 9,145,250 equal shares, issued and full paid up, each with a par value of NOK % of the share capital of the Guarantor is held by UBS International Infrastructure Fund Holding Coöperatie U.A. and CDC Infrastructure SA Historical financial information Audited consolidated financial statements of the group, as well as audited financial statements of the Guarantor in respect of the year ending 31 December 2010 are enclosed in Annex 5. As the Guarantor did not carry on any business activities prior to its acquisition of the Participating Interest, these statements do not reflect the assets and operations of the Guarantor as of, and following from, the date of listing. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by International Accounting Standards Board (IASB), EU-approved and in accordance with the Norwegian Accounting Act 3-9. The selected financial information set out in Table 12.1 should be read in conjunction with the consolidated financial statements and the notes to those statements set out in Annex 5. The selected financial information has been derived from the audited consolidated financial statements for the year ended 31 December 2010 Table 12.1: Consolidated financial information for period ending 31 December 2010 Financial Information 2010 NOK Operating result (2,064,528) Net income (2,057,030) Total Equity 13,172, Total Debt (1,152,789) 13 Including share capital increase in the Guarantor of NOK 15,300,000 that was resolved on 22 December

62 Table 12.2: Cross reference list for consolidated financial accounts Consolidated annual report Njord Gas Infrastructure HoldingAS Income Statement 8 Balance 9 Page Cash Flow Statement 11 Notes to Annual Accounts 12 Auditor s Report Statement of audited historical financial information The historical financial information for 2010 has been audited Last year of latest financial information The last year of audited financial information is Statement of no material adverse change There has been no material adverse change in the Guarantor s or the group s prospects since the date of its last published audited financial statements. 62

63 13 TAXATION The following summary is regarding taxation is based on the laws in force in Norway as of the date of this Prospectus, and is subject to any changes in law occurring after such date, changes which, in respect of Norwegian taxes, could be made on a retrospective basis. The summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to acquire, own or dispose of the Bonds. Investors should consult their professional advisers on the possible tax consequences of purchasing, holding, selling or redeeming Bonds under the laws of their countries of citizenship, residence, ordinary residence or domicile Petroleum taxation in Norway General characteristics of the Norwegian petroleum tax system Tax rules for petroleum activities are based on the ordinary Norwegian corporation tax system, with some special deviations and features according to the Petroleum Taxation Act. In addition to the ordinary petroleum tax of 28%, there is a special tax of 50% for upstream petroleum activities. Both the ordinary petroleum tax and the special tax are based on net profits from the relevant activities, but certain special conditions apply in respect of calculating the taxable income from petroleum activities. The taxation of the offshore activities of the Issuer, i.e. pipeline transport by Gassled, is governed by the Petroleum Taxation Act. Onshore activities are taxed according to the ordinary corporate tax regime with a tax rate of 28% (see section 13.2) Calculation of taxable income under the Petroleum Taxation Act Petroleum tax is generally calculated as follows: Operating income from the activities less less less less Operating expenditures Linear depreciations for investments (16.67% each year of the tax basis) Net financial costs (special calculations, ref below) Carry forward losses from previous years (including interest) equals Tax basis for ordinary petroleum tax, subject to 28% tax less less Uplift (total of 30% on investments in assets used in offshore activities over 4 years, 7.5% each year) Any unused uplift from previous years (including interest) equals Tax basis for special tax, subject to 50% tax Ordinary petroleum tax is not deductible against special tax and vice versa. The Petroleum Taxation Act includes special provisions for depreciation on fixed assets that are more favourable than under the ordinary corporate tax regime. Production facilities and pipelines, including the Gassled pipelines, may be depreciated on a straight line basis with 16.67% each year. 63

64 Taxation of gains from a sale of such assets can in the same way be taxed over a period of 6 years with 16.67% each year. Net financial items shall be allocated between the offshore and onshore taxable income based on special regulations in the Petroleum Taxation Act. Net financial costs on interest-bearing debt are tax deductible. The tax deductible net financial costs on interest-bearing debt include the interest costs and net loss/gain from exchange rate fluctuations. The interest payable by the Issuer under the Bonds will be included in the interest cost. Net financial costs are deductible in the offshore taxable income based on 50% of the relation between the tax value of the assets offshore and the Issuer's average interest bearing debt during the fiscal year. The formula for calculating the amount of financial costs that are deductible in the petroleum tax calculation is then as follows: Deductible financial cost = {Net financial cost} * 50% * {tax balance of offshore assets} {average interest bearing debt} The remaining part of the financial costs in any accounting year are allocated onshore and included in the ordinary corporate taxation, but if there is no income onshore against which to offset the costs, such financial costs can be reallocated offshore, but only with effect for the ordinary petroleum tax. Thus, all the financial costs are deductible, but part of the costs will only be deductible in the ordinary corporate tax or ordinary petroleum tax and not the special tax. Losses carried forward Losses in a fiscal year can be carried forward to future years without any time limitations. Since 2002, losses are carried forward with interest. If a company disposes of all its offshore assets and activities, the tax value of any unused carry forward losses can according to the Petroleum Taxation Act be paid out in cash by the Norwegian state. Uplift Companies subject to petroleum taxation are allowed uplift on depreciation of new assets. The uplift is a total of 30% of the cost price for the asset, with a maximum increase in depreciation of 7.5% each year in 4 years. The uplift only has effect for the special tax of 50%. Any unused uplift can be carried forward with interest. Decommissioning and removal obligations Until 2004 provisions for decommissioning and removal obligations were deductible for tax purposes. This was changed in 2004, and according to the Petroleum Taxation Act no tax deductions are now allowed for provisions for future obligations related to decommissioning and removal of facilities used in the petroleum activities. Tax deduction is only allowed when decommissioning costs accrue. Group contributions Companies subject to petroleum taxation are not allowed to distribute petroleum tax deductible group contributions. Thus, the petroleum taxable income in the Issuer cannot be reduced by making a group contribution to the Guarantor, and the Guarantor cannot make a petroleum tax deductible group contribution to the Issuer in order to cover any deficit in the Issuer. 64

65 Payment of petroleum tax The petroleum tax is paid in six instalments of which three are during the fiscal year (1 August, 1 October and 1 December) and three are in the assessment after the fiscal year (1 February, 1 April and 1 June). The instalments shall be based on a calculation of the anticipated tax, and can be adjusted during the payment period. Any tax that remains unpaid when the tax assessment for the relevant year is finalised must be paid with interest within 3 weeks after the Issuer is notified of the tax assessment. The tax assessment is finalised in November/December each year Ordinary corporate taxation in Norway The share of the Gassled income which is allocated to onshore activities, mainly income from certain processes within Area C, will be taxed according to the ordinary Norwegian corporate tax regime with a tax rate of 28%. The ordinary corporate tax is also based on net profits in the relevant fiscal year. The financial income or loss which is not allocated to offshore activities as described above is allocated to the onshore activities, and all of the interest on the Bonds and other financial expenses that are not deductible for petroleum tax purposes are expected to be deductible for corporate tax purposes. Onshore assets are depreciated with a depreciation rate between 2% and 30%, depending on the type of asset. The depreciation is made on a declining balance basis and there is no uplift on the depreciation basis. Losses in a fiscal year allocated to onshore activities can be carried forward without time limits. However, such losses are not interest bearing and any unused losses will not be paid out in cash by the Norwegian state as under the petroleum tax regime Tax in other jurisdictions than Norway Despite elements to Gassled being in located in tax jurisdictions other than Norway, income arising from the majority of these assets is taxable only in Norway. Belgium, Germany and France Owing to established double tax protocols the Government of Norway has exclusive taxing rights with regards to income attributable to Gassled owned assets in these countries, and as such no recurring income generated is taxable in these jurisdictions. United Kingdom In the respect of the United Kingdom a double tax treaty comparable to Belgium, France and Germany is not in place. Consequently certain recurring income generated from the United Kingdom by Gassled is subject to taxation in both the United Kingdom and Norway. Generally, corporation tax in the United Kingdom is payable 6 months and 14 days following the start of the fiscal year, with the remainder paid in subsequent instalments 3, 6 and 9 months afterwards. The receiving facility at Easington has been ruled by Her Majesty s Revenue and Customs as a receiving terminal that does not constitute a trade in the United Kingdom for the purposes of corporation tax, and as such is not subject to taxes on income and capital gains in the United Kingdom. However, the receiving facility at St Fergus is considered to constitute a trade in the United Kingdom and is subject to tax on the proportion of income generated from United Kingdom elements of the pipeline. Currently for tax purposes this is assumed to be those tariffs related to the 65

66 Vesterled pipeline. Currently the issuer may offset taxable income by claiming capital allowances on those assets considered to be United Kingdom elements of the pipeline. In addition, ordinary tax credit rules may apply Taxation in respect of the Bonds Bondholders resident in Norway Bondholders resident in Norway will be taxed for the interest received on the Bonds. The interest will be included in other ordinary income of the Bondholder and will be subject only to the flat rate of 28% tax, and no withholding tax will apply. Sale, redemption or repayment of the Bonds will be considered as a taxable realisation of the Bonds which is taxable or tax deductible in other ordinary income. The ordinary income is taxable at a flat rate of 28% tax. The gain is subject to tax and the loss is tax deductible irrespective of the duration of the ownership and the number of Bonds disposed of, and also irrespective of whether the Bondholder is a corporate entity or an individual. The taxable gain or deductible loss is equal to the received sales price, redemption amount or repayment of the Bonds less the subscription or acquisition price for the Bonds, including costs incurred in relation to the subscription, acquisition or realization of the Bonds. Bondholders not resident in Norway There is no withholding tax on payment of interest to Bondholders not resident in Norway for tax purposes. 66

67 ANNEX 1 ARTICLES OF ASSOCIATION OF THE ISSUER Unauthorised translation from Norwegian 1 COMPANY NAME The name of the company is Njord Gas Infrastructure AS (the Company ). The Company is a wholly-owned subsidiary of Njord Gas Infrastructure Holding AS ( Njord Holding ). 2 PLACE OF BUSINESS The Company s place of business is in Stavanger municipality. 3 PURPOSE The purpose is to invest in gas infrastructure assets related to the Norwegian continental shelf. 4 SIGNATURE The right of signature for the Company is vested with the chairman individually or two directors jointly. 5 SHARE CAPITAL The Company s share capital is NOK 914,395,000 divided into 9,143,950 ordinary shares, each having a nominal value of NOK ELECTION OF THE BOARD 6.1 The board shall consist of 4 to 7 directors, including the chairman. 6.2 All directors and respective alternates and the chairman shall be elected by the shareholders meeting. 7 BOARD MEETINGS 7.1 Board meetings shall be held at least quarterly unless otherwise agreed by the board. 7.2 Board meetings shall be called by the chairman by not less than 10 business days prior written notice (or such shorter notice as may be deemed necessary, acting reasonably, by the chairman). Any director may require the chairman to call a board meeting. 7.3 The notice for board meetings shall include an agenda specifying items for decision together with (to the extent appropriate) supporting materials. 7.4 The Company shall reimburse each director for all documented, reasonable out of pocket costs incurred by such director in attending board meetings. 7.5 The Company s chief executive officer and chief financial officer shall, unless otherwise decided by the board, attend the board meetings. 1

68 8 BOARD QUORUM AND PARTICIPATION 8.1 A quorum for board meetings requires the presence of the majority of the directors. 8.2 In the event that a quorum is not met for a duly convened and properly noticed board meeting, such meeting shall be adjourned for two days by further written notice to all directors. 8.3 Presence by any director (or its alternate) at any board meeting shall be deemed to be an effective waiver of notice with respect thereto (except where such director (or such alternate) is present solely for the purpose of contesting the adequacy of notice). 9 VOTING BY THE BOARD OF DIRECTORS POLICIES AND PROCEDURES 9.1 Each director shall have one vote. The chairman shall have one vote only. 9.2 Except as set forth in Section 12 (Unanimous Decisions), each matter put before the board shall require the approval of the majority of votes of the directors present. 9.3 The board shall establish the policies, procedures and guidelines for management of Company, including approval, implementation and modification of a business plan and representing the Company s interest in the Gassled Joint Venture, Dunkerque Terminal DA and Zeepipe Terminal Joint Venture (collectively Gassled ). 10 SHAREHOLDERS MEETINGS Shareholders meetings shall be called by the board by not less than 10 days prior written notice to all shareholders. Such notice shall include an agenda specifying items for decision together with supporting materials. 11 ANNUAL SHAREHOLDERS MEETING The annual shareholders meeting shall deal with: (a) the approval of the annual accounts, the annual report from the board of directors, including approval of dividends; and (b) other matters that shall be dealt with by the shareholders meeting according to law or these articles of association. 12 UNANIMOUS DECISIONS The term Affiliate wherever used herein shall mean with respect to a shareholder of Njord Holding, any person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the shareholder. As used in this definition, the term control (including the terms controlled by and under common control with ) means the possession, directly or indirectly, of (i) more than 50% of the shares of a person, or (ii) the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise. 2

69 The matters set forth below shall require the prior unanimous approval by all directors: entering into a contract or arrangement with any shareholder (or any Affiliate of a shareholder of Njord Holding), otherwise than on arm s length terms in the ordinary course of business; delegation of and any changes to the delegation of any powers to the Board or to any committees thereof; the commencement, settlement, waiver or other disposition of any claims, lawsuits, or other proceedings where the adverse outcome of such proceeding could reasonably be expected to materially and adversely affect the ability of the Company to manage its ownership interest in Gassled and the operations thereof; any variation to the Company s distribution and working capital policy; a decision to make a distribution other than in accordance with the Company s distribution and working capital policy; with the exception of acquisitions or investments in Gassled, acquiring any interest in any person or making any other investment in any person or acquiring any assets of any person or entering into any partnership or joint venture; making any loan or advance to any person; incurring any indebtedness except where (a) the indebtedness is incurred in relation to acquisitions or investments in Gassled and the effect of such indebtedness (i) does not cause, at a Njord Holding consolidated level, the debt to enterprise value (equity plus debt less surplus cash plus minority interest plus preferred equity) to exceed 66% and (ii) the indebtedness is on terms no more onerous for Njord Holding and its subsidiaries as a whole than the indebtedness in place before the additional indebtedness is incurred; or (b) the indebtedness is less than NOK 10 million; selling, assigning, licensing, exchanging or otherwise disposing of assets of the Company or its subsidiaries, in each case outside the ordinary course of business; and appointment of a chief executive officer if the proposed appointee is or has recently been a member, shareholder, officer, director or employee of the largest shareholder of Njord Holding or any Affiliates of that shareholder the creation or extension of any lien or other encumbrance on any asset of the Company or any of its subsidiaries: 3

70 (a) (b) not specifically contemplated by any debt financing instrument of the Company and any of its Affiliates; or except where such lien or other encumbrance relates to acquisitions or investments that are not mandatory for the Company as a participant in Gassled and is on terms no more onerous than any lien or other encumbrance already in place; any alteration to the capital structure of the Company or any of its subsidiaries, including (a) (b) (c) (d) (e) the issuance by the Company or any of its subsidiaries of equity interests (including shareholder loans, convertible bonds, warrants) except in relation to acquisitions or investments in Gassled; the grant of options by the Company or any of its subsidiaries; the redemption of equity interests in Company or any of its subsidiaries; buy-back of equity interests in Company or any of its subsidiaries; and a merger or demerger of the Company or any of its subsidiaries approval to pursue an initial public offering of the equity in the Company or any of its subsidiaries or to have such equity listed on any securities exchange or any other regulated or unregulated market place; the acquisition, exchange or disposal of any equity interests of the Company or any of its subsidiaries; any non-technical amendment or modification of the organisational, constituent or governing documents of the Company or any of its subsidiaries, including the Articles of Association; commencement by the Company or any of its subsidiaries of a voluntary case under, or consent to an involuntary case under, any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or other similar law; the voluntary winding up of, liquidation of or dissolving the Company or any of its subsidiaries; the commencement of any material new business not contemplated under Section 3 (Purpose); and appointing or removing the Company's auditors, or except as required by the relevant generally accepted accounting principles or law, adopting or changing any material accounting principle. 4

71 12.3 Nothing in this Section 12 shall in any way restrict the Company from performing its financial or other obligations as a participant in Gassled and such obligations shall be financed in the following order of priority, except with the prior unanimous approval of all directors or shareholders as the case may be: (a) (b) (c) from existing cash flows of the Company and its Affiliates; from indebtedness incurred in accordance with Section (a); and from the issuance by Njord Holding of equity interests (including shareholder loans, convertible bonds, warrants). 5

72 ANNEX 2 ARTICLES OF ASSOCIATION OF NJORD GAS INFRASTRUCTURE HOLDING AS Unauthorised translation from Norwegian 1 COMPANY NAME The name of the company is Njord Gas Infrastructure Holding AS (the Company ). 2 PLACE OF BUSINESS The Company s place of business is in Stavanger municipality. 3 PURPOSE The Company is a holding company whose purpose is to own the shares of Njord Gas Infrastructure AS and other companies investing in gas infrastructure assets related to the Norwegian continental shelf. 4 SIGNATURE The right of signature for the Company is vested with the chairman individually or two directors jointly. 5 SHARE CAPITAL The Company s share capital is NOK 914,525,000 divided into 9,145,250 ordinary shares, each having a nominal value of NOK ELECTION OF THE BOARD 6.1 The board shall consist of 4 to 7 directors, including the chairman. 6.2 CDC Infrastructure SA shall have the right to elect one director and respective alternate for as long as it holds equity interest in the Company. In the event that the board consists of 5 or more directors, Coöperatie SDAG U.A. ( UBS Holdco ) shall have the right to elect one director and respective alternate for as long as it holds equity interest in the Company. All directors and respective alternates and the chairman shall be elected by the shareholders meeting. 7 BOARD MEETINGS 7.1 Board meetings shall be held at least quarterly unless otherwise agreed by the board. 7.2 Board meetings shall be called by the chairman with not less than 10 business days prior written notice (or such shorter notice as may be deemed necessary, acting reasonably, by the chairman). Any director may require the chairman to call a board meeting. 7.3 The notice for board meetings shall include an agenda specifying items for decision together with (to the extent appropriate) supporting materials. 1

73 7.4 The Company shall reimburse each director for all documented, reasonable out of pocket costs incurred by such director in attending board meetings. 7.5 The Company s chief executive officer and chief financial officer shall, unless otherwise decided by the board, attend the board meetings. 8 BOARD QUORUM AND PARTICIPATION 8.1 A quorum for board meetings requires the presence of the majority of the directors including (i) the presence of the director appointed by CDC Infrastructure SA; and (ii) in the event that the board consists of 5 or more directors, also the presence of the director elected by UBS Holdco. 8.2 In the event that a quorum is not met for a duly convened and properly noticed board meeting, such meeting shall be adjourned for two days by further written notice to all directors and a quorum shall be formed by simple majority of directors. 8.3 Presence by any director (or its alternate) at any board meeting shall be deemed to be an effective waiver of notice with respect thereto (except where such director (or such alternate) is present solely for the purpose of contesting the adequacy of notice). 9 VOTING BY THE BOARD OF DIRECTORS POLICIES AND PROCEDURES 9.1 Each director shall have one vote. The chairman shall have one vote only. 9.2 Except as set forth in Section 12 (Unanimous Decisions), each matter put before the board shall require the approval of the majority of votes of the directors present. 9.3 The board shall establish the policies, procedures and guidelines for the management of Company, including approval, implementation and modification of a business plan and representing the Company s interest in Njord Gas Infrastructure AS and the latter s interest in Gassled, Dunkerque Terminal DA and Zeepipe Terminal Joint Venture (collectively Gassled ). 10 SHAREHOLDERS MEETINGS AND QUORUM 10.1 Shareholders meetings shall be called by the board by not less than 10 days prior written notice to all shareholders. Such notice shall include an agenda specifying items for decision together with supporting materials. One or several shareholder(s) representing more than 10 % of the equity in the Company may by written notice to board require that a shareholders meeting be called A quorum for shareholders meetings requires the presence of (i) a shareholder or shareholders holding in the aggregate more than 50% of the equity interest of the Company; and (ii) each of CDC Infrastructure SA and UBS Holdco. In the event that a quorum is not met for a duly convened and properly noticed shareholders meeting, such meeting shall be adjourned and a new meeting shall be called by 7 days prior written notice to all shareholders. Upon reconvening such meeting, the quorum shall be met if one or several shareholder(s) representing at least 50% of the 2

74 equity interest of the Company is/are present. 11 ANNUAL SHAREHOLDERS MEETING The annual shareholders meeting shall deal with: (a) (b) the approval of the annual accounts, the annual report from the board of directors, including approval of dividends; and other matters that shall be dealt with by the shareholders meeting according to law or these articles of association. 12 UNANIMOUS DECISIONS 12.1 The term Affiliate wherever used herein shall mean with respect to a shareholder, any person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, the shareholder. As used in this definition, the term control (including the terms controlled by and under common control with ) means the possession, directly or indirectly, of (i) more than 50% of the shares of a person, or (ii) the power to direct or cause the direction of the management and policies of a person, whether through ownership of voting securities, by contract or otherwise The below provisions in this Section 12 shall apply irrespective of whether the relevant decisions are to be made by the Company s board or shareholders meeting The matters set forth below shall require the prior unanimous approval by all directors or shareholders, as the case may be: entering into a contract or arrangement with any shareholder (or any Affiliate of such shareholder), otherwise than on arm s length terms in the ordinary course of business; delegation of and any changes to the delegation of any powers to the Board or to any committees thereof; the commencement, settlement, waiver or other disposition of any claims, lawsuits, or other proceedings where the adverse outcome of such proceeding could reasonably be expected to materially and adversely affect the ability of the Company to manage its ownership interest in Gassled and the operations thereof through Njord Gas Infrastructure AS; any variation to the Company s distribution and working capital policy; a decision to make a distribution other than in accordance with the Company s distribution and working capital policy; 3

75 with the exception of acquisitions or investments in Gassled, acquiring any interest in any person or making any other investment in any person or acquiring any assets of any person or entering into any partnership or joint venture; making any loan or advance to any person; incurring any indebtedness except where (a) the indebtedness is incurred in relation to acquisitions or investments in Gassled and the effect of such indebtedness (i) does not cause, at a Company consolidated level, the debt to enterprise value (equity plus debt less surplus cash plus minority interest plus preferred equity) to exceed 66% and (ii) the indebtedness is on terms no more onerous for the Company and its subsidiaries as a whole than the indebtedness in place before the additional indebtedness is incurred; or (b) the indebtedness is less than NOK 10 million; selling, assigning, licensing, exchanging or otherwise disposing of assets of the Company or its subsidiaries, in each case outside the ordinary course of business; and appointment of a chief executive officer if the proposed appointee is or has recently been a member, shareholder, officer, director or employee of the largest shareholder of the Company or any Affiliates of that shareholder the creation or extension of any lien or other encumbrance on any asset of the Company or any of its subsidiaries: (a) (b) not specifically contemplated by any debt financing instrument of the Company and any of its Affiliates; or except where such lien or other encumbrance relates to acquisitions or investments that are mandatory for Njord Gas Infrastructure AS as a participant in Gassled and is on terms no more onerous than any lien or other encumbrance already in place; any alteration to the capital structure of the Company or any of its subsidiaries, including (a) (b) (c) (d) (e) the issuance by the Company or any of its subsidiaries of equity interests (including shareholder loans, convertible bonds, warrants) except in relation to acquisitions or investments in Gassled; the grant of options by the Company or any of its subsidiaries; the redemption of equity interests in Company or any of its subsidiaries; buy-back of equity interests in Company or any of its subsidiaries; and a merger or demerger of the Company or any of its subsidiaries 4

76 approval to pursue an initial public offering of the equity in the Company or any of its subsidiaries or to have such equity listed on any securities exchange or any other regulated or unregulated market place; the acquisition, exchange or disposal of any equity interests of the Company or any of its subsidiaries; any non-technical amendment or modification of the organisational, constituent or governing documents of the Company or any of its subsidiaries, including the Articles of Association; commencement by the Company or any of its subsidiaries of a voluntary case under, or consent to an involuntary case under, any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, or other similar law; the voluntary winding up of, liquidation of or dissolving the Company or any of its subsidiaries; the commencement of any material new business not contemplated under Section 3 (Purpose); appointing or removing the Company's auditors, or except as required by the relevant generally accepted accounting principles or law, adopting or changing any material accounting principle; and the vote to be cast in the election of the directors of any of the Company s subsidiaries Nothing in this Section 12 shall in any way restrict the Company from procuring that Njord Gas Infrastructure AS performs its financial or other obligations as a participant in Gassled and such obligations shall be financed in the following order of priority, except with the prior unanimous approval of all directors or shareholders as the case may be: (a) (b) (c) from existing cash flows of the Company and its Affiliates; from indebtedness incurred in accordance with Section (a); and from the issuance by the Company of equity interests (including shareholder loans, convertible bonds, warrants). 13 PARTICIPATION RIGHTS 13.1 Each of the shareholders shall have a pro rata right to participate in subsequent equity issuances made by Company. No shareholder shall be obligated to participate in any such financing If a shareholder declines to participate in such financing, the participating shareholder(s) may elect to fund all or any portion of such non-participating shareholder s portion of such additional financing. If the participating shareholder(s) does not elect to fund the entire 5

77 amount of such non-participating shareholder s allotment, then the board may solicit third parties to provide the additional financing on no better terms than those accepted by the participating shareholder(s). 14 TRANSFER OF SHARES COMPANY APPROVAL NOT REQUIRED 14.1 Transfer of shares in the Company shall not be subject to approval by the Company. 15 RESTRICTIONS ON TRANSFER 15.1 No shareholder shall be permitted to sell, transfer, exchange, assign or otherwise dispose of any of its shares, other than (i) to a an Affiliate of such shareholder, or (ii) in accordance with the provisions of this Section 15. No shareholder shall be permitted to pledge or otherwise encumber its shares, unless required under any debt financing instrument of the Company and any of its Affiliates Notwithstanding anything in this Section 15, UBS Holdco may at any time before 30 June 2011 sell, transfer, exchange, assign or otherwise dispose of any of its shares to a third party, provided, however that UBS Holdco s shareholding in the Company shall represent no less than 60% of the shares after such transfer The Norwegian Private Limited Liability Companies Act Sections 4-19 to and including 4-23 shall not apply with respect to transfer of shares, in which case the provisions in this Section 15 shall apply If a shareholder ( Selling Shareholder ) desires to sell, transfer, exchange, assign or otherwise dispose of 20% or less of the equity interest in the Company to any person (other than to Affiliates of such shareholder), it shall first provide the other shareholders ( Non-Selling Shareholders ) written notice describing the equity interests it proposes to transfer, the purchase price for which it proposes to transfer such equity interests and the other material terms and conditions of the proposed transfer, and offer to sell such interests to the Non-Selling Shareholders at the same price and otherwise on the same terms and conditions set forth in such notice The Non-Selling Shareholders shall have the option to purchase all but not less than all of the offered equity interests If the Non-Selling Shareholders do not exercise such option to purchase all such equity interests being offered within 30 days after receipt of the above written notice, then the Selling Shareholder may, for a period of 180 days, sell such offered equity interests to any third-party at the same price (or more) and otherwise on the same terms and conditions set forth in such notice. Following such 180 day period, the provisions set forth above in this Section 16 shall come back into effect. Any transferee must agree to be bound by the same restrictions and obligations as the transferor(s) with respect to the equity interests in Company held by it The closing of any purchase and sale to a third party as described in Section 15.6 may occur after the 180 day period has elapsed if such transfer would require the Selling Shareholder to obtain regulatory approval prior to consummating such sale, in which case the closing of the transaction shall be extended to the date that is 5 business days after such regulatory approval has been obtained or the date on which it is finally denied. 6

78 16 TAG ALONG RIGHT 16.1 If a shareholder holding more than 50% of the equity of Company ( Majority Shareholder ) desires to sell, transfer, exchange, assign or otherwise dispose of more than 50% of the equity that it holds of the Company to any person (other than to Affiliates of such shareholder) in a transaction or a series of transactions conducted over a 12 month period, then each other shareholder (each an Offeree ) shall have the right to participate in such disposition on a pro rata basis at the price and otherwise on the same terms and conditions provided that: (a) (b) an Offeree shall not be required to enter into or be bound by any non-competition or any other non-financial or restrictive covenant that would affect that Offeree; an Offeree shall not be required to incur indemnification, representation or warranty obligations in connection with such sale other than: (i) pro rata obligations with respect to representations and warranties concerning the Company (which, in no event, shall exceed the sale proceeds received by such Offeree); and 17 DRAG ALONG RIGHT (ii) obligations in connection with representations, warranties and indemnification in respect of title of the Offeree to its shares or other equity interests in Company and other matters related to the legality of such transfer by the Offeree At any time after 31 December 2015, if one or several shareholders holding more than 90 % of the shares ( Super Majority Shareholder(s) )desire(s) to transfer all, but not less than all, of its/their shares on arm s length terms at fair market value to any person (other than an Affiliate of such shareholder(s)), it/they shall have the right to require the other shareholder(s) to participate in any such sale on terms and conditions no less favourable than the terms and conditions offered to such Super Majority Shareholder(s) provided that such other shareholder(s) shall not be required to incur indemnification, representation or warranty obligations in connection with such sale other than obligations in connection with representations, warranties and indemnification in respect of title of such other shareholder(s) to its shares and other matters related to the legality of such transfer by such other shareholder(s) The other shareholder(s) agree to take all such action as may be reasonably necessary to effect such sale, provided that the other shareholder shall not be required to enter into or be bound by any non-competition or any other non-financial or restrictive covenant that would affect such other shareholder. 7

79 ANNEX 3 INDEX OF TERMS DEFINED IN THE PROSPECTUS "Additional Senior Indebtedness" any senior indebtedness of the Issuer other than the Senior Indebtedness. "Agency and Intercreditor Agreement" the agency and intercreditor agreement dated 1 June between the Issuer, the Guarantor, the Security Agent, the Bond Trustee (on behalf of the Bondholders), the Sponsors, the Paying Agent, the Calculation Agent and the Other Senior Lenders. "Arrangers" UBS Investment Bank and the Royal Bank of Scotland. bcm billion cubic metres at standard transportation and performance (0 C and kpa) "Board of Directors" the board of directors of the Issuer. "Bonds" the senior secured bonds ranking pari passu with each other, issued by the Issuer under the Common Terms Agreement. "Bond Issue" any issue of series of Bonds by the Issuer under the Common Terms Agreement, each such series of Bonds will be described in the applicable Securities Note. "Bond Trustee" the trustee for the Bond Issue. "Bondholders" the persons or entities holding the Bonds from time to time, as registered in the Securities Register. "Booking Manual" the booking manual as further described in section "Business Day" any day on which commercial banks are open for general business, and can settle foreign currency transactions, in Oslo, London and/or Brussels (as the case may be). "Cash Calls" any payment means any payment required by Gassco from the Issuer pursuant to the relevant agreements governing the Gassled. "Collection Account" the account held by the Issuer to collect payments from Gassco, as described in the Common Terms Agreement. "Common Terms Agreement" the common terms agreement dated 1 June 2011 as attached to the Securities Notes including all attachments and enclosures, as amended and supplemented from time to time. "CPI" means the all-items consumer price index (No.: Konsumprisindeksen or KPI) published by the Norwegian Central Bureau of Statistics (Statistisk Sentralbyrå), as from time to time substituted or amended pursuant to Clause 8 of the Common Terms Agreement. "Dunkerque Terminal DA" a pro-rata unlimited partnership incorporated in Norway with organisational number , owning the gas receiving terminal at Dunkerque, France. 1

80 "Dunkerque/Zeebrugge Assets" Gassled Participants' participating interests in each of Zeepipe Terminal JV and Dunkerque Terminal DA. The Gassled Participants hold a total of 49% in Zeepipe Terminal JV and 65% in Dunkerque Terminal DA, in proportion to their respective Gassled interests. "EEA" the European Economic Area. "Encumbrance" encumbrance, mortgage, pledge, lien, charge (whether fixed or floating), assignment by way of security, finance lease, sale and repurchase or sale and leaseback arrangement, sale of receivables on a recourse basis or security interest or any other agreement or arrangement having the effect of conferred security. "Establishment Agreement" the Agreement Regarding the Establishment of Gassled entered into on 20 December 2002 by and between the following original parties: Petoro, Statoil, Norsk Hydro Produksjon a.s, Mobil Development Norway AS, Esso Exploration and Production Norway AS, TotalFinaElf Exploration Norge AS, Norske Shell Pipelines AS, Norsea Gas A/S, Norske Conoco AS, Norsk Agip A/S and Fortum Petroleum AS. "EU" the European Union. "EUR" Euro, the legal tender of the European Monetary Union area. "ExxonMobil" ExxonMobil Exploration and Production Norway AS, a private limited liability company incorporated in Norway with organisational number "Gassco" Gassco AS, a company owned by the Norwegian state and incorporated in Norway with organisational number , operating the Gassled Assets either on its own or through service providers. "Gassled" the Norwegian unincorporated joint venture established in January 2003 pursuant to the Petroleum Act and the Establishment Agreement. "Gassled Assets" - the assets owned through Gassled comprising: (i) (ii) (iii) (iv) all major gas transport systems from the NCS to the European continent and the United Kingdom; the Kollsnes and Kårstø gas processing plants in Norway; the receiving gas terminals in Emden and Dornum (Germany) and St. Fergus and Easington (United Kingdom); and the Dunkerque/Zeebrugge Assets. "Gassled Participants" the entities holding participating interests in Gassled. "GBP" pound sterling, the legal tender of the United Kingdom. "Guarantee" the unconditional on-demand guarantee (No.: "Selvskyldnergaranti") from the Guarantor in favour of the Security Agent guaranteeing all of the Issuer's obligations under the Transaction Documents. 2

81 "Guarantee Agreement" the agreement between the Guarantor and the Security Agent relating to the Guarantee. "Guarantor" Njord Gas Infrastructure Holding AS, a private limited liability company incorporated in Norway with organisational number "Issuer" Njord Gas Infrastructure AS, a private limited liability company incorporated in Norway with organisational number "Management Committee" the management committee of Gassled. mcm million cubic metres at at standard transportation and performance (0 C and kpa) "MPE" the Norwegian Ministry of Petroleum and Energy. "NCS" the Norwegian continental shelf. "NGL" natural gas liquids. "NIBOR" is defined as: (a) the rate displayed on Reuters screen page NIBP at or about noon on the relevant quotation day; or (b) (if no such rate is available for the relevant interest period) the rate (rounded upwards to four decimal places) quoted by certain reference banks to leading banks in the Norwegian interbank market, as of 12 noon Oslo time on the relevant quotation day for the offering of deposits in NOK for a period comparable to the relevant interest period. "NOK" Norwegian kroner, the legal tender of Norway. "NPD" the Norwegian Petroleum Directorate. "Operating Agreement" means the operating agreement between Gassled Participants and Gassco signed on 20 December 2002 as subsequently amended. "Oslo Stock Exchange" - Oslo Børs, a regulated market in Norway. "Other Senior Lenders" (i) any lender(s) under the Standby Liquidity Facility and (ii) any lender(s) in respect of Additional Senior Indebtedness as described in the Common Terms Agreement. "Participating Interest" the Issuer's participating interest in the Gassled Assets at any time, as further described in the Common Terms Agreement. "Participants' Agreement" means the Gassled Participants Agreement effective as from 1 January 2009, as may be subsequently amended. 3

82 "Paying Agent" the entity appointed by the Issuer and approved by the Bond Trustee who acts as paying agent on behalf of the Issuer with respect to the Bonds. "Paying Agent and Registrar Agreement" the agreement dated 1 June between the Paying Agent and the Issuer. "Petoro" Petoro AS, a company incorporated in Norway with organisational number "Petroleum Act" the Norwegian Act of 29 November 1996 relating to petroleum activities. "Petroleum Taxation Act" the Norwegian Act of 13 June 1975 on petroleum taxation. "Prospectus" the Registration Document and all Securities Notes with all attachments and appendices. "Limited Liability Companies Act" the Norwegian Private Limited Liability Companies Act of 13 June 1997 no. 44. "Registration Document" this registration document with all attachments and appendices and forming part of the Prospectus. "Securities Trading Act" the Norwegian Securities Trading Act of 29 June "Securities Notes" each securities note for any series of Bonds issued under the Common Terms Agreement, including all attachments and appendices and forming part of the Prospectus. "Securities Register" Verdipapirsentralen (VPS), the Norwegian securities register. "Security Agent" the security agent for the Bond Issue and the Standby Liquidity Facility. "Security Documents" the documents establishing the Security Interests. "Security Interests" any Encumbrances or other security (including any guarantee) created (or to be created) by the Security Documents securing the obligations of the Issuer and the Guarantor under the Senior Indebtedness. "Senior Indebtedness" the Bonds and the Standby Liquidity Facility. "Shipper" a shipper of gas in any of the Gassled Assets. "Sponsors" the shareholders of the Guarantor on the date of the Common Terms Agreement, being (i) UBS International Infrastructure Fund Holding Coöperatie U.A. a cooperative association with exclusion of liability (coöperatie U.A.), incorporated under the law of the Netherlands, having its registered seat (statutaire zetel) in Maastricht, the Netherlands, registered with the Chamber of Commerce of Limburg under number and having its office address at Kruisdonk 66 (6222 PH) Maastricht, the Netherlands, and 4

83 (ii) CDC Infrastructure SA, a limited liability company (société anonyme) incorporated under the laws of France, having its registered address at 56 Rue de Lille, Paris, France, registered with the Registre du Commerce et des Sociétès under number , R.C.S. Paris, France, and their permitted assignees. "Standby Liquidity Facility" means a standby credit facility of NOK 250,000,000 available to the Issuer to fund any Cash Calls, payment of taxes and ordinary operating expenses to the extent that funds are not available from the Collection Account. "Statoil" Statoil ASA, a public limited liability company incorporated in Norway with organisational number "Tariff Regulations" the regulations of 20 December 2002 on stipulation of tariffs etc for designated installations "Terms and Conditions" the "Terms and conditions for transportation of gas in Gassled". "Transaction Documents" means (i) the Common Terms Agreement, (ii) the Security Documents, (iii) the Agency and Intercreditor Agreement, (iv) the subscription agreement whereby the Bonds are subscribed, (v) the Paying Agent and Registrar Agreement, (vi) an Issuer's accounts agreement, (vii) the agreement between the Bond Trustee and the Issuer referred to in Clause 12.2 of the Common Terms Agreement, (viii) the Standby Liquidity Facility, (ix) any documents governing any Additional Senior Indebtedness for which the creditor has adhered to the Agency and Intercreditor Agreement, and (x) such additional agreements and notifications as may be required to effect the perfected first priority lien of the Security Agent over the security assets as described in Clause 7.3 of the Common Terms Agreement and to otherwise implement the transaction and security structure. "Transport Agreement" the agreement between Gassco and a Shipper for shipping and processing gas. "TSP" technical service providers performing technical operation assignments for Gassco. "USD" Unites States dollars, the legal tender of the United States. "UK" United Kingdom of Great Britain and Northern Ireland. "Zeepipe Terminal JV" the Zeepipe Terminal Joint Venture as governed by Zeepipe Terminal Participants Agreement dated 17 September 1988 as amended owning the gas receiving terminal at Zeebrugge, Belgium. 5

84 ANNEX 4 ANNUAL REPORT FOR THE YEAR 2010 FOR NJORD GAS INFRASTRUCTURE AS 1

85 Njord Gas Infrastructure AS Annual Report and Accounts For the period 25 January 2010 to 31 December 2010

86 Contents Director s report 3 Page Njord Gas Infrastructure AS financials 4 2

87 Director s report We are pleased to present the annual report for Njord Gas Infrastructure AS ( Company ) for the period 25 January 2010 to 31 December About Njord Gas Infrastructure AS The Company s main business is long-term investment in gas infrastructure serving the Norwegian continental shelf. It is located in Stavanger, Norway. The Company is owned 100% by Njord Gas Infrastructure Holding AS. As at 31 December 2010, the Company has not completed any investments. It is actively working towards the financial closing of an acquisition of 8.036% interest in Gassled, an unincorporated joint venture gas pipeline business. This is expected to close in Q The Company, is in the process of raising a bond of circa NOK 4 billion as part of the debt financing strategy regarding the Gassled acquisition. Going Concern Pursuant to 3-3 of the Norwegian Accounting Act the Board of Directors confirms that the conditions for continued operations as a going concern are present for the Company and that the annual financial statements for 2010 have been prepared under this presumption. The financial statements The Company is not exposed to particular risk factors as there are no underlying investments for the year ended 31 December During 2010, the Company s incurred total operating expenses of NOK 2,045,239 and earned net financial items of NOK 7,498. Loss before income taxes was NOK 2,037,741. There were no tax payments attributable for the current financial year. The Company had not made any investments during 2010 although incurred costs related to the impeding acquisition of Gassled. Health, safety and environment/equal opportunity The Company did not have any direct employees during 2010, although procedures have been finalised and implemented related to work environment or equal opportunity. This is currently being adhered to by temporary staff and forms a basis for future direct employees. At present there are no female members of the Board of Directors. External environment The Company together with its Joint Venture partners work actively on measures that can reduce any negative impact on the environment. Stavanger, 14 April

88 Njord Gas Infrastructure AS financials 4

89 Contents Page Independent auditors report 6 Income statement 8 Statement of financial position 9 Statement of changes in equity 10 Cash flow statement 11 Note to the accounts 12 5

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92 Income statement Period ended Note 31 December 2010 NOK Operating income - Operating expense Other operating expense 3 2,045,239 Total operating expense 2,045,239 Operating Loss (2,045,239) Financial income and expense Other financial income 7,498 Other financial expense - Total financial income and expense 7,498 Loss before taxes (2,037,741) Income tax expense 4 - Loss for the year (2,037,741) Ordinary and diluted earnings per share (2,038) Statement of comprehensive income Period ended 31 December 2010 NOK Total other comprehensive income - Loss for the year (2,037,741) Total comprehensive loss (2,037,741) Ordinary and diluted total comprehensive income per share (2,038) 8

93 Statement of financial position Assets Note As at 31 December 2010 NOK Non-current assets Investment costs 5 14,138,327 Total non-current assets 14,138,327 Current assets Cash and bank deposits 187,381 Total current assets 187,381 Total assets 14,325,708 Equity and liabilities Equity Share capital 6 100,000 Retained earnings (2,037,741) Total equity (1,937,741) Not registered capital 15,000,000 Liabilities Non-current liabilities Loan from group companies 8 110,660 Current liabilities Trade creditors 7 1,152,789 Total current liabilities 1,152,789 Total liabilities 1,263,449 Total equity and liabilities 14,325,708 Stavanger, April 14, 2011 Tore Ingebrigt Sandvold Chairman Paul John Moy Gautier Michel Jean-Francois Chatelus Mark Andrew Gilligan 9

94 Statement of changes in equity Nominal share capital NOK Retained earnings NOK Total equity NOK Total equity at incorporation on 25 January , ,000 Total comprehensive loss for the period (2,037,741) (2,037,741) Total equity as at 31 December ,000 (2,037,741) (1,937,741) 10

95 Cash flow statement Note Period ended 31 December 2010 NOK Cash flows from operating activities Loss before taxes (2,037,741) Changes in trade payables 1,152,789 Net cash flow from operating activities (884,952) Cash flows from investing activities Investment costs acquisition of joint ventures (14,138,327) Net cash flow from investing activities (14,138,327) Cash flows from financing activities Loans from group companies 8 110,660 Cash in from paid in capital 100,000 Not registered capital increase 6 15,000,000 Net cash flow from financing activities 15,210,660 Net change in cash and cash equivalents 187,381 Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period - 187,381 Interest paid - 11

96 Notes to the accounts Note 1 General information Njord Gas Infrastructure AS ( the Company ) is a limited liability company incorporated and domiciled in Norway, with its main office in Stavanger. Njord Gas Infrastructure AS is in the process of acquiring a 8.036% interest in Gassled, which owns the Norwegian gas transport infrastructure, from ExxonMobil Exploration and Production Norway AS. The Company was incorporated 25 January 2010, and the income statement presents the activity from the date of incorporation to 31 December The financial statements were approved by the Company s board of directors on [ ] April Note 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. 2.1 Basis for preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements following the Norwegian Accounting Act. The financial statements have been prepared on a historical cost basis. 2.2 Investments in joint ventures A joint venture is a contractual arrangement whereby the Njord Gas Infrastructure AS and other parties undertake an economic activity that is subject to joint control (i.e. when the strategic financial and operating policy decisions relating to the activities of the joint venture require the unanimous consent of the parties sharing control) Interests in jointly controlled assets are recognised by including Njord Gas Infrastructure AS s share of assets liabilities, income and expense on a line-by-line basis. 2.3 Foreign currency The functional currency of the Company is Norwegian Kroner (NOK). Monetary assets and liabilities denominated in other currencies are translated at the year end exchange rates. Foreign currency revenues and expenses are translated at transaction date exchange rates. Exchange gains and losses are included in the determination of net income. 2.4 Property, plant and equipment Property plant and equipment are measured at historic cost less accumulated depreciation and any impairment loss. If a legal or constructive obligation exists to decommission property, plant and equipment, the carrying value of the asset is increased with the discounted value of the obligation when it arises. 12

97 Notes to the accounts (continued) Expense in connection with periodic maintenance on property plant and equipment are recognised as assets and depreciated on a systematic basis until the next periodic maintenance, provided the criteria for capitalising such items have been met. Expenses in connection with day to day maintenance and repairs are recognised in the statement of income as they incur. Property, plant and equipment are depreciated on a straight-line basis over their expected useful life. If individual parts of property, plant and equipment have different useful lives they are accounted for and depreciated separately. 2.5 Impairment of tangible assets At the end of each reporting period, the Company reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statement. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the income statement. 2.6 Short term receivables (current assets) Short term receivables are initially recognised at fair value plus any transaction costs. The receivables are subsequently carried at amortised cost using the effective interest method, if the amortisation effect is material, and the carrying amount is subsequently reduced by any impairment losses. 2.7 Cash and cash equivalents Cash and the equivalents include cash on hand, deposits with banks and other shortterm highly liquid investments with original maturities of three months or less. 2.8 Financial liabilities Financial liabilities, such as bond loans, are initially recognised at fair value less direct transaction costs. Subsequent to initial recognition, interest-bearing liabilities are measured at amortised cost with any difference between cost and redemption being recognised in the statement of income over the period of which the financial liabilities are outstanding. 13

98 Notes to the accounts (continued) 2.9 Revenue The Company will in the future generate tariff revenue from its ownership in Gassled s transportation of gas and from Gassled s gas processing. Revenue from gas transportation and gas processing will be recognised when it is earned, which is when the gas has been transported or processed Taxes Income taxes for the period comprise tax payable and changes in deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity. Deferred tax assets and liabilities are calculated on the basis of existing temporary differences between the carrying amounts of assets and liabilities in the financial statement and their tax bases, together with tax losses carried forward at the balance sheet date. Deferred tax assets and liabilities are calculated based on the tax rates and tax legislation that are expected to exist when the assets are realised or the liabilities are settled, based on the tax rates and tax legislation that have been enacted or substantially enacted on the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised Cost of equity transactions Transaction costs directly linked to an equity transaction are recognised directly in equity, net after deducting tax Events after the balance sheet date The financial statements are adjusted to reflect events after the balance sheet date that provide evidence of conditions that existed at the balance sheet date (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the balance sheet date (non-adjusting events). Non-adjusting events are disclosed if significant Cash flow statement The cash flow statement is prepared by using the indirect method Critical accounting estimates and assumptions The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Areas where significant judgement has been applied are: Critical judgement in applying accounting policies: Acquisition of interests in joint ventures: How to account for the acquisition of an interest in a joint venture which owns gas transport infrastructure is subject to substantive judgement by the management. The management has assessed that the purchase that will be completed in 2011 shall be treated as a purchase of assets. If this acquisition had been treated as a business combination, this may have altered the financial statement significantly. 14

99 Notes to the accounts (continued) 2.15 New and amended standards and interpretations These are the Company s first financial statements, and all standards that are relevant for the Company and that is mandatory for the annual periods starting on 1 January 2010 have been applied. IFRS and IFRIC issued but not adopted by the Company Amendments to IFRS 7 Financial Instruments - Disclosures The amendment relates to disclosure requirements for financial assets that are derecognized in their entirety, but where the entity has a continuing involvement. The amendments will assist users in understanding the implications of transfers of financial assets and the potential risks that may remain with the transferor. The amended IFRS 7 is effective for annual periods beginning on or after 1 July 2011, but the standard is not yet approved by the EU. The Company expects to implement the amended IFRS 7 as of 1 January IFRS 9 Financial Instruments IFRS 9 replaces the classification and measurement rules in IAS 39 Financial Instruments- Recognition and measurement for financial instruments. According to IFRS 9 financial assets with basic loan features shall be measured at amortised cost, unless one opts to measure these assets at fair value. All other financial assets shall be measured at fair value. The classification and measurement of financial liabilities under IFRS 9 is a continuation from IAS 39, with the exception of financial liabilities designated at fair value through profit or loss (Fair value option), where change in fair value relating to own credit risk shall be separated and shall be presented in other comprehensive income. IFRS 9 is effective for annual periods beginning on or after 1 January 2013, but the standard is not yet approved by the EU. The Company expects to apply IFRS 9 as of 1 January IAS 24 (revised) Related Party Disclosures The revised IAS 24 clarifies and simplifies the definition of a related party, compared to the current IAS 24. The revised standard also provides some relief for governmentrelated entities to disclose details of all transactions with other government-related entities (as well as with the government itself). IAS 24 (R) is effective for annual periods beginning on or after 1 January 2011, but the revised standard is not yet approved by the EU. The Company expects to implement IAS 24 (R) as of 1 January Amendments to IAS 32 Financial Instruments: Presentation Classification of Rights Issues The amendment to IAS 32 Financial Instruments - Presentation provides relief to entities that issue rights in a currency other than their functional currency, from treating the rights as derivatives with fair value changes recorded in profit or loss. Such rights will now be classified as equity instruments when certain conditions are met. Application of the amendment is retrospective and will result in the reversal of profits or losses previously recognized. The amendment is effective for annual periods beginning on or after 1 February The Company expects to implement the amendments as of 1 January Amendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction - Prepayments of a Minimum funding Requirement 15

100 Notes to the accounts (continued) The amendment to IFRIC 14 intends to correct an unintended consequence of IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. This amendment will allow entities to recognise a prepayment of pension contributions as an asset rather than as an expense. The amendment is effective for annual periods beginning on or after 1 January The Company expects to implement the amendment as of 1 January IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The interpretation clarifies the accounting treatment of financial liabilities that, as a result of a renegotiation of the terms of the financial liability, are fully, or partially, extinguished with equity instruments. The interpretation is effective for annual periods beginning on or after 1 July The Company expects to implement IFRIC 19 as of 1 January Annual improvements project 2010 The IASB issued amendments to its standards and the related Basis for Conclusions in its annual improvements to IFRSs. The improvement project is an annual project that provides a mechanism for making necessary but non-urgent amendments. The improvements are effective for annual periods beginning on 1 July 2010 or later, but the improvements are not yet approved by the EU. The Company plans to implement the amendments from 1 January Note 3 Other operating expenses Period ended 31 December 2010 NOK Consulting fees and temporary staff 1,678,879 Other operating expense 366,360 Total other operating expense 2,045,239 Note 4 Income tax expense Tax Expense / (income) Period ended 31 December 2010 NOK Current tax - Deferred taxes - Total tax expense / (income) - Specification of basis for deferred tax: - Tax losses carry forward 1,593,187 Basis deferred tax asset 1,593,187 Deferred tax asset not recognised 1,593,187 Net deferred tax liability recognised - 16

101 Notes to the accounts (continued) Note 4 Income tax expense (continued) The Company is subject to a 50% special petroleum tax based on its activities on the Norwegian Continental Shelf in addition to Norwegian corporate taxes of 28%. Capitalisation of deferred income tax assets is subject to strict requirements in respect of the ability to substantiate that sufficient taxable profit will be available against which the unused tax losses can be utilised. Based on the fact that the company is in an early stage, deferred tax asset from tax losses carry forward has not been recognised. Reconciliation of effective tax rate: Period ended 31 December 2010 NOK Loss before tax (2,037,741) Tax based on the corporate and special tax (1,589,438) rate, 78% Effects from: Income subject to 28% taxes (3,749) Deferred income tax asset not recognised 1,583,187 Tax expense - Note 5 Investment costs Investment costs are capitalised expenses related to the agreement to acquire a share in a joint venture. See note 9 for further information. Note 6 Share capital Shares Ownership Njord Gas Infrastructure Holding AS 1, % Total number of shares 1, % additional shares has been issued to Njord Gas Infrastructure Holding AS. This capital increase has not been formally registered at 31 December 2010, and is presented as Not registered capital in the balance sheet. All shares have equal rights. Earnings per share The Company has not issued any share options or similar that gives rise to potential shares. i.e. basic and ordinary earnings per share is equal. Additional shares issued, but not registered are excluded in the EPS calculations. 17

102 Notes to the accounts (continued) Note 7 Financial risk management, objectives and policies Financial risk management The Company s principal financial liabilities consist of trade payables. The company s financial assets mainly comprise cash. The Company is exposed to market risk, credit risk and liquidity risk. The Company s senior management oversees the management of these risks. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk, commodity price risk and other price risk. The Company's financial assets and liabilities have only limited exposure to these risks. a) Interest rate risk: Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company does not have any borrowings, and is consequently not exposed to interest rate risk however is in the process of issuing bonds. b) Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company has some currency risk from transactions in foreign currency. At 31 December 2010 the Company had no balances nominated in foreign currency. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company is currently only exposed to credit risk through deposits with banks. Liquidity The Company monitors its risk to a shortage of funds by continuously monitoring maturity of financial assets and liabilities and projected cash flows from operations. The Company anticipates that they will issue bonds to help financing the acquisition described in note 9. At the balance sheet dates, the only financial liability is trade payables. Capital management A key objective in relation to capital management is to ensure that the Company maintains a sufficient capital structure in order to support its business development. The Company evaluates its capital structure in light of current and projected cash flow, new business opportunities and the Company s financial commitments. In order to maintain or adjust the capital structure, the Company may issue new shares or issue bonds. Fair value of financial instruments The carrying amount of cash and cash equivalents, short term financial receivables and trade debtors is approximately equal to fair value due to a short term to maturity. 18

103 Notes to the accounts (continued) Note 8 Related party disclosure a) Loan from group companies The parent company has provided a loan to Njord Gas Infrastructure AS. The maturity is not agreed yet. Note 9 Events after the reporting period On 13 April 2010, Njord Gas Infrastructure AS signed an agreement to acquire a 9.428% interest (as of 1 January 2011 the stake was 8.036%) in Gassled from ExxonMobil Exploration and Production Norway AS. Gassled is an unincorporated joint venture and is the world's largest integrated offshore gas transmission system. As of 2 February 2011, Njord Gas Infrastructure AS had received all of the necessary Norwegian government approvals and was working to secure its debt financing after which it will look to reach financial close on the transaction. As further described in the accounting principles, currently it is assessed that this transaction does not represent a business combination. The consideration will consequently be allocated between identifiable assets acquired and liabilities incurred, and no deferred tax or goodwill will be recognised. 19

104 ANNEX 5 CONSOLIDATED ANNUAL REPORT AND ANNUAL REPORT FOR THE YEAR 2010 FOR NJORD GAS INFRASTRUCTURE HOLDING AS 1

105 Njord Gas Infrastructure Group and Njord Gas Infrastructure Holdings AS Annual Report and Accounts For the period 25 January 2010 to 31 December 2010

106 Contents Page Director s report 3 Independent auditors report 4 Njord Gas Infrastructure Group consolidated financials 6 Njord Gas Infrastructure Holdings AS financials 20 2

107 Director s report We are pleased to present the annual consolidated report for the Njord Gas Infrastructure Holding Group ( Group ) and the individual report for Njord Gas Infrastructure Holding AS ( Holding Company ) for the period 25 January 2010 to 31 December About Njord Gas Infrastructure Holding Group The Group s main business is long-term investment in gas infrastructure serving the Norwegian continental shelf. It is located in Stavanger, Norway and its activities are carried out through the subsidiary, Njord Gas Infrastructure AS. The Group is owned by UBS International Infrastructure Fund Holding Coöperatie U.A. (82%) and CDC Infrastructure SA (18%). As at 31 December 2010, the Group has not completed any investments. It is actively working towards the financial closing of an acquisition of 8.036% interest in Gassled, an unincorporated joint venture gas pipeline business. This is expected to close in Q Njord Gas Infrastructure AS, which is a 100% subsidiary of the Holding Company, is in the process of raising a bond of circa NOK 4 billion as part of the debt financing strategy regarding the Gassled acquisition. Going Concern Pursuant to 3-3 of the Norwegian Accounting Act the Board of Directors confirms that the conditions for continued operations as a going concern are present for the Group and that the annual financial statements for 2010 have been prepared under this presumption. The financial statements The Group is not exposed to particular risk factors as there are no underlying investments for the year ended 31 December During 2010, the Group s incurred total operating expenses of NOK 2,064,528 and earned net financial items of NOK 7,498. Loss before income taxes was NOK 2,057,030. There were no tax payments attributable for the current financial year. The Group had not made any investments during 2010 although incurred costs related to the impeding acquisition of Gassled. Health, safety and environment/equal opportunity The Group did not have any direct employees during 2010, although procedures have been finalised and implemented related to work environment or equal opportunity. This is currently being adhered to by temporary staff and forms a basis for future direct employees. At present there are no female members of the Board of Directors. External environment The Group together with its Joint Venture partners work actively on measures that can reduce any negative impact on the environment. Stavanger, 14 April

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