IMPORTANT NOTICE IMPORTANT:

Transcription

1 IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the Prospectus attached to this electronic transmission and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Prospectus. In accessing the attached Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access. Confirmation of your representation: By accessing this Prospectus you have confirmed to the Managers, the Company and the Selling Shareholder, that (i) you have understood and agree to the terms set out herein, (ii) (a) you and the electronic mail address you have given to us are not located in the United States, its territories and possessions or (b) you are a person that is a qualified institutional buyer within the meaning of Rule 144A under the U.S. Securities Act, (iii) you consent to delivery by electronic transmission, (iv) you will not transmit the attached Prospectus (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Managers and (v) you acknowledge that you will make your own assessment regarding any legal, taxation or other economic considerations with respect to your decision to purchase the Offer Shares. You are reminded that the attached Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this Prospectus, electronically or otherwise, to any other person and in particular to any U.S. address. Failure to comply with this directive may result in a violation of the U.S. Securities Act of 1933 (the U.S. Securities Act ) or the applicable laws of other jurisdictions. Restrictions: NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. ANY OFFER SHARES BEING SOLD HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE U.S. SECURITIES ACT TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVES IS A QIB THAT IS ACQUIRING SUCH OFFER SHARES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ONE OR MORE QIBs, OR (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE ATTACHED PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION OF THE ATTACHED PROSPECTUS IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. Under no circumstances shall this Prospectus constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Offer Shares in any jurisdiction in which such offer, solicitation or sale would be unlawful. Recipients of this Prospectus who intend to purchase any Offer Shares are reminded that any such purchase may only be made on the basis of the information contained in the Prospectus.

2 This Prospectus is being distributed only to and is directed only at persons in member states of the European Economic Area (with the exception of Norway) who are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC), as amended, and any relevant implementing measure in each Member State of the European Economic Area. This Prospectus is being distributed only to and is directed only at (i) persons who are outside the United Kingdom; or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order ); or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (ii) and (iii) being referred to as relevant persons ). The Offer Shares are available only to, and any invitation, offer or agreement to purchase or otherwise acquire the Offer Shares will be engaged in only with, relevant persons. Any person who is within the United Kingdom and not a relevant person should not act or rely on this Prospectus or any of its contents. This Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Managers, any person who controls any of the Managers, the Company or the Selling Shareholder, any director, officer, employee or agent of any of them or any affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the hard copy version of the Prospectus. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Managers or any affiliate of the Managers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Managers or such affiliate on behalf of the Selling Shareholder in such jurisdiction. None of the Managers or any of their respective affiliates or any of their respective directors, officers, employees or agents accepts any responsibility whatsoever as to the accuracy, completeness or verification of the information in this document. The Managers and any of their respective affiliates accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of such document. Any decision to purchase the Offer Shares in the offer should be made solely on the basis of information contained in this document. No representation or warranty, express or implied, is made by any of the Managers or any of their respective affiliates as to the accuracy, completeness or verification of the information set out in this document. The Managers are acting exclusively for Odfjell Drilling Ltd and BCB Paragon Trust Limited as trustee of the Larine Trust (as the Selling Shareholder) and no one else in connection with the offer. They will not regard any other person (whether or not a recipient of this document) as their client in relation to the offer and will not be responsible to any other person for providing the protections afforded to their clients nor for giving advice in relation to the offer or any transaction or arrangement referred to herein.

3 ODFJELL DRILLING LTD (An exempted company limited by shares incorporated under the laws of Bermuda) Initial public offering of up to 56,000,000 Shares with an indicative price range of NOK 37 to NOK 48 per Share Listing of the Company s shares on the Oslo Stock Exchange This prospectus (the Prospectus ) has been prepared in connection with the initial public offering (the Offering ) of up to 56,000,000 common shares (the Sale Shares ) of Odfjell Drilling Ltd (the Company ), an exempted company limited by shares incorporated under the laws of Bermuda (together with its consolidated subsidiaries, Odfjell Drilling or the Group ), and the related listing (the Listing ) on Oslo Børs, a stock exchange operated by Oslo Børs ASA (the Oslo Stock Exchange ) of the Company s shares, each with a par value of USD 0.01 (the Shares ). The Offer Shares (as defined below) are offered by BCB Paragon Trust Limited, as trustee of the Larine Trust (the Selling Shareholder ). The Company will not receive any of the proceeds of the Offering. The Offering consists of: (i) a private placement to (a) investors in Norway, (b) investors outside Norway and the United States of America (the U.S. or the United States ), subject to applicable exemptions from the prospectus requirements, and (c) qualified institutional buyers ( QIBs ) in the United States as defined in, and in reliance on, Rule 144A ( Rule 144A ) under the U.S. Securities Act of 1933, as amended (the U.S. Securities Act ) (the Institutional Offering ), and (ii) a retail offering to the public in Norway (the Retail Offering ). All offers and sales outside the United States will be made in compliance with Regulation S under the U.S. Securities Act ( Regulation S ). In addition, the Selling Shareholder has granted DNB Markets, on behalf of the Managers (as defined below), an option to purchase up to 4,000,000 additional Shares (the Additional Shares and, together with the Sale Shares, the Offer Shares ), equal to up to approximately 7% of the number of Sale Shares sold in the Offering (representing up to 2% of the Shares in issue in the Company), exercisable, in whole or in part, within a 30-day period commencing at the time at which if sold trading in the Shares commences on the Oslo Stock Exchange, expected to be on 30 September 2013, to cover any over-allotments made in connection with the Offering on the terms and subject to the conditions described in this Prospectus (the Over-Allotment Option ). Assuming the Over-Allotment Option is exercised in full, the Offering will amount to 60,000,000 Shares. The price (the Offer Price ) at which the Offer Shares are expected to be sold will be between NOK 37 and NOK 48 per Offer Share (the Indicative Price Range ). The Offer Price may be set within, below or above the Indicative Price Range. The Offer Price will be determined through a bookbuilding process and will be set by the Selling Shareholder in consultation with the Company and the Joint Bookrunners. Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors. The Offer Price, and the number of Offer Shares sold in the Offering, is expected to be announced through a stock exchange notice on or before 30 September 2013 at 07:30 hours (Central European Time, CET ). The offer period for the Institutional Offering (the Bookbuilding Period ) will commence at 09:00 hours (CET) on 16 September 2013 and close at 15:00 hours (CET) on 27 September The application period for the Retail Offering (the Application Period ) will commence at 09:00 hours (CET) on 16 September 2013 and close at 12:00 hours (CET) on 27 September The Bookbuilding Period and the Application Period may be shortened or extended beyond the set times by the Company, in consultation with the Selling Shareholder and the Joint Bookrunners, but will in no event be shortened to expire prior to 12:00 hours (CET) on 23 September 2013 or extended beyond 15:00 hours (CET) on 11 October The Shares, including the Sale Shares and any Additional Shares, will be registered in the Norwegian Central Securities Depository (the VPS ) in book-entry form. All Shares will rank in parity with one another and carry one vote per Share. Investing in the Offer Shares involves a high degree of risk. See Section 2 Risk factors beginning on page 17. The Offer Shares have not been, and will not be, registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction in the United States, and are being offered and sold: (i) in the United States only to persons who are QIBs in reliance on Rule 144A or another exemption from the registration requirements under the U.S. Securities Act; and (ii) outside the United States in compliance with Regulation S. The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions may be restricted by law. Persons in possession of this Prospectus are required to inform themselves about and to observe any such restrictions. See Section 19 Selling and transfer restrictions. Prior to the Offering, the Shares have not been publicly traded. The Company applied for the Shares to be admitted for trading and listing on the Oslo Stock Exchange on 12 September 2013, and completion of the Offering is subject to the approval of the listing application by the board of directors of the Oslo Stock Exchange. The due date for the payment of the Offer Shares is expected to be on or about 2 October 2013 and 3 October 2013 in the Retail Offering and the Institutional Offering, respectively. Delivery of the Offer Shares is expected to take place on or about 2 October 2013 and 3 October 2013 in the Retail Offering and the Institutional Offering, respectively, through the facilities of the VPS, Euroclear Bank S.A./N.V. as operator of the Euroclear System and Clearstream Banking S.A. Trading in the Shares on the Oslo Stock Exchange is expected to commence on or about 30 September 2013, on an if sold basis, under the ticker code ODL. If closing of the Offering does not take place on such dates or at all, the Offering may be withdrawn, resulting in all applications for Offer Shares being disregarded, any allocations made being deemed not to have been made and any payments made being annulled. All dealings in Shares prior to settlement and delivery are at the sole risk of the parties concerned. Joint Global Coordinators and Joint Bookrunners ABG Sundal Collier DNB Markets Goldman Sachs International Co-Lead Managers Arctic Securities Danske Bank Markets Swedbank First Securities The date of this Prospectus is 13 September 2013

4 Odfjell Drilling Ltd - Prospectus IMPORTANT INFORMATION This Prospectus has been prepared in connection with the Offering of the Offer Shares and the Listing of the Shares on the Oslo Stock Exchange. For the definitions of certain technical terms and other terms used in this Prospectus, see Section 22 Definitions and glossary. This Prospectus has been prepared to comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the Norwegian Securities Trading Act ) and related secondary legislation, including the Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses, as amended (the EU Prospectus Directive ), and as implemented in Norway. This Prospectus has been prepared solely in the English language. However, a summary in Norwegian has been prepared in Section 21 Norwegian Summary (Norsk Sammendrag). The Financial Supervisory Authority of Norway (Nw.: Finanstilsynet) (the Norwegian FSA ) has reviewed and approved this Prospectus in accordance with Sections 7-7 and 7-8 of the Norwegian Securities Trading Act. The Norwegian FSA has not controlled or approved the accuracy or completeness of the information included in this Prospectus. The approval by the Norwegian FSA only relates to the information included in accordance with pre-defined disclosure requirements. The Norwegian FSA has not made any form of control or approval relating to corporate matters described or referred to in this Prospectus. The Company has engaged ABG Sundal Collier, DNB Markets, part of DNB Bank ASA, and Goldman Sachs International as Joint Global Coordinators and Joint Bookrunners (together, the Joint Bookrunners ) and Arctic Securities, Danske Bank Markets and Swedbank First Securities, as Co-Lead Managers (together, the Co-Lead Managers ). The Joint Bookrunners and the Co-Lead Managers are jointly referred to as the Managers. The distribution of this Prospectus and the offer and sale of the Offer Shares in certain jurisdictions may be restricted by law. This Prospectus does not constitute an offer of, or an invitation to purchase, any of the Offer Shares in any jurisdiction in which such offer or sale would be unlawful. Neither this Prospectus nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with applicable laws and regulations. Persons in possession of this Prospectus are required to inform themselves about and to observe any such restrictions. In addition, the Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable securities laws and regulations. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. Any failure to comply with these restrictions may constitute a violation of applicable securities laws. See Section 19 Selling and transfer restrictions. This Prospectus and the terms and conditions of the Offering as set out herein and any sale and purchase of Offer Shares hereunder shall be governed by and construed in accordance with Norwegian law. The courts of Norway, with Oslo as legal venue, shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Offering or this Prospectus. In making an investment decision, prospective investors must rely on their own examination, and analysis of, and enquiry into the Group and the terms of the Offering, including the merits and risks involved. None of the Company, the Selling Shareholder or the Managers, or any of their respective representatives or advisers, is making any representation to any offeree or purchaser of the Offer Shares regarding the legality of an investment in the Offer Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Offer Shares. All Sections of the Prospectus should be read in context with the information included in Section 4 General information. Consent under the Exchange Control Act 1972 (and its related regulations) has been obtained from the Bermuda Monetary Authority for the issue and transfer of the Shares to and between residents and non-residents of Bermuda for exchange control purposes provided that the Shares are listed on the Oslo Stock Exchange. In granting such consent, neither the Bermuda Monetary Authority nor any other relevant Bermuda authority or government body accepts any responsibility for the Company s financial soundness or the correctness of any of the statements made or opinions expressed in this Prospectus. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. NOTICE TO INVESTORS IN THE UNITED STATES Because of the following restrictions, prospective investors are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Shares. The Offer Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state or other jurisdiction in the United States and may not be offered, sold, pledged or otherwise transferred within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable state securities laws. Accordingly, the Offer Shares will not be offered or sold within the United States, except in reliance on the exemption from the registration requirements of the U.S. Securities Act under Rule 144A. The Offer Shares will be offered outside the United States in compliance with Regulation S. Prospective purchasers are hereby notified that sellers of Offer Shares may be relying on the exemption from the provisions of Section 5 of the U.S. Securities Act provided by Rule 144A under the U.S. Securities Act. See Section United States. Any Shares offered or sold in the United States will be subject to certain transfer restrictions as set forth under Section United States. The securities offered hereby have not been recommended by any United States federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not passed upon the merits of the Offering or confirmed the accuracy or determined the adequacy of this Prospectus. Any representation to the contrary is a criminal offense under the laws of the United States. In the United States, this Prospectus is being furnished on a confidential basis solely for the purposes of enabling a prospective investor to consider purchasing the particular securities described herein. The information contained in this Prospectus has been provided by the Company and other sources ii

5 Odfjell Drilling Ltd - Prospectus identified herein. Distribution of this Prospectus to any person other than the offeree specified by the Managers or their representatives, and those persons, if any, retained to advise such offeree with respect thereto, is unauthorised and any disclosure of its contents, without prior written consent of the Company, is prohibited. This Prospectus is personal to each offeree and does not constitute an offer to any other person or to the public generally to purchase Offer Shares or subscribe for or otherwise acquire any Shares. ENFORCEMENT OF CIVIL LIABILITIES The Company is an exempted company limited by shares incorporated under the laws of Bermuda. As a result, the rights of holders of the Shares will be governed by Bermuda law and the Company s memorandum of association and Bye-Laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. With one exception, none of the Interim Directors or members of the New Board of Directors are residents of the United States, and a substantial portion of the Company s assets are located outside the United States. As a result, it may be difficult for investors in the United States to effect service of process on the Company or its directors and executive officers in the United States or to enforce in the United States judgments obtained in U.S. courts against the Company or those persons, including judgments based on the civil liability provisions of the securities laws of the United States or any State or territory within the United States. It is doubtful whether courts in Norway or Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against the Company or its directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against the Company or its directors or officers under the securities laws of other jurisdictions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may not be enforceable in Norway or Bermuda. The United States does not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitral awards) in civil and commercial matters with either Norway or Bermuda. AVAILABLE INFORMATION The Company has agreed that, for so long as any of the Offer Shares are restricted securities within the meaning of Rule 144(a)(3) under the U.S. Securities Act, it will during any period in which it is neither subject to Sections 13 or 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the U.S. Exchange Act ), nor exempt from reporting pursuant to Rule 12g3-2(b) under the U.S. Exchange Act, provide to any holder or beneficial owners of Shares, or to any prospective purchaser designated by any such registered holder, upon the request of such holder, beneficial owner or prospective owner, the information required to be delivered pursuant to Rule 144A(d)(4) of the U.S. Securities Act. NOTICE TO UNITED KINGDOM INVESTORS This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order ) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as Relevant Persons ). The Offer Shares are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such Shares will be engaged in only with, Relevant Persons. Any person who is not a Relevant Person should not act or rely on this document or any of its contents. NOTICE TO INVESTORS IN THE EEA In any member state of the European Economic Area (the EEA ) that has implemented the EU Prospectus Directive, other than Norway (each, a Relevant Member State ), this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the EU Prospectus Directive. The Prospectus has been prepared on the basis that all offers of Offer Shares in any Relevant Member State outside Norway will be made pursuant to an exemption under the EU Prospectus Directive from the requirement to produce a prospectus for offers of shares. Accordingly, any person making or intending to make any offer within any Relevant Member State (other than Norway) of Offer Shares which are the subject of the Offering contemplated in this Prospectus may only do so in circumstances in which no obligation arises for the Company or any of the Managers to publish a prospectus or a supplement to a prospectus under the EU Prospectus Directive for such offer. Neither the Company nor the Managers have authorised, nor do they authorise, the making of any offer of Shares through any financial intermediary, other than offers made by Managers which constitute the final placement of Offer Shares contemplated in this Prospectus. Each person in a Relevant Member State other than, in the case of paragraph (a), persons receiving offers contemplated in this Prospectus in Norway, who receives any communication in respect of, or who acquires any Offer Shares under, the offers contemplated in this Prospectus will be deemed to have represented, warranted and agreed to and with the Managers and the Company that: a) it is a qualified investor as defined in the EU Prospectus Directive, and b) in the case of any Offer Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the EU Prospectus Directive, (i) such Offer Shares acquired by it in the Offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the EU Prospectus Directive, or in circumstances in which the prior consent of the Managers has been given to the offer or resale; or (ii) where such Offer Shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Offer Shares to it is not treated under the EU Prospectus Directive as having been made to such persons. For the purposes of this provision, the expression an offer to the public in relation to any of the Offer Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase any of the Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the EU Prospectus Directive in that Relevant Member State, and the expression EU Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. See Section 19 Selling and transfer restrictions for certain other notices to investors. iii

6 Odfjell Drilling Ltd - Prospectus STABILISATION In connection with the Offering, DNB Markets (the Stabilisation Manager ), or its agents, on behalf of the Managers, may engage in transactions that stabilise, maintain or otherwise affect the price of the Shares for up to 30 days from the commencement of if sold trading of the Offer Shares on the Oslo Stock Exchange. Specifically, the Stabilisation Manager may over-allot Offer Shares or effect transactions with a view to supporting the market price of the Offer Shares at a level higher than that which might otherwise prevail. The Stabilisation Manager and its agents are not required to engage in any of these activities and, as such, there is no assurance that these activities will be undertaken; if undertaken, the Stabilisation Manager or its agents may end any of these activities at any time but in any case must end at the end of the 30-day period mentioned above. Save as required by law or regulation, the Stabilisation Manager does not intend to disclose the extent of any stabilisation transactions under the Offering. ADDITIONAL IMPORTANT INFORMATION For additional important information, including on the presentation of financial information in this Prospectus, forward-looking statements and the sourcing of industry data included herein, and exchange rate data, see Section 4 General information. iv

7 Odfjell Drilling Ltd - Prospectus TABLE OF CONTENTS Section Page 1 SUMMARY RISK FACTORS RESPONSIBILITY FOR THE PROSPECTUS GENERAL INFORMATION REASONS FOR THE OFFERING AND THE LISTING DIVIDENDS AND DIVIDEND POLICY INDUSTRY AND MARKET OVERVIEW BUSINESS OF THE GROUP CAPITALISATION AND INDEBTEDNESS SELECTED FINANCIAL INFORMATION OPERATING AND FINANCIAL REVIEW BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE THE SELLING SHAREHOLDER RELATED PARTY TRANSACTIONS CORPORATE INFORMATION AND DESCRIPTION OF SHARE CAPITAL SECURITIES TRADING IN NORWAY TAXATION TERMS OF THE OFFERING SELLING AND TRANSFER RESTRICTIONS ADDITIONAL INFORMATION NORWEGIAN SUMMARY (NORSK SAMMENDRAG) DEFINITIONS AND GLOSSARY Appendix A: Appendix B: Appendix C: Appendix D: Appendix E: Bye-Laws of Odfjell Drilling Ltd... A1 Financial statements for the years ended 31 December 2012, 2011 and B1 Interim financial information for the three and six month periods ended 30 June 2013 and C1 Application form for the Retail Offering... D1 Application form for the Retail Offering in Norwegian... E1 1

8 Odfjell Drilling Ltd - Prospectus 1 SUMMARY Summaries are made up of disclosure requirements known as Elements. These Elements are numbered in Sections A E (A.1 E.7) below. This summary contains all the Elements required to be included in a summary for this type of securities and the issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A Introduction and Warnings A.1 Warning This summary should be read as introduction to the Prospectus; any decision to invest in the securities should be based on consideration of the Prospectus as a whole by the investor; where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating the Prospectus before the legal proceedings are initiated; and civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities. Section B - Issuer B.1 Legal and commercial name B.2 Domicile and legal form, legislation and country of incorporation B.3 Current operations, principal activities and markets Odfjell Drilling Ltd Odfjell Drilling Ltd was incorporated on 16 November 2005 as an exempted company limited by shares under the laws of Bermuda and in accordance with the Bermuda Companies Act. Odfjell Drilling is an integrated drilling, engineering and well services provider with more than 40 years of experience focusing on the offshore harsh environment and deepwater markets. Today the Group has approximately 3,100 employees operating in more than 20 countries worldwide. Odfjell Drilling operates through three segments: Mobile Offshore Drilling Units (MODU), Well Services and Drilling & Technology. Odfjell Drilling s clients are primarily major oil and gas companies. (i) Mobile Offshore Drilling Units (MODU) In the MODU segment, the Group operates drilling units owned by the Group and by third parties. Odfjell Drilling currently owns the three harsh environment semisubmersible drilling rigs Deepsea Atlantic, Deepsea Stavanger and Deepsea Bergen. Deepsea Atlantic and Deepsea Stavanger were delivered in 2009 and 2010, respectively, and are both sixth-generation ultradeepwater semisubmersible drilling rigs. Deepsea Bergen is a third-generation semisubmersible drilling rig built in 1983 and has been continually upgraded to meet changes in regulatory requirements and client demands. Further, through a joint venture, Deep Sea Metro, the Group has a 40% ownership 2

9 Odfjell Drilling Ltd - Prospectus interest in two sixth-generation ultra-deepwater drillships, Deepsea Metro I and Deepsea Metro II, which were delivered in The Group charters its drillings rigs through a mixture of medium- and long-term contracts with major oil and gas companies, which include Statoil, BP, BG and Petrobras. The Group has one harsh environment ultra-deepwater semisubmersible drilling rig under construction with expected delivery from DSME in May The rig will be named Deepsea Aberdeen and is contracted to BP Exploration for a period of seven years with expected commencement of operations in the fourth quarter of In addition, the Group holds a 50% ownership interest in Odfjell Galvão B.V., a joint-venture company established with Galvão Oil and Gas Holding B.V. Odfjell Galvão B.V. holds 20% of the shares in three Dutch special purpose companies, each of which has entered into an engineering, procurement and construction contract for the construction of a drillship mainly at Estaleiro Jurong Aracruz in Brazil. The drillships are expected to be delivered in the period from July 2016 to December The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups, mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. Odfjell Drilling is currently responsible for the management of the following mobile offshore drilling units owned by third parties or owned jointly by the Group and third parties: (i) Deepsea Metro I and Deepsea Metro II and (ii) Island Innovator. In addition, Odfjell Galvão Perfurações Ltda, a subsidiary of Odfjell Galvão B.V., is to provide management services to Petrobras in connection with the fifteen-year rig contracts on the three drillships to be delivered under the Brazilian joint-venture mentioned above. (ii) Well Services The Well Services segment provides casing and tubular running services (both automated and conventional) as well as drilling tool and tubular rental services, both for exploration wells and for production purposes. The Group provides services in more than 20 countries and to more than 50 drilling rigs. Odfjell Drilling has more than 30 years of experience in the global well services market, and the Company is of the opinion that it is one of the leaders in remote operated handling equipment for casing and tubular running services. In the drilling tool rental business, the Group benefits from a well-developed supplier base, and offers a large inventory of modern and high quality drilling tools and equipment, which have been manufactured and certified in accordance with applicable industry standards. It aims to be a single supply source for drillers and operators and also has the capacity to design custom-made equipment. The Well Services segment currently serves approximately 50 clients, of which 10 constitute material volumes. 3

10 Odfjell Drilling Ltd - Prospectus (iii) Drilling & Technology The Drilling & Technology segment is divided into two business areas: Platform Drilling and Technology. The main service offering of the Platform Drilling business area is production drilling and well completion on client s rigs. Other types of services offered are slot recovery, plug and abandonment, workovers and maintenance activities. The Group has 35 years of experience in platform drilling operation and has been one of the leading platform drilling service providers in the North Sea since the 1980s, focusing on the high-end of the market for platform drilling services. The Technology business area offers engineering services ranging from design and engineering to building supervision, project management and operational support for newbuild projects, SPS certifications and yard stays. The Technology business area performs smaller or medium sized stand alone projects, including engineering, procurement, construction and installation projects. The Technology business area has a successful track record of MODU newbuild projects and yard stays spanning 40 years. It also occupies a strong position in the North Sea market. The Technology business area has approximately 400 employees and 90 contractors in total. Its offices are located close to its key clients in Norway, the UK and the Philippines. B.4a Significant recent trends affecting the issuer and the industry in which it operates Growth and demand within the offshore oil and gas services industry are affected by the following key factors: (i) Oil and gas prices and demand: Oil and gas E&P spending is the key driver of demand in the oil and gas services industry. E&P spending is directly linked to the earnings of oil and gas companies which are, in turn, dependent on average oil and gas prices. Volatility in oil prices can therefore reduce the ability of oil and gas companies to budget for increased E&P spending. However, while market expectations of a potential decline in oil prices will affect E&P spending and activity, ultra-deepwater projects, being large projects with longer lead times and longterm outlooks, are less affected by short-term changes in oil price. (ii) Reserve replacements: The future production capacity of the oil and gas industry depends on the ability of oil and gas companies to maintain a sustainable reserve replacement ratio through the discovery and development of new reservoirs or improvements in oil recovery techniques. Currently, oil and gas companies are barely able to fully replace the hydrocarbons they produce, and the IEA reports that proven reserves of oil worldwide (an indication of the near- to medium-term potential for new production) increased slightly by 1,523 billion barrels, or 3.6%, at the end of 2011, compared to the year before (IEA, World Energy Outlook 2012, 12 November 2012). (iii) Increased emphasis on E&P spending: Oil and gas companies are increasing both their total E&P spending as well as their proportion of E&P spending on offshore activities. The largest growth in E&P spending in recent years has been in deepwater exploration and production, partly driven by the lack of new, 4

11 Odfjell Drilling Ltd - Prospectus large, onshore and shallow water discoveries. Future upstream investments will have an increased offshore focus, as exploration and development continues to move towards harsher and deeper waters. (iv) Drilling technology and innovation: Recent advances in offshore technology have improved the ability of oil and gas companies to develop reservoirs in deeper waters, and in harsh and more remote locations. A new class of drilling rigs has emerged, with the ability to drill wells of up to 40,000 feet, in water depths of up to 12,000 feet, and with them, new types of subsea construction vessels and production facilities. (v) General political and economic environment: Changes in the political, economic and regulatory environment across regions affect global demand for oil services. The political and regulatory regimes of a country also have a significant impact on the level of oil and gas extraction activity within its territory. Changes in tax rules could also alter the profitability of certain projects and accordingly, E&P spending. (vi) Increased focus on QHSE: Due to the potentially serious consequences of an accident within the offshore oil and gas industry, the industry has developed high standards to mitigate risks associated with QHSE. There has been increased focus on this area after the Macondo incident in 2010, and, to an increasing extent, oil and gas companies will contract only with oil and gas companies that have the procedures and know-how to adequately manage these risks. This trend has increased the barriers to entry in the industry. The Group has experienced generally good market conditions and operating performance during the first half of The Group believes that the current revenue backlog provides a relatively high degree of financial visibility for the next few years. The Group believes the outlook for its three business segments is positive. The MODU segment has a strong medium- to long-term outlook in the drilling market. Deepsea Aberdeen, which is expected to commence operations in the fourth quarter of 2014, and potential incremental investment opportunities are expected to drive the Group s growth. Although the Deep Sea Metro joint venture so far has been loss-making due to relatively high financing cost in this joint venture and low financial utilisation of Deepsea Metro II, the Group expects this joint venture to contribute positively in the future due to Deepsea Metro I s contract extension at higher day rates in combination with a more normalised financial utilisation of Deepsea Metro II. The Group also expects continued strong growth in the Well Services segment in the coming years in-line with recent years. Finally, in the Drilling & Technology segment, the Group expects modest growth for the Platform Drilling business area based on existing backlog and growth in the Technology business area as a consequence of expected high activity in the drilling industry in the coming years. The Group s management contract for Dalian Developer was terminated by Dalian Deepwater Developer Ltd on 4 September 2013 following a 30-day grace period as a result of Dalian Deepwater Developer Ltd s 5

12 Odfjell Drilling Ltd - Prospectus termination of its construction contract for the drillship. B.5 Description of the Group Odfjell Drilling Ltd, the parent company of the Group, is a holding company. The operations of the Group are carried out by the Group s operating subsidiaries. Odfjell Drilling Ltd has two directly wholly-owned subsidiaries, Odfjell Offshore Ltd. (holding company for the Drilling Units) and Odfjell Drilling Services Ltd. (holding company for the Group s MODU Management business area and the Drilling & Technology and Well Services segments), both incorporated in Bermuda. B.6 Interests in the Company and voting rights Shareholders owning 5% or more of the Shares have an interest in the Company s share capital which is notifiable pursuant to the Norwegian Securities Trading Act. The table below shows the ownership percentage held by such notifiable shareholders. Shareholders Number of Shares Percent Odfjell Partners Ltd ,000, BCB Paragon Trust Limited, as trustee of the Larine Trust... 60,000, Total ,000, There are no differences in voting rights between the shareholders. Following the completion of the Offering, Odfjell Partners Ltd. will control a majority of the Shares. The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company. B.7 Selected historical key financial information The following selected financial information is derived from the Group s audited financial statements (including the notes thereto) as of and for the years ended 31 December 2012, 2011 and 2010 (the Financial Statements), as well as the unaudited interim consolidated financial information as of and for the three and six month periods ended 30 June 2013 and 2012 (the Interim Financial Statements). The Financial Statements for the year ended 31 December 2012, with comparable figures for the year ended 31 December 2011, have been prepared in accordance with IFRS, as adopted by the EU, while the Financial Statements for the year ended 31 December 2011 and 2010 have been prepared in accordance with NGAAP. The Interim Financial Statements, combined with relevant information in the financial review, have been prepared in accordance with IAS 34. The selected financial information presented herein should be read in connection with Section 11 Operating and financial review and the Financial Statements and Interim Financial Statements (included in Appendix B and Appendix C to the Prospectus). As of and for the three months ended 30 June As of and for the six months ended 30 June As of and for the year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Consolidated statement of income Operating revenue , ,056.7 EBITDA Operating profit (EBIT) Profit/(loss) for the period... (9.2)

13 Odfjell Drilling Ltd - Prospectus As of and for the three months ended 30 June As of and for the six months ended 30 June As of and for the year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Consolidated statement of financial position Total non-current assets , , , ,158.4 Total current assets Total assets , , , ,740.6 Total equity , , , ,032.8 Total non-current liabilities , , , ,410.6 Total current liabilities Total liabilities , , , ,707.8 Total equity and liabilities , , , ,740.6 Consolidated statement of cash flow Net cash generated from operating activities Net cash used in investing activities (155.0) 4.4 (237.6) (305.9) (213.0) Net cash used in financing activities... (60.2) (49.7) (78.0) (49.7) (61.0) 66.0 Net change in cash and cash equivalents (142.1) 42.3 (141.9) (99.7) 50.6 Cash and cash equivalents at period end As of and for the year ended 31 December (In NOK millions) 2011 (NGAAP) (audited) 2010 (NGAAP) (audited) Consolidated statement of income Total operating income... 5, ,750.9 Total operating expenses... 4, ,756.2 Operating profit/loss... 1,106.1 (5.3) Net profit for the year Consolidated statement of financial position Total fixed assets... 12, ,144.4 Total current assets... 3, ,159.1 Total assets... 16, ,303.4 Total equity... 6, ,944.7 Total non-current liabilities... 8, ,033.8 Total current liabilities... 1, ,325.0 Total liabilities... 9, ,358.7 Total equity and liabilities... 16, ,303.4 Consolidated statement of cash flow Net cash generated from operating activities Net cash used in investing activities... (957.5) (3,025.4) Net cash used in financing activities ,567.0 Net change in cash and cash equivalents (1,323.8) Cash and cash equivalents at , ,605.3 B.8 Selected key pro forma financial information Not applicable. There is no pro forma financial information. B.9 Profit forecast or estimate Not applicable. No profit forecast or estimate is made. 7

14 Odfjell Drilling Ltd - Prospectus B.10 Audit report qualifications Not applicable. There are no qualifications in the audit reports. B.11 Insufficient working capital Not applicable. The Company is of the opinion that the working capital available to the Group is sufficient for the Group s present requirements, for the period covering at least 12 months from the date of this Prospectus. Section C - Securities C.1 Type and class of securities admitted to trading and identification number The Company has one class of shares in issue, and all shares in that class have equal rights to all such other shares in that class as set out in the Company s Bye-Laws. The Shares have been created under the Bermuda Companies Act and are registered in the VPS under ISIN BMG C.2 Currency of issue The Shares are issued in USD, but will be quoted and traded in NOK on the Oslo Stock Exchange. C.3 Number of shares in issue and par value C.4 Rights attaching to the securities At the date of this Prospectus, the Company s authorised share capital is USD 2,300,000 consisting of 230,000,000 Shares with a par value of USD 0.01 each, of which 200,000,000 Shares have been issued. Pursuant to the Bye-Laws, the holders of Shares have no pre-emptive, redemption, conversion or sinking fund rights. The holders of Shares are entitled to one vote per Share on all matters submitted to a vote of the holders of Shares. Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realisable value of its assets would thereby be less than its liabilities. Under the Company s Bye-Laws, each of the Shares are entitled to dividends, as and when dividends are declared by the Board of Directors, subject to any preferred dividend right of the holders of any preference shares. C.5 Restrictions on transfer The Bye-Laws provide that the Board of Directors may decline to register the transfer of any interest in any Share in the register of members or decline to direct any registrar, appointed by the Company, to register the transfer where such transfer would result in 50% or more of the shares or votes in the Company being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or connected to a Norwegian business activity, in order to avoid the Company being deemed a Controlled Foreign Company as such term is defined under the Norwegian tax rules. Subject to the above, but notwithstanding anything else contrary in the Bye-Laws, shares that are listed or admitted to trading on an Appointed Stock Exchange may be transferred in accordance with the rules and regulations of such exchange. All transfers of uncertificated shares shall be made in accordance with and be subject to the facilities and requirements of the transfer of title to shares in that class by means of the VPS or any other relevant system concerned and, subject thereto, in accordance with any arrangements made by the Board of Directors in accordance with the Bye-Laws. The Board of Directors shall refuse any transfer unless the registration of such transfer satisfies all applicable consents, authorisations and permissions of any governmental body or 8

15 Odfjell Drilling Ltd - Prospectus agency in Bermuda. The Board of Directors may also refuse to recognise an instrument of transfer of a share unless it is accompanied by the relevant share certificate (if one has been issued) and such other evidence of the transferor's right to make the transfer as the Board of Directors shall reasonably require. Please also see Section 19 Selling and transfer restrictions. C.6 Admission to trading On 12 September 2013, the Company applied for admission to trading of its Shares on the Oslo Stock Exchange. It is expected that the board of directors of the Oslo Stock Exchange will approve the listing application of the Company on 25 September 2013, subject to certain conditions being met. See Section Conditions for completion of the Offering Listing and trading of the Offer Shares. The Company currently expects commencement of trading in the Shares on the Oslo Stock Exchange on an if sold basis, on or around 30 September 2013, and on an ordinary basis on or around 3 October The Company has not applied for admission to trading of the Shares on any other stock exchange or regulated market. C.7 Dividend policy The Company aims to ensure that shareholder returns reflect the Company s value creation and will consist of both dividends and a positive share price development. The Company will target a long term dividend annual pay-out representing approximately 30 40% of its net profit on a consolidated basis. Since the Company is in a phase involving considerable investments, there is no plan for dividend payment for the financial year ended 31 December The Company has a high focus on value creation and will have a dividend policy that will preserve the interest of the Company and its shareholders. When deciding whether to declare and pay an annual dividend, the Board of Directors will take into consideration market outlook, contract backlog, cash flow generation, capital expenditure plans and funding requirements whilst maintaining adequate financial flexibility. The Board of Directors may revisit the dividend policy from time to time. The proposal in any year to pay any dividend is subject to: (i) the limitations found in the terms of certain loans made to the Group and (ii) sufficiency of distributable reserves. Section D - Risks D.1 Key risks specific to the Company or its industry Risks relating to the industry in which the Group operates (i) The Group s business depends on the level of activity in oil and gas exploration, as well as the identification and development of oil and gas reserves and production in offshore areas worldwide, particularly in harsh and ultra-deep water environments. In particular, oil and gas prices and market expectations of potential changes in these prices significantly affect the level of exploration and production activity by oil and gas companies. Due to the significant investments in exploration and, often, production made by the Group s clients at or before the time they contract for services provided by the MODU segment and the Platform Drilling business area, these businesses are typically impacted by longer term E&P spending decisions based on long-term price trends, whereas the Technology business area and the Well Services segment are more sensitive to E&P spending decisions 9

16 Odfjell Drilling Ltd - Prospectus by clients made in response to short-term fluctuations in oil and gas prices. Any decrease in demand for any of the Group s business segments services could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. (ii) Uncertainty relating to global economic conditions and development may reduce demand for the Group s Drilling Units and services or result in contract delays or cancellations. Any decrease in demand caused by this uncertainty could have a material adverse effect on the Group s results of operations, cash flow and financial condition. (iii) An over-supply of drilling units or rental equipment may lead to a reduction in day rates for the MODU segment and prices for the Well Services segment. Periods of excess drilling unit supply intensify the competition in the industry and can result in drilling units being idle for long periods of time. An over-supply of drilling units could be caused by the entry into service of new and upgraded units or by competitors shifting drilling units into those regions where the Group s Drilling Units operate. Oversupply of the equipment that the Group rents to clients (Rental Equipment), as offered by the Well Services segment, could lead to that segment experiencing decreased prices and/or client orders for its Rental Equipment. Either of these occurrences may materially impact the Group s results of operations. (iv) The oil and gas services industry in which the Group operates is highly competitive and fragmented and includes both large and small competitors that compete with the Group. The Group s operations may be materially adversely affected if its current competitors or new market entrants introduce new products or services with characteristics similar to, or better than, the Group s products and services or expand into service areas where the Group operates. Competitive pressures or other factors that result in significant price competition, particularly during industry downturns, could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. (v) The Group s business is subject to numerous operating hazards the occurrence of which could also subject the Group to property, environmental and other damage claims by third parties. The Group s insurance policies and contractual rights to indemnity may not adequately cover losses and the Group does not have insurance coverage or rights to an indemnity for all risks. The occurrence of a significant accident or other adverse event which is not fully covered by the Group s insurance or any enforceable or recoverable indemnity from a client could result in substantial losses for the Group. (vi) The Group s segments operate in various jurisdictions which subjects the Group to risks inherent in international operations that may be beyond the Group s control such as war, natural disasters, political unrest, public health threats and the inconsistent application of foreign laws and regulations. Some of these risks could disrupt the Group s operations and thereby have a material adverse effect on the Group s business, results of 10

17 Odfjell Drilling Ltd - Prospectus operations, cash flow and financial condition. Moreover, the Group operates in many developing market countries which brings with it the inherent risks associated with fraud, bribery, corruption and international sanctions regimes. Failure to comply with such laws could result in material fines and penalties and damage the Group s reputation. Risks relating to the Group (i) The Group s backlog may not be realised due to a number of reasons including the actions of its clients or its own inability to perform its obligations under its contracts. The Group s backlog represents the contracted future revenue under contracts for Drilling Units and services provided by its MODU segment and Platform Drilling business area. The Group presents backlog both inclusive and exclusive of any priced optional periods exercisable by clients calculated to reflect the nominal value of the contract, as detailed in Section Backlog. Backlog does not provide a precise indication of the time period over which the Group is contractually entitled to receive such revenues and there is no assurance that such revenue will be actually realised in the time frames anticipated, or at all. If the Group is unable to realise backlog amounts this could have a material adverse effect on the Group s results of operations, cash flows and financial condition. (ii) The Group s future performance depends on its ability to renew and extend existing contracts and to win new contracts. The Group s ability to renew or extend existing contracts or sign new contracts will largely depend on prevailing market conditions. If the Group is unable to sign new contracts that start immediately after the end of its current contracts, or in the case of the MODU segment or the Platform Drilling business area, if new contracts are entered into at day rates or prices substantially below the existing day rates or prices, or on terms otherwise less favourable compared to existing contract terms, or which leave the Group with mobilisation or demobilisation costs that cannot be fully recovered, the Group s business, results of operations, cash flow and financial condition may be adversely affected. Risks relating to operations (i) The Group, in particular the MODU segment and the Platform Drilling business area, is subject to client concentration risk. If any of the Group s major clients fail to compensate the Group, terminate their contracts, fail to renew their existing contracts or refuse to award new contracts to the Group, and the Group is unable to enter into contracts with new clients at comparable day rates, this could have a material adverse effect on the Group s results of operations. (ii) The Group s operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues. In a situation where a Drilling Unit faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare Drilling Units for the idle period. Thus, there can be no assurance that the Group will be successful in reducing its operating costs under circumstances where its revenues may also have decreased. To the extent changes in the Group s operating and maintenance costs are not proportionate 11

18 Odfjell Drilling Ltd - Prospectus to changes in operating revenues it could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. (iii) The Group s newbuild drilling unit construction projects are subject to risks of delay, quality issues, damage to personnel, equipment and environment or cost overruns inherent in any large construction project due to numerous factors. The Group also provides consultancy and project management services on other newbuild projects where it may or may not have an ownership interest. Significant cost overruns or delays in projects may result in loss of revenue, potential penalties from the client or cancellation by the client. If any of these risks materialises, this could have a material adverse effect on the Group s results of operations, cash flow and financial condition. (iv) The Group conducts a portion of its operations through joint ventures and is, therefore, subject to the risks and uncertainties associated with participating in joint ventures. Differences in views among joint venture partners may result in delayed decisions or failures to agree on major issues. Should a joint venture partner sell its shares in the joint venture, a change of control event may be triggered under the bonds used to the finance the joint ventures, unless the Group purchases those shares. Further, if the Group s partners do not meet their contractual obligations, the respective joint venture may be unable to adequately perform and deliver its contracted services, requiring the Group to make additional investments or perform additional services. The Group could be liable for both its own obligations and those of its partners, which may result in reduced profits or, in some cases, significant losses on the project. These factors could have a material adverse effect on the business operations of the joint venture and, in turn, the Group s business operations and reputation. (v) The operation and development of the Group s business depends on its retention of key personnel and its ability to recruit, retain and develop skilled personnel for its business. Shortages of qualified personnel or the Group s inability to obtain and retain qualified personnel could have a material adverse effect on the Group s business. (vi) A loss of a major tax dispute or a successful tax challenge to the Group s operating structure or to the Group s tax payments, among other things, could result in a higher tax rate on the Group s earnings, which could have a material adverse effect on the Group s earnings and cash flows. From time to time, the Group s tax payments may be subject to review or investigation by tax authorities of the jurisdictions in which the Group operates. Specifically, the Group is currently subject to an ongoing tax audit pertaining to Deepsea Atlantic (which may have a negative impact on liquidity in the amount of approximately USD 50 million) and a tax dispute pertaining to Deepsea Bergen (where if the district court s verdict is upheld on appeal, the USD 62.8 million loss (already expensed as of 30 June 2013) for the Group will be final). 12

19 Odfjell Drilling Ltd - Prospectus Risks related to Group structure (i) The Group currently conducts its operations through, and most of the Group s assets are owned by, the Group s subsidiaries. As such, the cash that the Group obtains from its subsidiaries is the principal source of funds necessary to meet its obligations. The inability to transfer cash from the Group s subsidiaries or joint ventures may mean that the Group may not be permitted to make the necessary transfers from its subsidiaries or joint ventures to meet its obligations or pay dividends to its shareholders. A payment default by the Group, or any of the Group s subsidiaries, on any debt instruments would have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. D.3 Key risks specific to the securities Risks relating to the Shares (i) Following completion of the Offering, it is expected that Odfjell Partners Ltd. will remain the major shareholder of the Group and will, accordingly, continue to have a majority of the shareholder vote. Thereby, it is expected that Odfjell Partners Ltd. will have the ability to significantly influence the outcome of matters submitted for a vote of the Company s shareholders, including election of members of the Board of Directors. There can be no assurance that the commercial goals of Odfjell Partners Ltd. and the Company will always remain aligned, and that this concentration of ownership will always be in the best interest of the Group s other shareholders. Further, while it is expected that Odfjell Partners Ltd. will remain the major shareholder of the Company after the Offering, no assurance can be given that this will continue on a permanent basis. If Odfjell Partners Ltd. was not to remain a major shareholder of the Company, or if its commercial goals were not in the best interest of the Group, this could have a material adverse effect on the market value of the Shares. (ii) After completion of the Offering there will only be a limited free float of the Shares. The limited free float may have a negative impact on the liquidity of the Shares and may result in a low trading volume of the Shares, which could have an adverse effect on the then prevailing market price for the Shares. Risks related to the Company s incorporation in Bermuda (i) The Bye-Laws contain provisions that could make it more difficult for a third party to acquire the Company without the consent of the Board of Directors. These provisions could make it more difficult for a third party to acquire the Company, even if the third party s offer may be considered beneficial by many shareholders. Section E - Offer E.1 Net proceeds and estimated expenses The Selling Shareholder will receive the proceeds of the Offering. The total costs and expenses of, and incidental to, the Listing and the Offering are estimated to amount to NOK 89 million (excluding VAT) if all Offer Shares are sold by the Selling Shareholder and the Company decides to pay the discretionary fee in full (based on a price of NOK 13

20 Odfjell Drilling Ltd - Prospectus per Share which is the mid-point of the Indicative Price Range). The costs and expenses will be paid by the Company. E.2a Reasons for the Offering and use of proceeds (i) To facilitate a sustainable shareholding structure which supports the Company s long-term strategy, by offering the Selling Shareholder an opportunity to sell all of its Shares. (ii) To enhance the Company s financing sources, thereby increasing its strategic flexibility for future growth opportunities. (iii) To enhance the Company s ability to attract talent by raising the profile of the Group and its brand. The estimated net amount of proceeds of the Offering is NOK 2,461 million. The Selling Shareholder will receive the proceeds of the Offering. The Company will not receive any of the proceeds of the Offering. E.3 Terms and conditions of the Offering The Offering consists of up to 56,000,000 Sale Shares, all of which are existing, validly issued and fully paid-up registered Shares with a par value of USD 0.01, offered by the Selling Shareholder. The Sale Shares represent, and will upon completion of the Offering represent, up to 28% of the Shares in issue in the Company. In addition, the Joint Bookrunners may elect to over-allot up to 4,000,000 Additional Shares, equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company). The Selling Shareholder has granted DNB Markets, on behalf of the Managers, an Over-Allotment Option to purchase a corresponding number of Additional Shares to cover any such over-allotments. Assuming the Over-Allotment Option is exercised in full, the Offering will amount to up to 60,000,000 Shares, representing up to 30% of the Shares. The Offering consists of: An Institutional Offering, in which Offer Shares are being offered (a) to investors in Norway, (b) investors outside Norway and the United States, subject to applicable exemptions from the prospectus requirements, and (c) in the United States to QIBs, as defined in, and in reliance on Rule 144A of the U.S. Securities Act. The Institutional Offering is subject to a lower limit per application of NOK 2,500,000. A Retail Offering, in which Offer Shares are being offered to the public in Norway subject to a lower limit per application of an amount of NOK 10,500 and an upper limit per application of NOK 2,499,999 for each investor. Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors. Investors who intend to place an order in excess of NOK 2,499,999 must do so in the Institutional Offering. Multiple applications by one applicant in the Retail Offering will be treated as one application with respect to the maximum application limit and the discount. All offers and sales outside the United States will be made in compliance with Regulation S. 14

21 Odfjell Drilling Ltd - Prospectus The Bookbuilding Period for the Institutional Offering is expected to take place from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 15:00 hours (CET). The Application Period for the Retail Offering will take place from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 12:00 hours (CET). The Company, in consultation with the Selling Shareholder and the Joint Bookrunners, reserves the right to shorten or extend the Bookbuilding Period and Application Period at any time. The Managers expect to issue notifications of allocation of Offer Shares in the Institutional Offering on or about 30 September 2013, by issuing contract notes to the applicants by mail or otherwise. DNB Markets, acting as settlement agent for the Retail Offering, expects to issue notifications of allocation of Offer Shares in the Retail Offering on or about 30 September 2013, by issuing allocation notes to the applicants by mail or otherwise. Payment by applicants in the Institutional Offering will take place against delivery of Offer Shares. Delivery and payment for Offer Shares in the Institutional Offering is expected to take place on or about 3 October The due date of payment in the Retail Offering is on or about 2 October Subject to timely payment by the applicant, delivery of the Offer Shares allocated in the Retail Offering is expected to take place on or about 2 October E.4 Material and conflicting interests The Managers or their affiliates have provided from time to time, and may provide in the future, investment and commercial banking services to the Company and its affiliates in the ordinary course of business, for which they may have received and may continue to receive customary fees and commissions. The Managers do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any legal or regulatory obligation to do so. The Selling Shareholder will receive the proceeds of the Offering. Beyond the abovementioned, the Company is not aware of any interest of natural and legal persons involved in the Offering. E.5 Selling shareholders and lock-up agreements The Selling Shareholder is BCB Paragon Trust Limited, as trustee of the Larine Trust. Marianne Odfjell is a beneficiary of the trust. As of the date of this Prospectus, the Selling Shareholder holds 60,000,000 Shares in the Company, corresponding to 30% of the issued and outstanding Shares. Following completion of the Offering, the Selling Shareholder will not hold any Shares, assuming (i) the Offering is fully subscribed, (ii) the Additional Shares are allotted and (iii) the Over-Allotment Option is exercised in full. To the extent the Stabilisation Manager, on behalf of the Managers, redelivers any of the Shares borrowed pursuant to the Lending Option to the Selling Shareholder at the end of the stabilisation period, the Selling Shareholder has the right to require Odfjell Partners Ltd. to purchase 50% of such redelivered Shares from the Selling Shareholder and Odfjell Partners Ltd. has a corresponding right to require the Selling Shareholder to sell 50% of any redelivered Shares. In connection with the Purchase Agreement, Odfjell Partners Ltd., the 15

22 Odfjell Drilling Ltd - Prospectus Selling Shareholder, the Company and Simen Lieungh (the President and CEO of Odfjell Drilling) will give an undertaking that will restrict their ability to issue, sell or transfer Shares for nine months after the date of the Purchase Agreement. For more information about these restrictions, please see Section Lock-up. E.6 Dilution resulting from the Offering E.7 Estimated expenses charged to investor Not applicable. No new shares will be issued in the Offering. Not applicable. The expenses related to the Offering will be paid by the Company. 16

23 Odfjell Drilling Ltd - Prospectus 2 RISK FACTORS Investing in the Shares involves inherent risks. Before deciding whether or not to participate in the Offering, an investor should consider carefully all of the information set forth in this Prospectus, and in particular, the specific risk factors set out below. An investment in the Shares is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of their investment. If any of the risks described below materialise, individually or together with other circumstances, they may have a material adverse effect on the Group s business, results of operations, cash flow and financial condition, which may cause a decline in the value and trading price of the Shares that could result in a loss of all or part of any investment in the Shares. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence or of their severity or significance. 2.1 Risks relating to the industry in which the Group operates Market conditions The Group s business, results of operations and financial condition depend on the level of exploration, development and production activity in the oil and gas industry, which is significantly affected by, among other things, volatile oil and gas prices The Group s business depends on the level of activity in oil and gas exploration, as well as the identification and development of oil and gas reserves and production in offshore areas worldwide, particularly in harsh and ultradeepwater environments. The availability of quality drilling prospects, exploration success, relative production costs, the stage of reservoir development, political concerns and regulatory requirements all affect the Group s clients levels of expenditure and drilling campaigns. In particular, oil and gas prices and market expectations of potential changes in these prices significantly affect the level of exploration and production ( E&P ) activity by oil and gas companies. Oil and gas prices are volatile and cyclical and are affected by numerous factors beyond the Group s control, including, but not limited to: worldwide demand for oil and gas as well as industrial services and power generation and the competitive position of oil and gas as an energy source compared with alternative fuels; the cost of exploring for, developing, producing and delivering oil and gas; capital expenditures by major national and international oil companies; current oil and gas production, consumer capacity and price levels and expectations regarding future energy prices; the ability of the Organisation of Petroleum Exporting Countries ( OPEC ) to set and maintain production levels and impact pricing, as well as the level of production in non-opec countries; government laws and regulations; political, economic and weather conditions and incidents, including conflicts and natural disasters in oil producing countries and their impact on the world s financial and commercial markets; major accidents in the industry, including major spills, blowouts and explosions, and any resulting changes to regulations, or client safety requirements; and technological advances affecting both exploration, development and production technology and energy consumption. 17

24 Odfjell Drilling Ltd - Prospectus The demand for the Group s services and, accordingly, the prices its Well Services segment and Drilling & Technology segment can achieve and, in the long term, the day rates the Group s MODU segment can achieve depend on the level of E&P activity and expenditure by clients, and are therefore affected by trends in oil and gas prices. Due to the significant investments in exploration and, often, production made by the Group s clients at or before the time they contract for services provided by the MODU segment and the Platform Drilling business area, these businesses are typically impacted by longer term E&P spending decisions based on long-term price trends, whereas the Well Services segment and the Technology business area are more sensitive to E&P spending decisions by clients made in response to short-term fluctuations in oil and gas prices. Moreover, given the high E&P costs in ultra-deepwater and harsh environments, a significant decrease in oil and gas prices over a protracted period (rather than the short term) may result in such projects becoming uneconomical for the Group s clients. This may result in a decrease in demand for the MODU segment and the Platform Drilling business area s services. Any of these developments affecting demand in any of the Group s business segments could have a material adverse effect on the Group s business, results of operations, cash flow, financial condition and, ultimately, ability to pay dividends. Uncertainty relating to global economic conditions and development may reduce demand for the Group s Drilling Units and services or result in contract delays or cancellations Continued volatility and sustained weakness in general economic conditions and global or regional financial markets have negatively affected and may continue to negatively affect oil and gas prices and/or create uncertainty that can cause oil and gas companies to cut E&P spending budgets. Limitations on the availability of capital or higher costs of capital for financing expenditures, or the desire to preserve liquidity, may cause potential clients to make additional reductions in future capital budgets and outlays and could result in project modifications, delays and/or cancellations. Such adjustments could reduce demand for drilling services generally, and the Group s Drilling Units and services specifically, which could have a material adverse effect on the Group s results of operations, cash flow and financial condition. An over-supply of drilling units or rental equipment may lead to a reduction in day rates for the MODU segment and prices for the Well Services segment, which may materially impact the Group s results of operations The oil and gas services industry in which the Group operates is characterised by periods of high demand for drilling units, short drilling unit supply and high day rates, followed by periods of low demand, excess drilling unit supply, and low day rates and utilisation, largely owing to changes in oil and gas prices and their impact on client expenditures. Periods of excess drilling unit supply intensify the competition in the industry and can result in drilling units being idle for long periods of time. In the past, significant spikes in oil and gas prices have led to high levels of drilling unit construction orders in the offshore market. Significant spikes in oil and gas prices have been and could be followed by periods of sharp and sudden declines in oil and gas prices, which in turn may result in declines in utilisation and day rates, and an increase in the number of idle drilling units without long-term contracts. The entry into service of new and upgraded ultra-deepwater units will increase supply and could lead to a reduction in the utilisation and day rates of existing drilling units as new drilling units are absorbed into the market. Further, a lack of visibility as to planned orders for new drilling units beyond 2015 makes it difficult to predict the extent of the potential oversupply, which may exacerbate the risk of excess drilling unit supply. In addition, oil and gas companies may delay agreeing new contracts or contracts extensions pending the expected availability of this additional capacity with the expectation that increased capacity will allow them to obtain lower day rates. The risk of decreased day rates is significant for the MODU segment. Revenue for the MODU segment represented 56.9% of the Group s operating revenue 1 in the year ended 31 December 2012 and 55.8% of the Group s operating revenue for the six months ended 30 June In periods of excess drilling unit supply, the MODU segment may be required to maintain idle Drilling Units or enter into contracts at lower day rates until market conditions improve. The Group may also experience an over-supply in its markets as a result of competitors shifting drilling units or equipment into those regions where the Group s Drilling Units may then be located. These 1 Operating revenue before group eliminations and corporate overheads. 18

25 Odfjell Drilling Ltd - Prospectus events could materially adversely affect the Group s results of operations, cash flow and financial condition. Further, prolonged periods of low utilisation and/or day rates could also have a material adverse effect on the value of the Drilling Units. Oversupply of the equipment that the Group rents to clients ( Rental Equipment ), as offered by the Well Services segment (this segment represented 17.1% of the Group s operating revenue 2 for the year ended 31 December 2012 and 17.5% of the Group s operating revenue for the six months ended 30 June 2013), could lead to that segment experiencing decreased prices and/or client orders for its Rental Equipment. Currently, the Group has a limited number of competitors in this segment, although that may change in the future. There can be no assurances that the Well Services segment will not experience oversupply and, as a result, a decrease in day rates, lump sum payments and/or client orders for its Rental Equipment in the future. Competition within the oil and gas services industry may have a material adverse effect on the Group s ability to market its services The oil and gas services industry is highly competitive and fragmented and includes several large competitors in the markets the Group serves, or will serve, as well as numerous small competitors that compete with the Group on a local basis. The Group s operations may be materially adversely affected if its current competitors or new market entrants introduce new products or services with features, performance, prices or other characteristics similar to, or better than, the Group s products and services or expand into service areas where the Group operates. Competitive pressures or other factors that result in significant price competition, particularly during industry downturns, could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. Certain of the MODU segment s competitors for drilling unit contracts are significantly larger than the Group, both in respect of fleet size and financial position. Such competitors greater resources could allow them to better withstand industry downturns, compete more effectively on the basis of the size of their fleet, financial strength, technology and geographic scope, and retain skilled personnel. Further, as a result of declining demand for new ships in the shipbuilding sector, shipyards are offering drilling unit rig construction at reduced rates and accelerated build schedules, which could offer both existing players and new market entrants a quicker and less costly route into the drilling sector and increase competition. Any further construction of new drilling units could increase supply and competition and exacerbate the negative impact on utilisation and day rates for the Group s MODU segment. The Well Services segment has a limited number of global competitors, but competes with various local and smaller suppliers in each of its geographic markets. Such smaller suppliers may be in a preferred position locally as they may be able to offer lower prices and may also have longer existing relationships with local clients. The increase in competition may result in a loss of market share for the Well Services segment, which could have a negative impact on the segment s or the Group s revenue. The Group s Platform Drilling business area currently has only two main competitors in the markets the Group serves, although no assurances can be given that this will not change in the future. The Group s Technology business area operates in a highly competitive market and may, as a consequence, suffer periods of low utilisation and/or lower day rates. Further, there can be no assurance that competition will not increase in the future Legal, regulatory and environmental risks Governmental laws and regulations relating to the oil and gas industry could hinder or delay the Group s operations, increase the Group s operating costs, reduce demand for its services and/or restrict the Group s ability to provide its services or operate its Drilling Units As the Group depends on demand for services from oil and gas companies, it is also affected by changing laws and regulations relating to its clients and the oil and gas industry. The Group is also exposed to changes in recommended industry practices and applicable standards, including classification requirements regarding the design, construction and maintenance of mobile offshore drilling units, and materials, equipment and machinery. 2 Operating revenue before group eliminations and corporate overheads. 19

26 Odfjell Drilling Ltd - Prospectus The laws and regulations affecting the Group s business include, among others, laws and regulations relating to: protection of the environment; quality of health and safety (including in relation to mandatory or recommended replacement or modifications of drilling unit equipment on drilling units); employment and labour actions; import-export quotas, wage and price controls, imposition of trade barriers, income and capital repatriation controls and other forms of government regulation and economic conditions; the imposition of moratoriums on drilling in certain locations (as were implemented in the Gulf of Mexico following the Macondo incident (as discussed below)), which can lead to increased drilling unit capacity in other geographic markets and ultimately increased global competition; and taxation and subsidies. The Group and its clients are required to invest financial and managerial resources to comply with these laws and regulations. The Group cannot predict the future costs of complying with these laws and regulations, and any new, or changes to current, laws or regulations could materially increase the Group s expenditures in the future. Existing laws or regulations, or the adoption of new laws or regulations limiting exploration or production activities by oil and gas companies or imposing more stringent restrictions on such activities, could have a material adverse effect on the Group by increasing its operating costs, reducing the demand for its services and restricting its ability to provide its services or operate its Drilling Units. Further, the Group s clients may, as a consequence of certain new laws and regulations, have the contractual right to request changes to the Drilling Units and/or Rental Equipment, the implementation of which may increase the Group s operating costs. Regulatory authorities may exercise discretion in monitoring compliance and in interpreting and enforcing applicable laws and regulations. Future inspections by regulatory authorities may conclude that the Group has violated applicable laws or regulations. If the Group is unable to refute these conclusions or to remedy these violations, the regulatory authorities may impose fines, criminal and/or administrative penalties or other sanctions, including compelling the Group to cease certain of its business activities. The resulting loss of profits could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The impact of the Macondo incident led to an aggressive overhaul of the oil and natural gas regulatory process that has significantly impacted oil and gas development in the US Gulf of Mexico and may also lead to further regulations that may impact drilling operations in other regions On 20 April 2010, the ultra-deepwater floater Deepwater Horizon sank after a blowout of the Macondo well in the Gulf of Mexico off the coast of the United States which caused a fire and an explosion on the rig (the Macondo incident ). In response to this incident, the US government has undertaken an aggressive overhaul of the offshore oil and natural gas regulatory process that has significantly impacted oil and gas development in the US Gulf of Mexico. Although the new compliance regulations are only related to drilling operations in the US Gulf of Mexico, the repercussions of the incident have caused and may continue to cause a general increase in industry regulation and/or operating costs with respect to drilling activities in the countries in which the Group operates. While the Group does not expect to experience any material impact on its operations as a result of these events in the short term, there is no assurance that its operations will not be adversely affected by future developments in the industry or related regulation. In response to the Macondo incident and the related regulatory changes and scrutiny of offshore drilling, oil and gas clients or industry regulators could impose additional equipment or procedural requirements. These additional requirements could impact the capital cost of the Drilling Units and Rental Equipment, and the operating costs of the Group, which could in turn have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. 20

27 Odfjell Drilling Ltd - Prospectus The Group may be subject to contractual environmental liability and liability under environmental laws and regulations, which could have a material adverse effect on the Group s business, results of operations and financial condition The Group s operations are subject to regulations controlling the discharge of materials into the environment, requiring removal and clean-up of materials that may harm the environment, controlling carbon dioxide emissions or otherwise relating to the protection of the environment. The Group incurs, and expects to continue to incur, capital and operating costs to comply with environmental laws and regulations. The technical requirements of environmental laws and regulations are becoming increasingly expensive, complex and stringent. As an owner of mobile offshore drilling units and provider of services to oil and gas companies, the Group may be liable (under applicable laws and regulations or contractually) for damages and costs incurred in connection with spills of oil and other chemicals and substances related to the operations of its Drilling Units and the provision of its services. The Group may also be subject to significant fines in connection with spills, which could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. Generally, laws and regulations protecting the environment have become more stringent in recent years. Although, generally, the Group s clients are the primary parties responsible for compliance, laws and regulations may, in some cases, impose direct and strict liability, rendering a company or a person liable for environmental damage without regard to negligence. For example, the Group may be subject to the Norwegian Pollution Act of 13 March 1981 and the Norwegian Maritime Act of 24 June These laws and regulations may expose the Group to liability for the conduct of, or conditions caused by, third parties (including clients and contractors), or for acts that were in compliance with all applicable laws at the time they were performed. The application of these requirements or the adoption of new requirements could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. In accordance with industry practice, the Group s clients take primary responsibility for any environmental pollution as a result of the client s use of the Drilling Units under the Group s contracts, although, in accordance with customary industry practice, the Group, through the Well Services segment, typically assumes liability for pollution emanating from its own Rental Equipment. The Group has generally been able to obtain some degree of contractual indemnification pursuant to which its clients agree to protect, hold harmless and indemnify the Group against liability for pollution, well and environmental damage, including, in the case of well services, for exposure beyond pollution from its Rental Equipment. However, generally in the oil and gas services industry there is increasing pressure from clients to pass on a larger portion of the liabilities to contractors, such as the Group, as part of their risk management policies. There can be no guarantee that the Group will be able to prevent or mitigate the increased apportionment of risk for environmental liabilities to contractors. Further, there can be no assurance that the Group can obtain indemnities in its contracts or that, in the event of extensive pollution and environmental damage, its clients would have the financial capability to fulfil their contractual obligations. Further, such indemnities may be deemed legally unenforceable based on relevant law, including as a result of public policy. For example, a US court, in connection with certain litigation related to the Macondo incident, recently held that an indemnity was unenforceable on these grounds. Failure to comply with the complex laws and regulations governing international trade could adversely affect the Group s operations The shipment of goods, services and technology by each of the Group s business segments across international borders subjects the Group to extensive trade laws and regulations. Import activities are governed by unique customs laws and regulations in each of the Group s countries of operation. Moreover, many countries control the export and re-export of certain goods, services and technology and impose related export recordkeeping and reporting obligations. Governments also may impose economic sanctions or embargoes against certain countries, persons and other entities that may restrict or prohibit transactions involving such countries, persons and entities. The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing. These laws and regulations may be enacted, amended, enforced or interpreted in a manner that materially impacts the Group s operations. Shipments can be delayed and denied export or entry for a variety of reasons, some of which are outside the Group s control and some of which may result from failure to comply with existing legal and regulatory regimes. Shipping delays or denials could cause unscheduled operational downtime or delay in deliverables. Any failure to comply with applicable legal and regulatory trading obligations could also result in criminal and civil penalties and sanctions, such as fines, 21

28 Odfjell Drilling Ltd - Prospectus imprisonment, debarment from government contracts, seizure of shipments and loss of import and export privileges Operational and country risks The Group s business involves numerous operating hazards. If a significant accident or other event occurs, and is not fully covered by the Group s insurance or any enforceable or recoverable indemnity, it could materially adversely affect the Group s results of operations, cash flows and financial condition The Group s operations are subject to hazards inherent in drilling for oil and gas, such as blowouts, reservoir damage, loss of production, loss of well control, lost or stuck drill strings, equipment defects, craterings, fires, explosions and pollution. Contract drilling and the provision of well services require the use of heavy equipment and exposure to hazardous conditions. In particular, the MODU segment s operations are subject to hazards inherent in marine operations, such as capsizing, grounding, navigation errors, collision, oil and hazardous substance spills, damage from severe weather conditions and marine life infestations. Damage to the environment could also result from the Group s operations and services, particularly from spillage of fuel, lubricants or other chemicals and substances used in drilling operations, or extensive uncontrolled fires. The Group may also be subject to property, environmental and other damage claims by oil and gas companies. In addition, accidents or other operating hazards could result in the suspension of operations because of related machinery breakdowns, abnormal drilling conditions, failure of subcontractors to perform or supply goods or services, or personnel shortages, which may in turn have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The Group s insurance policies and contractual rights to indemnity may not adequately cover losses, and the Group does not have insurance coverage or rights to an indemnity for all risks. In addition, the Group s insurance coverage will not provide sufficient funds in all situations to protect the Group from all liabilities that could result from its operations, the amount of the Group s insurance cover may be less than the related impact on enterprise value after a loss, and the Group s coverage also includes policy limits. As a result, the Group retains the risk through self-insurance for any losses in excess of these limits. The Group may also decide to retain substantially more risk through self-insurance in the future. Although it is the Group s policy to obtain contractual indemnities, it may not always be able to negotiate such provisions. Further, indemnities that the Group receives from clients may not be easily enforced and may be of limited value if the relevant clients do not have adequate resources to indemnify the Group. No assurance can be made that the Group has, or will be able to maintain in the future, adequate insurance or indemnity against certain risks, and there is no assurance that such insurance or indemnification agreements will adequately protect the Group against liability from all of the consequences of the hazards and risks described above. The occurrence of a significant accident or other adverse event which is not fully covered by the Group s insurance or any enforceable or recoverable indemnity from a client could result in substantial losses for the Group and could materially adversely affect the Group s results of operations, cash flow and financial condition. Please see Section 8.13 Insurance for a discussion of the Group s insurance and indemnities. The Group s business segments operate in various jurisdictions, thereby exposing the Group to risks inherent in international operations and subjecting the Group to compliance with the laws and regulations of the jurisdictions in which it operates The Group currently operates in more than 20 countries, thereby exposing it to risks that are inherent to conducting international operations The Group s international operations involve additional risks due to factors beyond the Group s control, including: terrorist acts, war and civil disturbances; seizure, nationalisation or expropriation of property or equipment; political unrest or revolutions; 22

29 Odfjell Drilling Ltd - Prospectus actions by environmental organisations; natural disasters; pollution or environmental damage; public health threats; claims by employees, third parties or clients; the inability to repatriate income or capital; complications associated with repairing and replacing equipment in remote locations; delays or difficulties in obtaining necessary visas and work permits for its employees; wage and price controls, imposition of trade barriers and other forms of government regulation and economic conditions; and country-specific regulatory or financial requirements. Some of these risks, which may require or result in evacuation of personnel, cancellation of contracts or the loss of personnel or assets, could limit or disrupt the Group s operations and thereby have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. International oil and gas service providers are subject to various laws and regulations in various countries and jurisdictions, including laws and regulations relating to: the equipment requirements for, and operation of, drilling units, fixed installations and provision of well services; repatriation of foreign earnings; oil and gas exploration and development; taxation of offshore earnings and the earnings of expatriate personnel; customs duties on the importation of drilling units and equipment; the use and compensation of local employees; and the use of local suppliers, contractors, representatives and/or agents by the Group. Some foreign governments favour or require (i) the awarding of drilling contracts to local contractors or to drilling units and/or equipment completely or partially owned by their own citizens, (ii) the use of a local representative/agent, (iii) the use of local suppliers, (iv) local registration of companies or branches of the operator and/or (v) foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. These practices, known as local content requirements, may, to the extent that there is a limited supply of local suppliers, partners and contractors qualified for the Group s services, materially adversely affect the Group s ability to compete or to operate in those regions as well as the Group s costs and ultimately its results of operations. It is difficult to predict what governmental regulations may be enacted in the future or how the local authorities implementation, interpretation or enforcement of such regulations could adversely affect the international drilling industry and the Group s business. Further, failure to comply with applicable laws and regulations, including those relating to sanctions and export restrictions, may subject the Group to exclusion from the relevant market, loss of future and existing contracts, and criminal sanctions or civil remedies, including fines, denial of export privileges, injunctions or seizures of assets. While the Group maintains policies designed to comply with various foreign laws and regulations, it may not be possible for the Group to detect or prevent every violation in every jurisdiction in 23

30 Odfjell Drilling Ltd - Prospectus which its employees, agents, sub-contractors or joint venture partners are located. The Group or its directors, officers, and employees may therefore be subject to civil and criminal penalties and to reputational damage. Physical infrastructure and logistics systems in some of the areas where the Group operates are in poor condition Physical infrastructure and logistics systems, such as roads, air transport facilities and lines of communication, in certain areas of the world, including certain parts of Africa where the Group operates, may be under developed and may not have been adequately funded and maintained. This may have an effect on the efficiency and safety of the Group s operations in these regions due to reduced efficiency, predictability and safety in the transportation of equipment and personnel. Breakdowns or failures of any part of the physical infrastructure or logistics systems in the areas where the Group operates may disrupt the Group s normal business activities, cause the Group to suspend operations or result in environmental damage to the surrounding areas. Such circumstances, or any further deterioration of the physical infrastructure in the areas where the Group operates, may increase the costs of doing business and interrupt business operations, any or all of which could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. In addition, as many new discoveries of oil are made in areas of the world that may still be developing the relevant infrastructure, the Group s exposure to this risk may increase in the future. The Group s international operations are exposed to the risk of acts of piracy, which could result in increasing costs of operations Acts of piracy on ocean-going vessels have increased in frequency in recent years, including significantly in the Gulf of Aden off the coast of Somalia and in West Africa s Gulf of Guinea. The Gulf of Aden has, since 14 October 2008, been listed as a conditional trading area of a war risk zone and a higher premium has been paid to insurers since 1 December The Drillship Deepsea Metro I operates offshore of the East Coast of Africa, specifically Tanzania, under a drilling contract with BG and Deepsea Stavanger operates offshore of Angola in West Africa under a drilling contract with BP. Their operations and costs of operations may thus be affected by these circumstances. For example, insurance premiums payable could increase significantly and insurance coverage may be more difficult to obtain if the piracy risk spreads geographically or continues to increase in frequency. In addition, crew costs could also increase in such circumstances. The foregoing could have a material adverse effect on the Group s business, results of operations, cash flows and financial condition, which could be exacerbated should the Group expand its operations in countries subject to the risk of piracy or if acts of piracy begin to impact geographic markets in which the Group operates. The Group does business in jurisdictions with inherent risks relating to fraud, bribery and corruption Doing business in international developing markets brings with it inherent risks associated with enforcement of obligations, fraud, bribery and corruption. Fraud, bribery and corruption are more common in some jurisdictions than in others, and certain of the countries in which the Group operates and conducts business may experience high levels of government and business corruption. In addition, the oil and gas industries have historically been vulnerable to corrupt or unethical practices. While the Group maintains anti-corruption training programmes, codes of conduct and other safeguards designed to prevent the occurrence of fraud, bribery and corruption, it may not be possible for the Group to detect or prevent every instance of fraud, bribery and corruption in every jurisdiction in which its employees, agents, subcontractors or joint venture partners are located. The Group and/or its directors, officers and employees may therefore be subject to civil and criminal penalties, including significant fines, and to reputational damage. Furthermore, alleged or actual involvement in corrupt practices or other illegal activities by the Group s joint venture partners or others with which the Group conducts business could also damage the Group s reputation and business. Due to the Group s international expansion, Odfjell Drilling is increasingly exposed to these risks through its use of various agents and representatives for whose actions on the Group s behalf Odfjell Drilling remains responsible. Instances of fraud, bribery and corruption, and violations of laws and regulations in the jurisdictions in which the Group operates, including the UK Bribery Act and provisions of the Norwegian Criminal Act of 22 May 1902 No. 10, could have a material adverse effect on its results of operations and financial condition. In addition, as a result of the Group s anti-corruption training programmes, codes of conduct and other safeguards, there is a risk that the Group could be at a commercial disadvantage and may fail to secure contracts within certain 24

31 Odfjell Drilling Ltd - Prospectus jurisdictions, to the benefit of other companies who may not have, or comply with, such anti-corruption safeguards. The Group does business in jurisdictions that are subject to sanction regimes The Group has conducted business in certain jurisdictions that are subject to US trade embargoes and sanctions by the US Office of Foreign Assets Control, including countries which have been designated by the US government as state sponsors of terrorism, and may conduct business in jurisdictions that are subject to analogous Norwegian and European Union sanctions. The Group has typically generated revenue in some of these countries through the performance of well services and the rental of well equipment. The Group has recently completed contracts with clients in Cuba and Iran. The Group has no current commitments in such countries or in other countries subject to sanctions, but there can be no assurance that the Group will not expand its operations into countries subject to sanctions. Further, there can be no assurance that the relevant sanction regimes will not be expanded to include countries in which the Group currently operates. Failure to comply with sanctions could result in material fines and penalties, and damage to the Group s reputation. This could negatively affect the market price of the Shares. While the Group believes that it is in compliance with all applicable sanctions and embargo laws and regulations, and intends to maintain such compliance, there can be no assurance that the Group will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations. 2.2 Risks relating to the Group The Group s backlog may not be ultimately realised As of 30 June 2013, the Group had a backlog in its MODU segment and Platform Drilling business area of approximately USD 5,704 million inclusive of priced optional periods. The Group s backlog represents the contracted future revenue under contracts for the Drilling Units and services provided by its MODU segment and Platform Drilling business area. The Group presents backlog both inclusive and exclusive of any priced optional periods exercisable by clients calculated to reflect the nominal value of the contract, detailed in Section Backlog. Backlog does not provide a precise indication of the time period over which the Group is contractually entitled to receive such revenues and there is no assurance that such revenue will be actually realised in the timeframes anticipated or at all. Backlog is computed based on contractual terms with the relevant client; however, revenue included in the backlog may be subject to price indexation clauses. There are a number of reasons why the Group may fail to realise expected backlog, including: cancellation, early termination or successful renegotiation of contracts by clients as a result of, among other reasons, adverse market conditions and, where the MODU segment enters into management contracts for newbuilds, delay in the delivery of such newbuilds; clients discretionary invocation of suspension periods; clients exercise of variation provisions, for example for the modification of a Drilling Unit; an inability of the Group to perform its obligations under contracts, including for reasons beyond its control; and a default by a client and failure to pay amounts owed. Some of the Group s clients may experience liquidity issues, which could worsen if oil and gas prices decline to lower levels for an extended period of time. Liquidity issues could encourage clients who are experiencing financial difficulties to seek to repudiate, cancel or renegotiate agreements with the Group or result in such client s bankruptcy, insolvency or similar actions. The ability of the Group s clients to perform their obligations under their contracts with the Group may also be negatively impacted by uncertainty surrounding the development of the world economy and credit markets. The Group s inability to realise backlog amounts could have a material adverse effect on the Group s results of operations, cash flows and financial condition. 25

32 Odfjell Drilling Ltd - Prospectus The Group s contracts may be subject to early termination due to certain events Some of the Group s existing clients have, and future clients may have, the right to terminate their contracts without cause in compliance with applicable notice periods. In addition, under certain circumstances, the Group s existing contracts permit, and future contracts may permit, a client to terminate its contract early without the payment of any termination fee, as a result of non-performance, delay, quality of deliverables, or force majeure events. Many of these events are beyond the Group s control. Early termination of contracts may decrease the MODU segment s or the Platform Drilling business area s utilisation levels and reduce the revenue received by any businesses affected by the termination. Although in relation to contracts for the MODU segment, clients may be required to pay the Group an early termination fee in certain circumstances, termination fees are generally not available under contracts for the Well Services segment, the Platform Drilling business area or the Technology business area. Even if the Group is entitled to early termination payments, such payments may not fully compensate the Group for the loss of the contract or the costs associated with the contract that it cannot fully eliminate. During periods of challenging market conditions, the Group may be subject to an increased risk of its clients seeking to repudiate or delay commencement of their contracts, including through claims of non-performance. If the Group s clients cancel their contracts with the Group and the Group is unable to secure new contracts on a timely basis and on substantially similar terms, or if contracts are suspended for an extended period of time, the Group s backlog could be reduced, which may have a material adverse effect on the Group s results of operations, cash flow and financial condition. See Section Backlog. The Group s future business performance depends on its ability to renew and extend existing contracts, and to win new contracts The Group s revenue is derived from contractual arrangements and its business areas use various contractual formats. Contracts for the MODU segment, the Well Services segment and the Platform Drilling business area are customarily for fixed lengths of time, although the MODU segment s Drilling Units may also have well-based contracts, which are contracts defined by completion of a specific service rather than the performance of a service for a fixed period of time. Currently, all of the Group s drilling unit contracts are for fixed lengths of time. Contracts for the MODU segment and the Platform Drilling business area may include extension options that are exercisable at the discretion of the client. The extension options do not represent guaranteed commitments from clients to extend the period of the contract and there can be no assurance that the Group s clients will exercise the extension options or that the work performed under such extension options will be at prevailing market day rates or prices at the time the option to extend is exercised, as the Group agrees the day rates and prices for extension periods at the time of signing the original contract. While the Group actively markets its Drilling Units prior to the end of a contract in anticipation of a client choosing not to exercise its extension option(s), if the client decides not to exercise the option(s), then the Group will need to secure a new contract for that Drilling Unit and any time lag in doing so could lead to a period of non-utilisation. Although the MODU segment s most recent contracts include a one-year notice period for non-renewal, some of its older contracts include a six-month notice period, which the Group regards as a tight timeframe for agreeing a new contract. Further, similar challenges may arise in relation to well-based contracts, as the timing and completion of services may be difficult to predict for such contracts. For most of its businesses, particularly for the MODU segment, the Well Services segment and the Platform Drilling business area, the Group is primarily awarded contracts and, in certain circumstances, successfully renews certain existing contracts by participating in tender processes. However, some of the Group s contracts, especially the Technology business area s contracts, are entered into following direct negotiations with clients. Where the Group tenders for contracts, it is generally difficult to predict whether the Group will be awarded contracts on favourable terms or at all. The tenders are affected by a number of factors beyond the Group s control, such as market conditions, competition (including the intensity of the competition in a particular market), financing arrangements and governmental approvals required by clients. 26

33 Odfjell Drilling Ltd - Prospectus In addition, the MODU segment is often required to pre-qualify to participate in tender processes by meeting certain thresholds of operational performance, including quality, health, safety and environment ( QHSE ) requirements, and by demonstrating its ability to provide available equipment and sufficiently comply with local requirements. Generally, these thresholds and requirements for inclusion on pre-approved tender lists have become more stringent in recent years. If the Group fails to be pre-approved by clients for participation in tender processes, the Group will not be considered for inclusion in certain tender processes, the Group s business activities and/or utilisation may drop below expected levels, and its business, results of operations, cash flow and financial position may be adversely affected. Certain of the MODU segment s contracts are due to expire in the next two years: one contract with BP on Deepsea Stavanger will expire during 2014; one contract with Statoil on Deepsea Atlantic will expire during 2015; one contract with BG on Deepsea Metro I will expire during 2014; and one contract with Petrobras on Deepsea Metro II will expire during These contracts include provisions for extension, but there can be no guarantee that such options will be exercised. Also, certain of the Well Services and Drilling & Technology segments contracts are due to expire in the next two years. For further information on these contracts, see Section Key contracts and Section Key contracts. The Group s ability to renew or extend existing contracts or sign new contracts will largely depend on prevailing market conditions. If the Group is unable to sign new contracts that start immediately after the end of its current contracts or, in the case of the MODU segment or the Platform Drilling business area, if new contracts are entered into at day rates or prices substantially below the existing day rates or prices, or on terms otherwise less favourable compared to existing contract terms, or which leave the Group with mobilisation or demobilisation costs that cannot be fully recovered, the Group s business, results of operations, cash flow and financial condition may be adversely affected. Unforeseen or unanticipated risks, costs or timing when bidding on or managing contracts could adversely affect the Group s business, results of operations and financial condition In preparation for a tender of a new contract, the Group assesses its current capacity, and, if it is awarded the contract, it determines how to deploy resources in order to perform its obligations under the contract. The Group s financial and operating performance depends on making accurate assumptions and estimates, as well as identifying key issues and risks (including, but not limited to, the degree of complexity of the project assumptions regarding rig efficiency or utilisation of equipment, operational expenses, mobilisation costs, tax payments, availability of skilled personnel and availability of critical equipment with long lead times) with respect to potential projects at the tender stage of the project, and ensuring that the pricing and contractual arrangements in relation to each project adequately safeguard the Group against, or compensate it for, such risks. Assumptions are particularly necessary when tendering for a new client or entering new product or geographic markets, as the Group does not yet have the experience on which it can base its assumptions for the tender. The Group must manage project risks efficiently and adapt to changes that occur during the life of a project. Even when a risk is properly identified, the Group may be unable to or may not accurately quantify it. Unforeseen or unanticipated risks, incorrect assumptions when bidding for a contract or unexpected client variation orders under contractual variation provisions (including, for example, orders for the modification of a Drilling Unit) may lead to increased costs for the Group and could adversely affect the Group s business, results of operations, cash flow and financial condition. 2.3 Risks relating to operations The Group, and in particular the MODU segment and the Platform Drilling business area, is exposed to client concentration risk The Group currently has three rigs and two drillships in operation. As of 30 June 2013, four clients, Statoil, BP, BG (including a relevant assignment to Ophir) and Petrobras, account for all of the MODU segment s backlog. In addition, as of 30 June 2013, five clients, Statoil, BP, Talisman, TAQA and Wintershall, account for all of the Platform Drilling business area s backlog. A number of factors could lead to a deterioration in the Group s relationships with its major clients, including, for example, any disputes between the Group and its clients with regard to, among other things, contract terms, nonperformance, quality of deliverables or additional costs exceeding the contract price or for work performed but not included in the original contract specifications. These types of claims can arise for a number of reasons, including delays to or changes from the initial project scope. The Group s client concentration may exacerbate the impact of these disputes on the Group. 27

34 Odfjell Drilling Ltd - Prospectus The Group s results of operations and cash flows could be materially adversely affected if any of its major clients fail to compensate the Group for its services, were to terminate their contracts with or without cause, fail to renew their existing contracts or refuse to award new contracts to the Group and the Group is unable to enter into contracts with new clients at comparable day rates. The Group s operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues In a situation where a Drilling Unit faces longer idle periods, reductions in costs may not be immediate as some of the crew may be required to prepare Drilling Units for the idle period. Should Drilling Units be idle for a longer period, the Group may seek to redeploy crew members who are not required to maintain the Drilling Units to active Drilling Units to the extent possible. However, there can be no assurance that the Group will be successful in reducing its costs under circumstances where its revenues may also have decreased. Rental Equipment maintenance costs fluctuate depending upon the type of activity the drilling unit is performing and the age and condition of the Rental Equipment. To the extent that changes in the Group s operating and maintenance costs are not proportionate to changes in operating revenues there may be a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The Group s newbuild projects are subject to risks which could cause delays or cost overruns and have a material adverse effect on the Group s business, results of operation, cash flows and financial condition The Group currently has an interest in newbuild projects, including the construction of Deepsea Aberdeen with Daewoo Shipbuilding & Marine Engineering Co., Ltd. ( DSME ) and the construction of three drillships in Brazil through the joint venture Odfjell Galvão B.V. Deepsea Aberdeen is expected to be delivered in May 2014 and, following mobilisation to location, it is expected to commence its seven-year contract for BP Exploration in the UK West of Shetland region in the fourth quarter of The Group also provides consultancy and project management services on other newbuild projects where it may or may not have an ownership interest in the project, such as the Island Innovator where the owner s completion of the construction and commencement of operations has been delayed due to an incident at the yard during the pre-operations phase. The provision by the Group of such consultancy and management services will be subject to potential liabilities toward contracting parties, third parties and relevant authorities. Any contractual liabilities could include increased project cost and other incurred costs and also liability for delayed commencement. The Group will also consider additional newbuild projects in the future, as appropriate. All present or future newbuild construction projects are or will be subject to risks of delay, quality issues, damage to personnel, equipment and environment, or cost overruns inherent in any large construction project due to numerous factors, including: shortages of equipment, materials or skilled labour; unscheduled delays in the delivery of ordered materials and equipment or shipyard construction; failure of equipment to meet quality and/or performance standards; financial or operating difficulties experienced by equipment vendors or the shipyard; lack of capacity at shipyards; unanticipated actual or purported change orders; inability to obtain required permits or approvals; unanticipated cost increases between order and delivery; design or engineering changes; 28

35 Odfjell Drilling Ltd - Prospectus the occurrence of accidents/incidents or other safety hazards; work stoppages and other labour disputes; and adverse weather conditions or any other events of force majeure. Significant cost overruns or delays in projects under construction could materially adversely affect the Group s results of operations, cash flow and financial condition. Additionally, failure to complete a project on time or failure to meet technical or operational requirements imposed by relevant regulations or regulatory authorities may result in the delay or loss of revenue from that drilling unit and potential penalties from the client or cancellation by the client. While the Group seeks to allow a sufficient window after delivery of a drilling unit from the shipyards to customise the drilling unit according to client specifications and to mobilise the drilling unit as required for commencement of the contract, there can be no assurance that commencement will occur within the agreed delivery window. Should the Group fail to meet the delivery requirements in order to commence the contract, it could be liable for liquidated damages and other contractual remedies, or the client may cancel the contract. New drilling units may experience start-up difficulties following delivery or other unexpected operational issues that could result in uncompensated downtime or the cancellation or termination of drilling contracts, which could also materially adversely affect the Group s results of operations, cash flow and financial condition. The Group must maintain and repair its Drilling Units, including maintaining the classification of the Drilling Units, which may lead to increased costs and loss of income The operation of the Drilling Units requires effective maintenance routines and functioning equipment. Certain pieces of equipment are critical for the Drilling Units performance of the drilling services as required in client contracts. While efforts are made to continuously identify the need for critical spare parts and equipment, there exists a risk of unpaid downtime resulting from the time needed to repair or replace equipment which may have a long delivery time should there not be readily available spare parts. In addition, downtime and suspension periods may be prolonged due to complications with repairing or replacing equipment as the Drilling Units may be situated in remote locations. The Drilling Units go through an off-hire period in connection with the special period survey ( SPS ) each fifth year to obtain re-classification. This is normally done at a shipyard. There is a risk that the duration of the yard stay is longer than scheduled, with a potential impact on utilisation, and that the costs related to the required work exceed its budget. The decreased utilisation would typically result in decreased day rates for the Drilling Units and any cost overruns may have a material adverse effect on the Group s results of operations, cash flows and financial condition. See Section Revenue generation. Disruptions of deliveries by the Group s suppliers could increase operating costs, decrease revenues and adversely impact the Group s operations. In addition, consolidation of suppliers may limit the Group s ability to obtain supplies and services when needed at an acceptable cost or at all The Group relies, and will in the future continue to rely, on a significant supply of consumables, spare parts and equipment to operate, maintain, repair and upgrade its fleet of Drilling Units and maintain and develop its Well Services segment s business. Certain parts and equipment the Group uses in its operations may be available from only a small number of suppliers, manufacturers or service providers, or in some cases must be sourced through a single supplier, manufacturer or service provider. A disruption in the deliveries from such third-party suppliers, manufacturers or service providers, capacity constraints, production disruptions, price increases, quality control issues, recalls or other decreased availability of parts and equipment could adversely affect the Group s ability to meet its commitments to clients, adversely impact the Group s operations and revenues or increase the Group s operating costs. In addition, during the last decade the number of available suppliers for drilling packages to the MODU segment s Drilling Units has reduced due to industry consolidation, resulting in fewer alternatives for sourcing key supplies, replacement parts, and services. The drilling packages for the Drilling Units are complicated and require a long lead time to deliver, so proper management of procurement is required and, once selected, the Group must continue to use the same supplier for replacement parts. Further, certain key equipment used in the Group s business may be protected by patents and other intellectual property of the suppliers, sub-suppliers or others. This may limit the 29

36 Odfjell Drilling Ltd - Prospectus Group s ability to obtain supplies and services when needed, at an acceptable cost or at all. Cost increases, delays or unavailability could materially adversely affect the Group s future operations and result in higher rig downtime due to delays in repair and maintenance of the Group s fleet, which may in turn have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The Group conducts a portion of its operations through joint ventures, exposing it to risks and uncertainties, many of which are outside its control The Group conducts a portion of its operations through large, project-specific joint ventures, where control may be shared with unaffiliated third parties, such as the joint venture in connection with its ultra-deepwater drillships Deepsea Metro I and II (in which it has a 40% share ownership) and the Group s 50% share ownership in the Odfjell Galvão B.V. joint venture, which holds 20% of the shares of three Dutch special purpose companies, each of which has entered into an engineering, procurement and construction contract for the construction of a drillship in Brazil. Please see Section Mobile Offshore Drilling Units (MODU) for more information on the Group s joint venture in Brazil. As with any joint venture arrangement, differences in views among the joint venture participants may result in delayed decisions or in failures to agree on major issues. The Group s obligations in respect of, and the Group s ability to receive any dividends from, its joint ventures depend on the terms and conditions of its shareholders agreements and its relationships with its respective joint venture partners. There can be no assurance that the Group will continue its relationships with its joint venture partners or that its joint venture partners will want to pursue the same strategies as the Group. If a joint venture partner sells its shares in the joint venture, a change of control event may be triggered under the bonds used to finance the joint venture, unless the Group purchases those shares. For example, Chloe Marine has issued a USD 150 million bond loan (the net proceeds from which were used, among other things, to pay the delivery instalment for Deepsea Metro II) which contains a put option exercisable by a holder if any person other than the joint venture partners or an investment grade company operating in the oil and gas industry becomes an owner of 50% or more of Deep Sea Metro. See Section Material borrowings. The Group also cannot control the actions of its joint venture partners, including any non-performance, default or bankruptcy of such partners, and the Group typically shares liabilities on a joint and several basis with its joint venture partners under these joint venture arrangements. If the Group s partners do not meet their contractual obligations, the joint venture may be unable to adequately perform and deliver its contracted services, requiring the Group to make additional investments or perform additional services to ensure the adequate performance and delivery of services to the client. The Group could be liable for both its own obligations and those of its partners, which may result in reduced profits or, in some cases, significant losses on the project. Additionally, these factors could have a material adverse effect on the business operations of the joint venture and, in turn, the Group s business operations, reputation, results of operations, cash flows and financial condition. Operating through joint ventures in which the Group has a minority interest could result in the Group having limited control over many decisions made with respect to projects and internal controls relating to projects. These joint ventures may not be subject to the same requirements regarding internal controls and internal control reporting that the Group follows. As a result, internal control issues may arise, which could have a material adverse effect on the Group s financial condition and results of operation. Additionally, in order to establish or preserve relationships with joint venture partners, the Group may agree to risks and contributions of resources that are proportionately greater than the returns the Group could receive, which could reduce its income and returns on these investments compared to what the Group may have received if the risks and resources the Group contributed were always proportionate to its returns. The Group relies on third parties, including subcontractors, to complete some parts of its projects and may be adversely affected by the sub-standard performance or non-performance of those third party subcontractors The Group engages third-party subcontractors to perform some parts of its projects, primarily for certain elements of the Technology business area s engineering projects. The Group may not have the skills to perform the work undertaken by its subcontractors and any inability to hire qualified subcontractors could hinder the successful completion of a project. Further, the Group s employees may not be able to monitor or control the performance of these subcontractors as efficiently as they could if that work was performed by the Group itself. The Group may suffer losses on contracts if the amounts it is required to pay for subcontractor services exceed its original 30

37 Odfjell Drilling Ltd - Prospectus estimates. While the Group seeks to mitigate the risks associated with subcontractors by imposing contractual obligations on its subcontractors that mirror those it has with its clients, obtaining insurance cover for the entire project and (in some cases) requesting bank guarantees to cover non-performance by subcontractors of the relevant parts of the projects, the subcontracting of work exposes the Group to risks associated with nonperformance, delayed performance or sub-standard performance. The Group s purchase of existing drilling units, spare parts and equipment carries risks associated with the quality of such assets The Group has in the past acquired existing equipment, supplies and replacement parts as a way of renewing parts of its Drilling Units and Rental Equipment, and may acquire existing drilling units, equipment, supplies and replacement parts in the future. Unlike newly built assets, existing assets purchased by the Group will typically not carry warranties with respect to their condition. While the Group generally inspects any existing assets prior to purchase, such an inspection would normally not provide the Group with as much knowledge of its condition as it would possess if the asset had been built for the Group and operated by the Group during its life. Repairs and maintenance costs for existing assets are difficult to predict and may be more substantial than for newly built equipment. These costs could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The Group may not be able to successfully implement its strategies The Group s strategies as described in Section 8.3 Overall strategy are: (i) to continue to focus on the harsh environment and ultra-deepwater markets; (ii) to increase cost efficiencies without compromising on health and safety standards; (iii) to expand prudently; and (iv) to achieve a balanced portfolio that includes a diversity of clients, a mix of medium- and long-term contacts and growth across all of its segments. Maintaining and expanding the Group s operations and achieving its other objectives involve inherent costs and uncertainties and there is no assurance that the Group will achieve its objectives. There is no assurance that the Group will be able to undertake these activities within its expected time-frame, that the cost of any of the Group s objectives will be at expected levels or that the benefits of its objectives will be achieved within the expected timeframe or at all. The Group s strategies may also be affected by factors beyond its control, such as volatility in the world economy and in each of its markets, the capital expenditure and investment by its clients and the availability of acquisition opportunities in a market. Any failures, material delays or unexpected costs related to the implementation of the Group s strategies could have a material adverse effect on its business, financial condition, cash flow and results of operations. Loss of key personnel or the failure to obtain or retain highly skilled personnel could materially adversely affect the Group s operations The Group s success depends on its retention of key personnel and its ability to recruit, retain and develop skilled personnel for its business. The demand for personnel with the capabilities and experience required in the oil and gas services industries is high, and success in attracting and retaining such employees is not guaranteed. There is intense competition for skilled personnel and there are, and may continue to be, shortages in the availability of engineers and other appropriately skilled people at all levels. Shortages of qualified personnel or the Group s inability to obtain and retain qualified personnel could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition, and particularly on the Drilling & Technology segment due to the engineering and technical experience required in this segment. Labour interruptions could have a material adverse effect on the Group s operations As of 30 June 2013, the Group had approximately 1,000 employees in its MODU segment (including employees of its Deep Sea Metro joint venture in Brazil), 450 employees in its Well Services segment and 1,500 employees in its Drilling & Technology segment. Labour interruptions in any of these segments may materially impact the Group. In particular, the Group s Drilling Units are operated with offshore crews and onshore personnel, many of whom are organised in labour unions. Although the Group has not experienced any labour disruptions in connection with its own personnel since 2004, there can be no assurance that labour disruptions by the Group s employees will not occur in the future. Further, unionised employees of third parties on whom the Group relies may be involved in strikes or other forms of labour unrest, causing operational disruptions for the Group. For example, unionised employees of private security companies at airports in Norway went on strike in 2012, which resulted in increased operational costs for the Group because timely crew changes were prevented by a lack of transportation to offshore rigs. Such industrial actions could result in additional costs to the Group, as well as limitations on the Group s 31

38 Odfjell Drilling Ltd - Prospectus ability to operate its Drilling Units or provide services to its clients, which may have a material adverse impact on its business, results of operations, cash flow and financial condition. The Group s labour costs and related operating costs could increase as a result of a number of factors A number of factors could increase the Group s labour costs and potentially affect other costs of operations. For example, high growth within the industry in recent years has increased the cost of qualified personnel and equipment. There may also be increased costs related to local content requirements. Although the Group s contracts with clients typically include price escalation clauses, which establish agreed annual rate increases typically linked to a relevant index to cover the Group s increased costs, there can be no assurance that such clauses will be sufficient to fully compensate the Group for the higher personnel expenses or related operational costs. Further, certain countries where the Group operates may lack a suitable price escalation index, which makes it difficult for the Group to negotiate an acceptable escalation clause. The Group s incurrence of additional labour related costs could have a material adverse effect on the Group s business, results of operations cash flow and financial condition. Damage to the Group s reputation and business relationships may have an adverse effect beyond any monetary liability The Group s business depends on client goodwill, the Group s reputation and on maintaining good relationships with its clients, joint venture partners, suppliers, employees and regulators. Any circumstances that publicly damage the Group s goodwill, injure the Group s reputation or damage the Group s business relationships may lead to a broader adverse effect on its business and prospects than solely the monetary liability arising directly from the damaging events by way of loss of business, goodwill, clients, joint venture partners and employees. The Group relies on information technology systems to communicate with its Drilling Units and conduct its business, and disruption, failure or security breaches of these systems could adversely affect its business and results of operations The Group relies heavily on information technology ( IT ) systems in order to communicate with its Drilling Units and achieve its business objectives, such as replication technology that allows each Drilling Unit s maintenance support system to remain operative even if the central maintenance system is non-operative. The Group relies upon industry accepted security measures and technology such as access control systems to securely maintain confidential and proprietary information maintained on its IT systems, and market standard virus control systems. However, the Group s portfolio of hardware and software products, solutions and services and its enterprise IT systems may be vulnerable to damage or disruption caused by circumstances beyond its control, such as catastrophic events, power outages, natural disasters, computer system or network failures, computer viruses, cyber attacks or other malicious software programmes. The failure or disruption of the Group s IT systems to perform as anticipated for any reason could disrupt the Group s business and result in decreased performance, significant remediation costs, transaction errors, loss of data, processing inefficiencies, downtime, litigation, and the loss of suppliers or clients. A significant disruption or failure could have a material adverse effect on the Group s business operations, financial performance and financial condition. The Group may not be able to keep pace with a significant step change in technological development The market for the Group s services is affected by significant technological developments that have resulted in, and will likely continue to result in, substantial improvements in equipment functions and performance throughout the industry. As a result, the Group s future success and profitability will be dependent in part upon its ability to: improve existing services, Drilling Units and Rental Equipment; address the increasingly sophisticated needs of its clients; and anticipate major changes in technology and industry standards and respond to technological developments on a timely basis. If the Group is not successful in acquiring new equipment or upgrading its existing Drilling Units or Rental Equipment, or the technical skill set of its employees, on a timely and cost-effective basis in response to technological developments or changes in industry standards, or if a significant step change in technology provides 32

39 Odfjell Drilling Ltd - Prospectus an alternative method for drilling, this could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. Policies, procedures and systems to safeguard employee health, safety and security may not be adequate or sufficiently implemented or adhered to The Group has detailed and specialised policies, procedures and systems to safeguard employee health, safety and security. The Group aims to follow best practices for employee health, safety and security in every country in which the Group operates. However, if these policies, procedures and systems are not adequate, or employees or contractors do not receive adequate training or instructions, or the Group s safety policies are not implemented properly in local jurisdictions, the consequences could be severe including injury or loss of life, which could impair the Group s reputation and operations and cause it to incur significant liability. Distance from certain principal locations can create further difficulty for the Group in implementing and impressing upon local workforces its policies on matters such as health and safety, and can present challenges in the supervision of its sub-contracted employees. Further, the Group s clients and/or other third parties are generally responsible for securing the areas surrounding the Drilling Units and the onshore bases from which the Group operates. Accordingly, the Group may have limited to no control over security measures and other systems designed to avoid or mitigate such hazards and must rely on third parties to ensure the security of the Drilling Units from risks. Although the Group s clients generally assume the responsibility and costs for security, there can be no assurance that the Group will not be required to assume the responsibility and costs for security in the areas surrounding its Drilling Units and onshore bases in the future. Failure to deliver consistently high standards across all fields of operations could create risks for the Group, including legal action and reputational risks, and could impact its success in winning future contracts. 2.4 Risks relating to laws, regulation and litigation The Group may be subject to litigation that could have a material adverse effect on the Group s business, results of operations, cash flow and financial condition The operating hazards inherent in the Group s business expose the Group to litigation, including personal injury litigation and environmental litigation. Providing drilling and well services, project management, engineering and construction services involves the risk of contractual and professional errors, omissions, warranty claims and other liability claims, as well as negative publicity that may adversely affect the Group s business, financial condition and results of operations. The Group is also exposed to intellectual property and tax litigation as well as maritime lawsuits, which could result in the possible seizure of the Drilling Units as security. While the Group is currently not involved in any litigation that, in its view, may have a material adverse effect on the Group s financial position or profitability, there can be no assurance that the Group may not become involved in such litigation in the future. The Group cannot predict with certainty the outcome or effect of any claim or other litigation matter. Any future litigation may have a material adverse effect on the Group s business, results of operations, cash flow, financial condition and have a potential negative outcome. There also may be significant costs associated with bringing or defending such lawsuits, and management s attention to these matters may divert their attention from the Group s operations. Technology disputes involving the Group, the Group s suppliers or sub-suppliers could impact the Group s operations The services provided by the Group utilise patented or otherwise proprietary technology, and consequently involve a potential risk of infringement of third party rights. It is not uncommon for industry participants to pursue legal action to protect their intellectual property. For example, Transocean has recently sued certain competitors for allegedly infringing its US patent for dual activity drilling. In 2009, the Norwegian courts ruled that Transocean s two patents on dual activity drilling in Norway were invalid, but Transocean may continue to pursue similar patent actions in other jurisdictions, creating a risk that other oil and gas services companies operating in these jurisdictions may be subject to legal action. The Group is not currently aware of other patents that create the risk of the Group infringing third party rights. However, there can be no assurance that other industry participants, including Transocean, will not pursue legal action against the Group to protect intellectual property that the Group utilises in Norway or in other jurisdictions in which the Group operates. Where such industry participants pursue 33

40 Odfjell Drilling Ltd - Prospectus legal action, it could result in limitations on the Group s ability to use the patented technology or require the Group to pay a fee for the continued use of intellectual property. The majority of the intellectual property rights relating to the Drilling Units and related Rental Equipment are owned by the Group s suppliers or sub-suppliers. In the event that one of the Group s suppliers or sub-suppliers, or the Group, becomes involved in a dispute over infringement of intellectual property rights relating to assets owned or used by the Group, the Group may lose access to repair services, replacement parts, or could be required to cease use of the relevant assets or intellectual property. The Group could also be required to pay royalties for the use of such assets or intellectual property. The consequences of technology disputes involving the Group s suppliers could materially adversely affect the Group s business, results of operations and financial condition. Certain of the Group s contracts with its suppliers provide the Group with contractual rights to indemnity from the supplier against intellectual property lawsuits on a limited basis. However, such contractual rights to indemnity may not adequately cover losses or cover all risks, and no assurances can be given that the Group s suppliers will be willing or financially able to indemnify the Group against these risks, or that such contractual indemnities will protect the Group from adverse consequences of such technology disputes. In addition, the Group, and in particular its Well Services segment (which has the most established intellectual property portfolio of the Group s business segments), may choose to pursue legal action to protect the Group s intellectual property. If the Group is unable to protect and maintain its intellectual property rights, or if there are any successful intellectual property challenges or infringement proceedings against the Group, its ability to differentiate its service offerings could diminish. There are currently no such cases ongoing, but there is no guarantee that such cases or claims will not be raised in the future. In addition, from time to time, the Group may pursue action to challenge patents of competitors, suppliers and others. Should these cases not succeed, the Group may be subject to legal costs and may not be able to use the patented technology or may have to pay a fee for the continued use of such patents. The consequences of any of the intellectual property disputes with third parties described above could materially adversely affect the Group s business, results of operations and financial condition. The Group is exposed to risk due to its use of certain trademarks such as the Odfjell name The Group has the right to use the Odfjell name, logo and domain and has registered the trademarks Odfjell Drilling, Deepsea and its corporate logo in multiple jurisdictions in which it operates. However, there are other companies unrelated to the Group that may have similar names or marks, including Odfjell SE, a shipping group that also has the right to use the Odfjell name. The Group can make no assurances that in the future it will retain the right to continue to use its trademarks in its operations and marketing in any jurisdiction, particularly where unrelated companies using the same name already hold a relevant trademark. Further, the Group has no control over the actions of other such companies using the Odfjell name. Actions by such companies could harm the Group s reputation, which could in turn materially adversely affect the Group s business, results of operations, cash flow and financial condition. A change in tax laws of any country in which the Group operates from time to time, or complex tax laws associated with international operations which the Group may undertake from time to time, could result in a higher tax expense or a higher effective tax rate on the Group s earnings The Group will from time to time conduct operations through various subsidiaries in countries throughout the world. Tax laws and regulations are highly complex and subject to interpretation and change. For example, if Norwegian shareholders control a company (i.e. directly or indirectly own or control at least 50% of the shares or the capital of the company) resident in a low tax jurisdiction, such Norwegian shareholders may be subject to Norwegian taxation according to the Norwegian Controlled Foreign Corporations regulations (Norwegian CFCregulations). Such taxation could apply with respect to certain of the subsidiaries of the Group if the Group becomes subject to the control of Norwegian shareholders. If the Norwegian shareholders of the Group are subject to Norwegian CFC taxation, such Norwegian shareholders are taxed in Norway on their proportionate share of the net profits generated by the relevant foreign company, calculated according to Norwegian tax regulations. The income will be subject to Norwegian taxation, currently at a rate of 28%. For the purposes of minimising this risk, the Company s Bye-Laws provide that the Board of Directors may decline to register the transfer of any interest in any Share in the register of members or decline to direct any registrar, appointed by the Company, to register the 34

41 Odfjell Drilling Ltd - Prospectus transfer where such transfer would result in 50% or more of the shares or votes in the Company being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or connected to a Norwegian business activity, in order to mitigate the possibility that the Company is deemed a Controlled Foreign Company as such term is defined under the Norwegian tax rules. Norwegian tax legislation may, however, be subject to changes which can also possibly be made on a retrospective basis, and there can be no assurance that this approach will continue to mitigate the impact of the relevant tax legislation in the future. A loss of a major tax dispute or a successful tax challenge to the Group s operating structure or to the Group s tax payments, among other things, could result in a higher tax rate on the Group s earnings, which could have a material adverse effect on the Group s earnings and cash flows From time to time, the Group s tax payments may be subject to review or investigation by tax authorities of the jurisdictions in which the Group operates. If any tax authority successfully challenges the Group s operational structure, intercompany pricing policies, the taxable presence of its subsidiaries in certain countries, or if the Group loses a material tax dispute in any country, or any tax challenge of the Group s tax payments is successful, the Group s effective tax rate on its earnings could increase substantially and the Group s earnings and cash flows from operations could be materially adversely affected. There are, for instance, several transactions taking place between the companies in the Group, which must be carried out in accordance with arm s length principles in order to avoid adverse tax consequences. Statutory documentation on a transfer pricing policy with the aim of determining arm s length prices for intercompany transactions has been established in order to minimise this risk. However, there can be no assurance that the tax authorities will conclude that the Group s transfer pricing policy calculates correct arm s length prices for intercompany transactions, which could lead to an adjustment of the agreed price, which would in turn lead to an increased tax cost for the Group. In relation to the tax audit pertaining to Deepsea Atlantic, the Norwegian tax authorities have notified Odfjell Invest AS, a subsidiary of the Company, that Odfjell Invest AS was not entitled to a claimed tax deduction under Norwegian tax rules, resulting in an increase of the taxable income for 2009 of NOK 103,305,720 and for 2010 of NOK 520,607,220. The notice of reassessment also states that there is an omission of declaring a payment of hire from Statoil as income, resulting in an increase in income for 2010 of NOK 6,552,467. Furthermore, the Norwegian tax authorities have notified Odfjell Invest AS that the bareboat charter between Odfjell Invest AS and Odfjell Invest I is not in accordance with the arm s length principle, resulting in a reduction of NOK 209,434,800 in bareboat hire for the 2009 to 2012 period. The potential tax exposure in relation to the tax investigations relating to Deepsea Atlantic amounts to USD 39.0 million, excluding interest cost. Estimated potential interest cost amounts to USD 9 million at the date of this Prospectus but is subject to increase depending on the actual timing of potential payment. Odfjell Invest AS intends to dispute any assessment based on the notification, and hence no expense is recognised in the Interim Financial Information for the six months ended 30 June 2013, as the Company s best estimate of the amount it will ultimately pay is nil. Odfjell Invest AS will revert to the tax authorities within the deadline for response. However, as Odfjell Invest AS will need to pay the full amount immediately upon the receipt of the final claim amount from the Norwegian tax authorities, there may be a negative impact on liquidity in the amount of USD 50 million if the Norwegian tax authorities do not change their assessment based on input from Odfjell Invest AS. If the Norwegian tax authorities do not change their assessment and Odfjell Invest AS reclaims the full amount through the court system there may be a temporary liquidity impact even if Odfjell Invest AS is ultimately successful in the dispute. In relation to the tax dispute pertaining to Deepsea Bergen, there is currently a dispute between Odfjell Rig Ltd. and the Norwegian tax authorities as to whether Odfjell Rig Ltd., a subsidiary of the Company, has a limited tax liability in Norway as a result of its participation interest in Deep Sea Drilling Company II KS ( DSDCII ), the owner of the rig Deepsea Bergen. The disputed amount (before-tax income) is approximately NOK 387,000,000 for 2009, 2010 and The district court presiding over the dispute concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus a limited tax liability exists for the owner Odfjell Rig Ltd. The district court also concluded that a tax exemption under Norwegian tax rules was not applicable. The Company will appeal this case. If the district court s verdict is upheld on appeal, the USD 62.8 million loss (already expensed as of 30 June 2013) for the Company will be final. The loss is comprised of USD 24.5 million in payable tax (which has already been paid) and USD 38.3 million in deferred tax. The additional impact on cash in such scenario will be 20% of the deferred tax to be paid in 2014 with the remaining balance to be paid on a declining basis (i.e. 20% of the remaining balance) each year. 35

42 Odfjell Drilling Ltd - Prospectus For further discussion of the tax audit case and tax court case related to Odfjell Invest AS and Odfjell Rig Ltd, respectively, see Section 8.10 Litigation and disputes. In addition to the tax court case and the tax audit case described in Section 8.10 Litigation and disputes, the tax authorities have notified that they are looking into whether the capital asset pricing model (CAPM) applied in 2009 and 2010 under the bareboat charter between Deep Sea Drilling Company II KS, as owner of the rig Deepsea Bergen, and Deep Sea Drilling Company KS is in accordance with the arm s length principle, as they consider the CAPM method poorly fit in this case. The outcome of the tax audit is currently pending. 2.5 Risks related to financing and market risk In order to execute the Group s growth strategy, the Group may require additional capital in the future, which may not be available The Group s MODU and Well Services segments are capital intensive and, to the extent the Group does not generate sufficient cash from operations, the Group may need to raise additional funds through debt or additional equity financings to execute the Group s growth strategy and to fund capital expenditures, including for the construction of any newbuild Drilling Units. Adequate sources of capital funding may not be available when needed or may not be available on favourable terms. The Group s ability to obtain such additional capital or financing will depend in part upon prevailing market conditions as well as conditions of its business and its operating results, and those factors may affect its efforts to arrange additional financing on satisfactory terms. If the Group raises additional funds by issuing additional shares or other equity or equity-linked securities, it may result in a dilution of the holdings of existing shareholders. If funding is insufficient at any time in the future, the Group may be unable to fund maintenance requirements and acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could adversely impact the Group s results of operations, cash flow and financial condition. The Group s existing or future debt arrangements could limit the Group s liquidity and flexibility in obtaining additional financing, in pursuing other business opportunities or the Company s ability to declare dividends to its shareholders As at 30 June 2013, the book value of the Group s current and non-current borrowings was USD million, representing 49.6% of its total equities and liabilities. See Section 9 Capitalisation and indebtedness. The current indebtedness and future indebtedness that the Group may incur could affect the Group s future operations, as a portion of the Group s cash flow from operations will be dedicated to the payment of interest and principal on such debt and will not be available for other purposes. Covenants contained in the Group s debt agreements require the Company, its subsidiaries and/or the Group to meet certain financial measures. These may affect the Group s flexibility in planning for, and reacting to, changes in its business and limit the Group s ability to dispose of assets or use the proceeds from such dispositions, withstand current or future economic or industry downturns or compete with others in the industry for strategic opportunities. In addition, such financial measures do and could further place restrictions on the Group s ability to declare dividends to its shareholders. See Section Material borrowings for further information on any restrictive covenants pertaining to the Group s existing debt arrangements. The Group s ability to meet its debt service obligations and to fund planned expenditures, including construction costs for its newbuild project(s), will be dependent upon the Group s future performance, which will be subject to general economic conditions, industry cycles and financial, business and other factors affecting the Group s operations, many of which are beyond the Group s control. The Group s future cash flows may be insufficient to meet all of its debt obligations and contractual commitments, and any such insufficiency could adversely affect the Group s business. To the extent that the Group is unable to repay its indebtedness as it becomes due or at maturity, the Group may need to refinance its debt, raise new debt, sell assets or repay the debt with the proceeds from equity offerings. Additional indebtedness or equity financing may not be available to the Group in the future for the refinancing or repayment of existing indebtedness, and the Group may not be able to complete asset sales in a timely manner sufficient to make such repayments. If the Group is unable to comply with the restrictions and the financial covenants in the agreements governing its indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of repayment of funds that have been borrowed If the Group is unable to comply with the restrictions and covenants in the agreements governing its indebtedness or in current or future debt financing agreements, there could be a default or cancellation under the terms of those 36

43 Odfjell Drilling Ltd - Prospectus agreements. The Group s ability to comply with these restrictions and covenants, including meeting financial ratios and measures, is dependent on its future performance. See Section Material borrowings for further information on any restrictive covenants pertaining to the Group s existing debt arrangements. If a default occurs under these agreements, lenders could terminate their commitments to lend or accelerate the outstanding loans and declare all amounts borrowed due and payable. Borrowings under debt arrangements that contain crossacceleration or cross-default provisions may also be accelerated and become due and payable. In addition, certain of the Group s financing agreements include change of control provisions which if triggered could result in the Group having to immediately prepay all amounts, including interest, accrued and owing under the relevant facility. If any of these events occur, the Group cannot guarantee that its assets will be sufficient to repay in full all of its outstanding indebtedness, and the Group may be unable to find alternative financing. Even if the Group could obtain alternative financing, that financing might not be on terms that are favourable or acceptable. The occurrence of such events may have a material adverse effect on the Group s results of operations, cash flow and financial condition. Interest rate fluctuations could affect the Group s cash flow and financial condition The Group has incurred, and may in the future incur, significant amounts of debt. The Group is exposed to interest rate risk primarily in relation to its long-term borrowings issued at floating interest rates. The Group evaluates the share of interest rate hedging based on an assessment of the Group s total interest rate risk and currently has a combination of borrowings that bear interest at fixed and floating rates in order to limit exposure to interest rate risk. Close to 50% of the Group s long-term debt was hedged at the time of the Prospectus. There can be no assurance that such hedging arrangements will be effective or that all of the Group s interest rate exposure will be hedged. See Section Material borrowings. As such, movements in interest rates could have material adverse effects on the Group s cash flow and financial condition. Fluctuations in exchange rates and non-convertibility of expenses could result in financial losses for the Group The Group has currency exposure to both transaction risk and translation risk. Transaction risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The Group is exposed to transaction risks due to fluctuations in exchange rates as it receives revenue primarily in USD but its relevant operating expenses are primarily in local currencies. In certain markets where the Group operates, it may experience currency exchange losses when revenue is received and expenses are paid in non-convertible currencies or when the Group does not hedge an exposure to the relevant foreign currency. The Group may also incur losses as a result of an inability to collect revenue due to a shortage of convertible currency available in the country of operation or controls over currency exchange. Translation risk arises due to the conversion of amounts denominated in foreign currencies to USD, the Group s reporting and functional currency. Given the international nature of the Group s business, a significant portion of its assets, liabilities, revenues and expenses are denominated in currencies other than USD. In addition, some of the Group s subsidiaries have other reporting and functional currencies, including NOK, GBP and EUR. Consequently, any change in exchange rates between its operating subsidiaries functional currencies and USD affects its consolidated income statement and balance sheet when the results of those operating subsidiaries are translated into USD for reporting purposes. Because the Company does not hedge its exposure to such currency translation risks, decreases in the value of its operating subsidiaries functional currencies against the USD may reduce those operating subsidiaries contributions in USD terms to the Company s business, financial condition, results of operations and cash flow. 2.6 Risks related to Group structure The Company is a holding company and is dependent upon cash flow from subsidiaries to meet its obligations and in order to pay dividends to its shareholders The Group currently conducts its operations through, and most of the Group s assets are owned by, the Group s subsidiaries. As such, the cash that the Group obtains from its subsidiaries is the principal source of funds necessary to meet its obligations. Contractual provisions or laws, including laws or regulations related to the repatriation of foreign earnings, as well as the Group s subsidiaries financial condition, operating requirements, restrictive covenants in its debt arrangements and debt requirements, may limit the Group s ability to obtain cash 37

44 Odfjell Drilling Ltd - Prospectus from subsidiaries or joint ventures that it requires to pay its expenses or meet its current or future debt service obligations or to pay dividends to its shareholders. For example, the Norwegian Limited Liability Companies Act imposes certain legal restrictions on dividends, loans and advances from Norwegian subsidiaries that may affect the ability of the Group s subsidiaries to transfer funds to the Company. Applicable tax laws may also subject such payments to the Group by subsidiaries to further taxation. See Section Material borrowings for further information on any restrictive covenants pertaining to the Group s existing debt arrangements. The inability to transfer cash from the Group s subsidiaries or joint ventures may mean that, even though the Group may have sufficient resources on a consolidated basis to meet its obligations or to pay dividends to its shareholders, the Group may not be permitted to make the necessary transfers from its subsidiaries or joint ventures to meet such obligations or to pay dividends to its shareholders. Likewise, the Group may not be able to make necessary transfers from its subsidiaries in order to provide funds for the payment of its obligations, for which the Group is or may become responsible under the terms of the governing agreements of the Group s indebtedness. A payment default by the Group, or any of the Group s subsidiaries, on any debt instrument would have a material adverse effect on the Group s business, results of operations, cash flow and financial condition. The Group s financial condition may be materially adversely affected if the Group fails to successfully integrate acquired assets or businesses, or is unable to obtain financing for acquisitions on acceptable terms The Group believes that acquisition opportunities may arise from time to time, and that any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different stages. However, any such discussions may not result in the consummation of an acquisition transaction, and the Group may not be able to identify or complete any acquisitions or make assurances that any acquisitions the Group makes will perform as expected or that the returns from such acquisitions will support the investment required to acquire or develop them. The Group cannot predict the effect, if any, that any announcement or consummation of an acquisition would have on the trading price of the Shares. Any future acquisitions could present a number of risks, including: the risk of using management time and resources to pursue acquisitions that are not successfully completed; the risk of failing to identify material problems during due diligence; the risk of over-paying for assets; the risk of failing to arrange financing for an acquisition as may be required or desired; the risk of incorrect assumptions regarding the future results of acquired operations; the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely; and the risk of diversion of management s attention from existing operations or other priorities. In addition, the integration and consolidation of acquisitions requires substantial human, financial and other resources, including management time and attention, and may depend on the Group s ability to retain the acquired business existing management and employees or recruit acceptable replacements. Ultimately, if the Group is unsuccessful in integrating any acquisitions in a timely and cost-effective manner, the Group s results of operations, cash flow and financial condition could be materially adversely affected. The Group has engaged in divestments that may subject it to associated risks and liabilities The Group has provided certain representations, warranties and indemnities in connection with the businesses it has sold, including in connection with the recent disposal of its rig mooring business, Deep Sea Mooring AS and related mooring equipment in May As a result, the Group may be subject to the risk of liability for breach of representations and warranties and/or indemnity obligations in favour of the respective buyers. For example, in the sale and purchase agreement related to the sale of the rig mooring business, the Group agreed to provide certain 38

45 Odfjell Drilling Ltd - Prospectus representations and warranties regarding the operations of Deep Sea Mooring AS and the condition of the related equipment. While the Group does not currently believe there will be claims under these representations, warranties and indemnities, it is possible that claims could be made against the Group in the future. If such a claim or claims were successful, it could have a material adverse effect on the Group s results of operations, cash flows and financial position. The market value of the Drilling Units and Rental Equipment and/or those the Group may acquire in the future may decrease, which could cause the Group to incur losses due to impairment of book values or if it decides to sell assets The fair market value of the Drilling Units and Rental Equipment currently owned by the Group and/or those the Group may acquire in the future, may increase or decrease depending on a number of factors, including: general economic and market conditions affecting the offshore contract drilling industry, including competition from other offshore contract drilling companies; types, sizes and ages of the Drilling Units and Rental Equipment; supply and demand for drilling units and equipment; cost of newbuilds; prevailing level of drilling services contract day rates; Drilling Unit day rates and utilisation rates; government laws and regulations, including environmental protection laws and regulations and such laws becoming more stringent due to, inter alia, accidents such as the Macondo incident; and technological advances. If the book value of any Drilling Unit or Rental Equipment exceeds the fair market value, the Group may suffer impairment of the book value of its assets and consequently suffer a loss. Further, an impairment may cause a breach of the Group s equity level and equity ratio under the financial covenants of certain of its financing arrangements. See Section Material borrowings. Also, should the Group sell any Drilling Unit or Rental Equipment when prices have fallen, the sale may be at a loss. The book value of the Drilling Units, including construction in progress and periodic maintenance represented 58.9% of the Group s total assets as at 31 December Such loss could have a material adverse effect on the Group s business prospects, results of operations, cash flow and financial condition. See Section Risks relating to the industry in which the Group operates Legal, Regulatory and Environmental Risks The impact of the Macondo incident led to an aggressive overhaul of the oil and natural gas regulatory process that has significantly impacted the oil and gas development in the US Gulf of Mexico and may also lead to further regulations that may impact drilling operations in other regions and Section Risks Relating to the Industry in which the Group Operates Market Conditions An over-supply of drilling units or Rental Equipment may lead to a reduction in day rates for the MODU segment and prices for the Well Services segment, which may materially impact the Group s results of operations. 2.7 Risks relating to the Shares Odfjell Partners Ltd. will remain the controlling shareholder of the Company at completion of the Offering and will have significant voting power and the ability to influence matters requiring shareholder approval Following completion of the Offering, it is expected that Odfjell Partners Ltd. will remain the major shareholder of the Group and will, accordingly, continue to have a majority of the shareholder vote, thereby having the ability to significantly influence the outcome of matters submitted for the vote of the Company s shareholders, including the election of members of the Board of Directors. The commercial goals of Odfjell Partners Ltd. as a shareholder, and those of the Group, may not always be aligned and this concentration of ownership may not always be in the best interest of the Group s other shareholders. For example, Odfjell Partners Ltd. could delay, defer or prevent a change of control, impede a merger, deny a potential future equity offering, amalgamation, consolidation, takeover or other business combinations involving the Group, or discourage a potential acquirer from attempting to obtain 39

46 Odfjell Drilling Ltd - Prospectus control of the Group. Although it is expected that Odfjell Partners Ltd. will remain the major shareholder of the Company after the Offering, no assurance can be given that this will continue on a permanent basis. If Odfjell Partners Ltd. were no longer a major shareholder of the Company, or if its commercial goals were not in the best interest of the Group, this could have a material adverse effect on the market value of the Shares. The price of the Shares may fluctuate significantly The trading price of the Shares could fluctuate significantly in response to a number of factors beyond the Group s control, including, but not limited to, quarterly variations in operating results, adverse business developments, changes in financial estimates and investment recommendations or ratings by securities analysts, or any other risk discussed herein materialising or the anticipation of such risk materialising. In recent years, the global stock markets have experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in the oil and gas services industry. Those changes may occur without regard to the operating performance of these companies. The price of the Shares may therefore fluctuate based upon factors that have little or nothing to do with the Group, and these fluctuations may materially affect the price of the Shares. There is no existing market for the Shares, and an active trading market may not develop Prior to the Listing, there was no public market for the Shares, and there can be no assurance that an active trading market will develop, or be sustained or that the Shares may be resold at or above the Offer Price. The market value of the Shares could be substantially affected by the extent to which a secondary market develops for the Shares following the completion of this Offering. Future sales, or the possibility for future sales, of substantial numbers of Shares may affect the Shares market price The Company cannot predict what effect, if any, future sales of the Shares, or the availability of Shares for future sales, will have on their market price. Sales of substantial amounts of the Shares in the public market following the Offering, including by Odfjell Partners Ltd. (which, following the Offering, will hold approximately 70% of the shares of the Company), or the perception that such sales could occur, may adversely affect the market price of the Shares, making it more difficult for holders to sell their Shares at a time and price that they deem appropriate. Although Odfjell Partners Ltd., as of the date of this Prospectus, is subject to an agreement with the Joint Bookrunners that, subject to certain conditions and exceptions, restricts its ability to sell or transfer its Shares for a period of nine months after the first time of sale relating to the Offering, the representatives of the Joint Bookrunners may, in their sole discretion and at any time, waive the restrictions on sales or transfer during this period. Additionally, following this period, all Shares owned by Odfjell Partners Ltd. will be eligible for sale in the public market, subject to applicable securities laws restrictions. Future issuances of Shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares It is possible that the Company may in the future decide to offer additional Shares or other securities in order to finance new capital-intensive projects, in connection with unanticipated liabilities or expenses or for any other purposes. See Section 2.2 Risks relating to the Group. There can be no assurance the Company will not decide to conduct further offerings of securities in the future. Depending on the structure of any future offering, certain existing shareholders may not be able to purchase additional equity securities. If the Company raises additional funds by issuing additional equity securities, holdings of existing shareholders may be diluted. Exchange rate fluctuations could adversely affect the value of the Shares and any dividends paid on the Shares for an investor whose principal currency is not NOK The Shares will be priced and traded in NOK on the Oslo Stock Exchange and, although any future payments of dividends on the Shares will be denominated in USD, such dividends will be distributed through the VPS in NOK. Investors registered in the VPS whose address is outside Norway and who have not supplied the VPS with details of any NOK account, will however receive dividends by check in their local currency, as exchanged from the NOK amount distributed through the VPS. If it is not practical in the sole opinion of DNB Bank ASA, being the Company's VPS registrar, to issue a check in a local currency, a check will be issued in U.S. dollars. The issuing and mailing of checks will be executed in accordance with the standard procedures of DNB Bank ASA, Foreign Payments Department. The exchange rate(s) that is applied will be DNB Bank ASA's exchange rate on the date and time of 40

47 Odfjell Drilling Ltd - Prospectus day for execution of the exchange for the issuance of cheque. Exchange rate movements of NOK will therefore affect the value of these dividends and distributions for investors whose principal currency is not NOK. Furthermore, the market value of the Shares as expressed in foreign currencies will fluctuate in part as a result of foreign exchange fluctuations. This could affect the value of the Shares and of any dividends paid on the Shares for an investor whose principal currency is not NOK. Investors may not be able to exercise their voting rights for Shares registered in a nominee account Beneficial owners of the Shares that are registered in a nominee account (such as through brokers, dealers or other third parties) may not be able to vote such Shares unless their ownership is re-registered in their names with the VPS prior to the general meetings. The Group can provide no assurances that beneficial owners of the Shares will receive the notice of a general meeting in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners. The transfer of Shares is subject to restrictions under the securities laws of the United States and other jurisdictions The Shares have not been registered under the U.S. Securities Act or any U.S. state securities laws or any other jurisdiction outside Norway and Bermuda and are not expected to be registered in the future. As such, the Shares may not be offered or sold except pursuant to an exemption from the registration requirements of the U.S. Securities Act and applicable securities laws. See Section 19 Selling and transfer restrictions. In addition, there can be no assurance that shareholders residing or domiciled in the United States will be able to participate in future capital increases or rights offerings. Bermuda law permits the transfer of shares listed or admitted to trading on an appointed stock exchange (as such term is defined in the Companies Act 1981, as amended, of Bermuda (the Bermuda Companies Act ) (an Appointed Stock Exchange )) such as the Oslo Stock Exchange, to be effected in accordance with the rules of such stock exchange without a written instrument of transfer. Further, the Bermuda Monetary Authority pursuant to the Exchange Control Act 1972 and associated regulations has granted (i) its consent for the issue and transfer of the Shares to and between residents and non-residents of Bermuda for exchange control purposes provided that the Shares are listed on the Oslo Stock Exchange or any other Appointed Stock Exchange on or within fourteen days, or the relevant issue or transfer, and (ii) a general permission for the issue and transfer of shares and/or securities in companies incorporated in Bermuda from and/or to a non-resident of Bermuda where such company has any Equity Securities (meaning a share issued by a Bermuda company which entitles the holder to vote for or to appoint one or more directors or a security which by its terms is convertible into a share which entitles the holder to vote for or appoint one or more directors) listed on an Appointed Stock Exchange. Accordingly, the Shares can be registered in the VPS and title to the Shares can be evidenced and transferred without a written instrument and the consent and the general permission of the Bermuda Monetary Authority for the issuance and transfer of shares shall apply as long as the Shares are listed and traded on the Oslo Stock Exchange. If the Shares are no longer listed or admitted to trading on the Oslo Stock Exchange or any other Appointed Stock Exchange, or if the Oslo Stock Exchange ceases to be an Appointed Stock Exchange, the Shares may only be transferred by written instrument in accordance with the terms of the Bye-Laws of the Company and with the prior consent of the Bermuda Monetary Authority. The Company may be unwilling or unable to pay any dividends in the future Pursuant to the Company s dividend policy, dividends are only expected to be paid if certain conditions described in Section 6.1 Dividend policy are fulfilled. In addition, the Company may choose not, or may be unable, to pay dividends in future years. The amount of dividends paid by the Company, if any, for a given financial period, will depend on, among other things, the Company s future operating results, cash flows, financial position, capital requirements, the sufficiency of its distributable reserves, the ability of the Company s subsidiaries to pay dividends to the Company, credit terms, general economic conditions and other factors that the Company may deem to be significant from time to time. The Shares are listed on an if sold basis until delivery of the Shares, which could result in all conditional trades being reversed The Shares will be listed on the Oslo Stock Exchange on an if sold basis. Therefore, the Shares will be tradeable on the Oslo Stock Exchange before the Shares are delivered to each investor. If the Purchase Agreement is terminated due to certain force majeure events, the Shares will not be delivered to the investors. All trades with 41

48 Odfjell Drilling Ltd - Prospectus the Shares will be cancelled and reversed. Such events could adversely affect the participants in the Offering and those who trade in the Shares during the period of conditional trading. The limited free float of the Shares may have a negative impact on the liquidity of and market price for the Shares After completion of the Offering, 28% of the Company s issued and outstanding share capital (30% of the issued and outstanding share capital if the Over-Allotment Option is exercised in full) will be publicly held if the Offering is fully subscribed. Approximately 70% of the issued and outstanding share capital is expected to be held by Odfjell Partners Ltd. The limited free float may have a negative impact on the liquidity of the Shares and result in a low trading volume of the Shares, which could have an adverse effect on the then prevailing market price for the Shares. 2.8 Risks related to the Company s incorporation in Bermuda Investors in the United States may have difficulty enforcing any judgment obtained in the United States against the Company or its directors or executive officers The Company is an exempted company limited by shares incorporated under the laws of Bermuda. As a result, the rights of holders of the Shares will be governed by Bermuda law and the Company s memorandum of association and Bye-Laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. With one exception, the Company s Interim Directors and members of the New Board of Directors are not residents of the United States, and a substantial portion of the Company s assets are located outside the United States. As a result, it may be difficult for investors in the United States to effect service of process on the Company or its directors and executive officers in the United States or to enforce in the United States judgments obtained in US courts against the Company or those persons, including judgments based on the civil liability provisions of the securities laws of the United States or any State or territory within the United States. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against the Company or its directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against the Company or its directors or officers under the securities laws of other jurisdictions. The United States and Bermuda do not currently have a treaty providing for reciprocal recognition and enforcement of judgments (other than arbitral awards) in civil and commercial matters. The Company has anti-takeover provisions in its Bye-Laws that may discourage a change of control The Company s Bye-Laws contain provisions that could make it more difficult for a third party to acquire the Company without the consent of the Board of Directors. These provisions provide that: the Board of Directors can decline to register certain transfers of shares where the transfer would result in 50% or more of the issued and outstanding shares or votes of the Company being held, controlled by or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or such shares or votes being effectively connected to a Norwegian business activity, in order to avoid the Company being deemed a Controlled Foreign Company pursuant to Norwegian tax rules; and the Board of Directors can, subject to prior approval of the Company s shareholders, determine the powers, preferences and rights of the Company s shares including any preference shares and, subject to prior shareholder approval, to issue the shares and/or preference shares without further shareholder approval. These provisions could make it more difficult for a third party to acquire the Company, even if the third party s offer may be considered beneficial by many shareholders. Various conditions may cause an adverse tax effect for the shareholder if the Company pays dividends Dividends declared and paid by a Bermuda company may be subject to local tax in the investor s home country, and each investor should make such investigations for himself/herself. Norwegian investors will be subject to taxation as dividends will be deemed as taxable income for the receiver, and such dividends will be subject to 28% tax and the same tax rate will apply with respect to capital gains for such investors. See Section 17 Taxation below for more details. 42

49 Odfjell Drilling Ltd - Prospectus 3 RESPONSIBILITY FOR THE PROSPECTUS 3.1 The Board of Directors of Odfjell Drilling Ltd This Prospectus has been prepared in connection with the Offering described herein and the Listing of the Shares on the Oslo Stock Exchange. The Board of Directors of Odfjell Drilling Ltd accepts responsibility for the information contained in this Prospectus. The members of the Board of Directors confirm that, after having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. 13 September 2013 The Board of Directors of Odfjell Drilling Ltd Helene Odfjell Chairman Marianne Odfjell Director Kirk L. Davis Director Carl-Erik Haavaldsen Director Bengt Lie Hansen Director 3.2 The Selling Shareholder The Selling Shareholder confirms that the Offer Shares are being offered free of any liens or encumbrances. 13 September 2013 For BCB Paragon Trust Limited, as trustee of the Larine Trust Neil W. de ste Croix Director Luciano Aicardi Director 43

50 Odfjell Drilling Ltd - Prospectus 4 GENERAL INFORMATION 4.1 Other important investor information The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment by investors of the Offer Shares between the time of approval of this Prospectus by the Norwegian FSA and the Listing of the Offer Shares on the Oslo Stock Exchange, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, nor the sale of any Offer Share, shall under any circumstances imply that there has been no change in the Group s affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. No person is authorised to give information or to make any representation concerning the Group or in connection with the Offering or the sale of the Offer Shares other than as contained in this Prospectus. If any such information is given or made, it must not be relied upon as having been authorised by the Company or the Managers or by any of the affiliates, representatives, advisors or selling agents of any of the foregoing. The Company has furnished the information in this Prospectus. No representation or warranty, express or implied is made by the Managers as to the accuracy, completeness or verification of the information set forth herein, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Managers assume no responsibility for the accuracy or completeness or the verification of this Prospectus and accordingly disclaim, to the fullest extent permitted by applicable law, any and all liability whether arising in tort, contract or otherwise which they might otherwise be found to have in respect of this Prospectus or any such statement. None of the Company, the Selling Shareholder or the Managers, or any of their respective affiliates, representatives, advisers or selling agents, is making any representation to any offeree or purchaser of the Offer Shares regarding the legality of an investment in the Offer Shares. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Offer Shares. In connection with the Offering, each of the Managers and any of their respective affiliates, acting as an investor for its own account, may take up Offer Shares in the Offering and in that capacity may retain, purchase or sell for its own account such securities and any Offer Shares or related investments and may offer or sell such Offer Shares or other investments otherwise than in connection with the Offering. Accordingly, references in the Prospectus to Offer Shares being offered or placed should be read as including any offering or placement of Offer Shares to any of the Managers or any of their respective affiliates acting in such capacity. None of the Managers intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. 4.2 Presentation of financial and other information Financial information The Group s audited consolidated financial statements as of and for the year ended 31 December 2012, with comparable figures as of and for the year ended 31 December 2011, have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS ) (the IFRS Financial Statements ), while the Group s audited consolidated financial statements as of and for the year ended 31 December 2011 and 2010 are prepared in accordance with Norwegian General Accepted Accounting Principles ( NGAAP ) (the NGAAP Financial Statements ) (collectively referred to as the Financial Statements ). The Group s unaudited interim financial statements as of and for the three and six month periods ended 30 June 2013 and 2012 (the Interim Financial Statements ), has been prepared in accordance with International Accounting Standard ( IAS ) 34. The Financial Statements and Interim Financial Statements are attached hereto as Appendix B and Appendix C, respectively. The Financial Statements for the years ended 31 December 2012, 2011, and 2010 have been audited by PricewaterhouseCoopers AS, as set forth in their report thereon included herein. PricewaterhouseCoopers AS has issued a review report of the Interim Financial Statements for the three and six month periods ended 30 June 2013 and 2012, as set forth in their report thereon included herein. The Financial Statements and the Interim Financial Statements are together referred to as the Financial Information. 44

51 Odfjell Drilling Ltd - Prospectus For a discussion of the material differences between IFRS and NGAAP, please see Section Analysis of material differences between IFRS and NGAAP. Please refer to note 26 of the Financial Statements for the year ended 31 December 2012 for a reconciliation of IFRS to NGAAP. Potential investors should consult their own professional advisers for an understanding of the differences between IFRS and NGAAP, and how these differences might affect the Financial Information herein. Odfjell Drilling presents the Financial Information in USD (presentation currency), other than the NGAAP Financial Statements which have been presented in NOK. In this Prospectus, the 2009 and 2010 numbers that are presented in NOK have been converted to USD with a USD/NOK rate of and the Norges Bank average for 2009 and 2010, respectively Non-IFRS financial measures In this Prospectus, the Company presents certain non-ifrs financial measures and ratios, including CAGR, interest coverage, net interest bearing debt, interest bearing debt and return on invested capital (which is measure of the Company s achieved return on its investments, including businesses recently disposed). The non-ifrs financial measures presented herein are not measurements of performance under IFRS or other generally accepted accounting principles and investors should not consider any such measures to be an alternative to: (a) operating revenues or operating profit (as determined in accordance with generally accepted accounting principles), as a measure of the Group s operating performance; or (b) any other measures of performance under generally accepted accounting principles. The non-ifrs financial measures presented herein may not be indicative of the Group s historical operating results, nor are such measures meant to be predictive of the Group s future results. The Company believes that the non-ifrs measures presented herein are commonly reported by companies in the markets in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon accounting methods (particularly when acquisitions have occurred) or based on non-operating factors. Accordingly, the Group discloses the non-ifrs financial measures presented herein to permit a more complete and comprehensive analysis of its operating performance relative to other companies and across periods, and of the Group s ability to service its debt. Because companies calculate the non-ifrs financial measures presented herein differently, the Group s presentation of these non-ifrs financial measures may not be comparable to similarly titled measures used by other companies Industry and market data In this Prospectus, the Company has used industry and market data obtained from independent industry publications, market research, and other publicly available information, including from The Norwegian Petroleum Directorate 3, International Energy Agency ( IEA ) 4, Rystad Energy 5, IHS Petrodata database 6, KCA Deutag 7, Archer 8, Petoro 9 and other publicly available information. While the Company has compiled, extracted and reproduced industry and market data from external sources, the Company has not independently verified the correctness of such data. Further, although certain graphs in Section 7 Industry and market overview are based on IHS Petrodata information, IHS Petrodata has not taken part in the preparation of these graphs. The Company cautions prospective investors not to place undue reliance on the above mentioned data. Unless otherwise indicated in the Prospectus, the basis for any statements regarding the Group s competitive position is based on the Company s own assessment and knowledge of the market in which it operates. Although the industry and market data is inherently imprecise, the Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified. 3 Information from this source in the Prospectus is available at 4 Information from this source in the Prospectus is available by subscription at 5 Information from this source in the Prospectus is available by subscription at 6 Information from this source in the Prospectus is available by subscription at 7 Information from this source in the Prospectus is available at 8 Information from this source in the Prospectus is available at 9 Information from this source in the Prospectus is available at 45

52 Odfjell Drilling Ltd - Prospectus Industry publications or reports generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. The Company has not independently verified and cannot give any assurances as to the accuracy of market data contained in this Prospectus that was extracted from these industry publications or reports and reproduced herein. Market data and statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. As a result, prospective investors should be aware that statistics, data, statements and other information relating to markets, market sizes, market shares, market positions and other industry data in this Prospectus (and projections, assumptions and estimates based on such information) may not be reliable indicators of the Group s future performance and the future performance of the industry in which it operates. Such indicators are necessarily subject to a high degree of uncertainty and risk due to the limitations described above and to a variety of other factors, including those described in Section 2 Risk factors and elsewhere in this Prospectus Other information In this Prospectus, all references to NOK are to the lawful currency of Norway, all references to USD are to the lawful currency of the United States, all references to GBP are to the lawful currency of the United Kingdom, all references to EUR are to the lawful common currency of the EU member states who have adopted the Euro as their sole national currency and all references to BRL are to the lawful currency of Brazil Rounding Certain figures included in this Prospectus have been subject to rounding adjustments (by rounding to the nearest whole number or decimal or fraction, as the case may be). Accordingly, figures shown for the same category presented in different tables may vary slightly. As a result of rounding adjustments, the figures presented may not add up to the total amount presented. 4.3 Cautionary note regarding forward-looking statements This Prospectus includes forward-looking statements that reflect the Company s current views with respect to future events and financial and operational performance. All statements other than statements of historical facts included in this Prospectus, including, but not limited to, statements relating to the Company s financial position, the risks specific to the Group s business, the strengths of the Group, business strategy and the implementation of strategic initiatives, as well as other statements relating to the Group s future business development and financial performance, are forward-looking statements. These forward-looking statements can often, but not necessarily, be identified by the use of forward-looking terminology, including the terms assumes, projects, forecasts, estimates, expects, anticipates, believes, plans, intends, may, might, will, would, can, could, should or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements are not historic facts. They appear in a number of places throughout this Prospectus and include statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, financial position, operating results, liquidity, prospects, growth, strategies and the industry in which the Group operates, such as, but not limited to, with respect to number of wells to be drilled and demand for ultra-deepwater drilling units in the future, exploration and production companies ultra-deepwater drilling unit backlog in the future and yard capacity for building of new ultra-deepwater units in the future. Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that the Group s actual financial position, operating results and liquidity, and the development of the industry in which the Group operates, may differ materially from those made in, or suggested, by the forwardlooking statements contained in this Prospectus. The Company cannot guarantee that the intentions, beliefs or current expectations upon which its forward-looking statements are based will occur. By their nature, forward-looking statements involve, and are subject to, known and unknown risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur in the future. Because of these known and unknown risks, uncertainties and assumptions, the outcome may differ materially from those set out in the forward-looking statements. Important factors that could cause those differences include, but are not limited to: 46

53 Odfjell Drilling Ltd - Prospectus the effect of changes in demand, pricing and competition for the Group s existing and future drilling units; wells to be drilled and demand for ultra-deepwater drilling units in the future; exploration and production companies ultra-deepwater drilling unit backlog in the future; yard capacity for building of new ultra-deepwater units in the future; the competitive nature of the business the Group operates in and the competitive pressure and changes to the competitive environment in general; earnings, cash flow, dividends and other expected financial results and conditions; the price volatility of oil and gas products; the ability to secure sufficient employment opportunities for the Group s existing Drilling Units as the term of the drilling contracts for these units expire, and the new, planned rig Deepsea Aberdeen when this has been delivered; the utilisation level for the Group s existing drilling units and the new, planned rig Deepsea Aberdeen; the state of the Group s relationships with major clients, suppliers and joint venture partners; the quality of goods and services provided to or on behalf of the Group by suppliers, joint venture partners and subcontractors; delay or cost overruns in the construction projects for the new, planned rig Deepsea Aberdeen; level of required repair, maintenance expenditures and replacement costs on the existing and new drilling units of the Group; technological changes and new products and services introduced into the Group s market and industry; fluctuations of interest and exchange rates; changes in general economic and industry conditions, including changes to tax rates and regimes; political, governmental, social, legal and regulatory changes (including regulations relating to bribery and corruption, health, safety and the environment); dependence on and changes in management and failure to retain and attract a sufficient number of skilled personnel; access to funding; and legal proceedings. Some of the risks that could affect the Group s future results and could cause results to differ materially from those expressed in the forward-looking statements are discussed in Section 2 Risk factors. The information contained in this Prospectus, including the information set out under Section 2 Risk factors, identifies additional factors that could affect the Group s financial position, operating results, liquidity and performance. Prospective investors in the Shares are urged to read all Sections of this Prospectus and, in particular, Section 2 Risk factors for a more complete discussion of the factors that could affect the Group s future performance and the industry in which the Group operates when considering an investment in the Company. 47

54 Odfjell Drilling Ltd - Prospectus These forward-looking statements speak only as of the date on which they are made. The Company undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company s behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus. 4.4 Exchange rates The following table sets forth, for the previous five years as indicated, information regarding the average, high, low and period end reference rates for the Norwegian kroner, expressed in NOK per USD, in each case rounded to the nearest three decimal places, based on the daily exchange rate announced by the Central Bank of Norway: Fiscal year Average 1 High Low Period end (through 11 September 2013) Represents the average of the noon buying rates on the last day of each month during the respective period. The following table sets forth, for the previous six months indicated, information regarding the average, high, low and period end reference rates for the Norwegian kroner, expressed in NOK per USD, in each case rounded to the nearest three decimal places, based on the daily exchange rate announced by the Central Bank of Norway: Month Average 1 High Low Period end March April May June July August Through 11 September Represents the average of the noon buying rates each day during the respective period. No representation is made that the NOK amounts have been or could have been converted into USD, or vice versa, at the exchange rates indicated in the tables above or any other exchange rate. 48

55 Odfjell Drilling Ltd - Prospectus 5 REASONS FOR THE OFFERING AND THE LISTING The Company believes that the benefits of the Offering and the Listing include the following: (i) Facilitating a sustainable shareholding structure which supports the Company's long-term strategy. The Selling Shareholder and the Board have decided to apply for the listing of the Company s Shares in order to offer the Selling Shareholder an opportunity to sell all of its shares. After the completion of the Offering, Odfjell Partners Ltd. (which is indirectly controlled by Helene Odfjell) will remain the major shareholder of the Company. The majority shareholder s objective is to be a long-term supportive shareholder to Odfjell Drilling, focused on the long-term value creation of the Company and securing the long-term dividend capacity. (ii) Increasing strategic flexibility and enhancing financing sources for future growth opportunities. To date, the Company has financed its growth strategy through internal resources and believes it will be able to fund its existing growth plans without additional equity financing. The Company will continue to evaluate incremental growth investments and acquisitions and may, as one of the options, decide to raise additional equity financing in order to fund attractive opportunities in the future. (iii) Enhancing the Company s ability to attract talent. The Company believes that its attractiveness as an employer will increase as a publicly listed company as the listing is expected to raise the profile of the Group and thereby improve perceptions of the Group s business and brand with current and potential employees. The ability to attract qualified employees is core to the Company s growth ambitions. 49

56 Odfjell Drilling Ltd - Prospectus 6 DIVIDENDS AND DIVIDEND POLICY 6.1 Dividend policy The Company aims to ensure that shareholder returns reflect the Company s value creation and will consist of both dividends and a positive share price development. The Company will target a long-term dividend annual pay-out representing approximately 30 40% of its net profit on a consolidated basis. Since the Company is in a phase involving considerable investments, there is no plan for dividend payment for the financial year ending 31 December The Company has a high focus on value creation and will have a dividend policy that will preserve the interest of the Company and its shareholders. When deciding whether to declare and pay an annual dividend, the Board of Directors will take into consideration market outlook, potential growth opportunities, contract backlog, cash flow generation, capital expenditure plans and funding requirements whilst maintaining adequate financial flexibility. The Board of Directors may revisit the dividend policy from time to time. The proposal in any year to pay any dividend is further subject to: The limitation, found in the terms of certain loans made to the Group, that the Company may only distribute dividends in an amount up to 50% of its net income (adjusted for any write downs of rigs and after taxes paid) in its previous financial year. Further, there are restrictions on Chloe Marine and Golden Close paying dividends to the Deep Sea Metro joint venture partners. See Section 11.8 Borrowings, loans receivable and contractual obligations ; and Sufficiency of the distributable reserves. For the financial year 2012 the Company declared a dividend of NOK 50 million (equalling to NOK 0.25 per Share). Declared dividends for the financial year 2011 and 2010 were each NOK 45 million, paid in 2012 and 2011, respectively (equalling to NOK per Share each year). 6.2 Legal constraints on the distribution of dividends A Bermuda company may not declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realisable value of the company s assets would thereby be less than its liabilities. Contributed surplus is defined for purposes of section 54 of the Bermuda Companies Act to include the proceeds arising from donated shares, credits resulting from the redemption or conversion of shares at less than the amount set up as nominal capital and donations of cash and other assets to the Company. Under the Bye- Laws, the Board of Directors may declare dividends and distributions without the approval of the general meeting of shareholders. Further, the Company s subsidiaries may be subject to applicable legal constraints on the distribution of dividends in the jurisdiction in which they are incorporated, such as sufficiency of distributable reserves. 6.3 Manner of dividend payments Although any future payments of dividends on the Shares will be denominated in USD, such dividends will be distributed through the VPS in NOK. Any dividend will be paid to the shareholders through the VPS. Investors registered in the VPS whose address is outside Norway and who have not supplied the VPS with details of any NOK account, will however receive dividends by check in their local currency, as exchanged from the NOK amount distributed through the VPS. If it is not practical in the sole opinion of DNB Bank ASA, being the Company's VPS registrar, to issue a check in a local currency, a check will be issued in U.S. dollars. The issuing and mailing of checks will be executed in accordance with the standard procedures of DNB Bank ASA, Foreign Payments Department. The exchange rate(s) that is applied will be DNB Bank ASA's exchange rate on the date and time of day for execution of the exchange for the issuance of cheque. Dividends will be credited automatically to the VPS registered shareholders NOK accounts, or in lieu of such registered NOK account, by check, without the need for shareholders to present documentation proving their ownership of the Shares. 50

57 Odfjell Drilling Ltd - Prospectus 7 INDUSTRY AND MARKET OVERVIEW 7.1 Introduction Odfjell Drilling is an integrated drilling, engineering and well services provider, offering a fleet of mobile offshore drilling units along with engineering services, well services and platform operation services to both onshore and offshore drilling operations, with an offshore focus. 7.2 General industry drivers Growth and demand within the offshore oil and gas services industry are affected by the following key factors: (i) Oil and gas prices and demand: Oil and gas E&P spending is the key driver of demand in the oil and gas services industry. E&P spending is directly linked to the earnings of oil and gas companies which are, in turn, dependent on average oil and gas prices. Volatility in oil prices can therefore reduce the ability of oil and gas companies to budget for increased E&P spending. However, while market expectations of a potential decline in oil prices will affect E&P spending and activity, ultra-deepwater projects, being large projects with longer lead times and long-term outlooks, are less affected by short-term changes in oil price. According to the IEA, global oil demand is expected to increase steadily to 99.7 mb/d in 2035, from 87.4 mb/d in 2011, and the average price of crude oil is predicted to rise to USD 125/barrel (in year 2011 dollars) by 2035 (IEA, World Energy Outlook 2012, 12 November 2012). Non-OECD oil consumption is forecast to average out at approximately 46.5 mb/d in 2014, an increase of 1.4 mb/d (or 3.1%) compared to 2013 and well above the OECD average of 45.5 mb/d. China is forecast to remain the main engine of demand growth in 2014, followed by the rest of Asia and the Middle East, with demand projected to increase by 385 kb/d, 325 kb/d and 225 kb/d, respectively (IEA Oil Market Report, 10 July 2013). (ii) Reserve replacements: The future production capacity of the oil and gas industry depends on the ability of oil and gas companies to maintain a sustainable reserve replacement ratio through the discovery and development of new reservoirs or improvements in oil recovery techniques. Currently, oil and gas companies are barely able to fully replace the hydrocarbons they produce, and the IEA reports that proven reserves of oil worldwide (an indication of the near- to medium-term potential for new production) increased slightly by 1,523 billion barrels, or 3.6%, at the end of 2011, compared to the year before (IEA, World Energy Outlook 2012, 12 November 2012). (iii) Increased emphasis on E&P spending: Oil and gas companies are increasing both their total E&P spending as well as their proportion of E&P spending on offshore activities. According to the IEA (IEA, World Energy Outlook 2012, 12 November 2012), upstream oil and gas investments rose by approximately 8% in 2012 relative to 2011, reaching a new record of USD 619 billion an increase of 20% compared to 2008 and five times the level of investments in The largest growth in E&P spending in recent years has been in deepwater exploration and production, partly driven by the lack of new, large, onshore and shallow water discoveries. The IEA predicts that upstream oil and gas investments will remain high in the coming years, with global investments averaging USD 615 billion per year (IEA, World Energy Outlook 2012, 12 November 2012). Future upstream investments will have an increased offshore focus, as exploration and development continues to move towards harsher and deeper waters. 51

58 billion USD Odfjell Drilling Ltd - Prospectus Offshore E&P spending on drilling and well services worldwide Well service and drilling tools Rigs and drilling contractors Source: Rystad Energy as of 6 September 2013 (iv) Drilling technology and innovation: Recent advances in offshore technology have improved the ability of oil and gas companies to develop reservoirs in deeper waters, and in harsh and more remote locations. A new class of drilling rigs has emerged, with the ability to drill wells of up to 40,000 feet, in water depths of up to 12,000 feet, and with them, new types of subsea construction vessels and production facilities. (v) General political and economic environment: Changes in the political, economic and regulatory environment across regions affect global demand for oil services. The political and regulatory regimes of a country also have a significant impact on the level of oil and gas extraction activity within its territory. Changes in tax rules could also alter the profitability of certain projects and accordingly, E&P spending. (vi) Increased focus on QHSE: Due to the potentially serious consequences of an accident within the offshore oil and gas industry, the industry has developed high standards to mitigate risks associated with QHSE. There has been increased focus on this area after the Macondo incident in 2010, and, to an increasing extent, oil and gas companies will contract only with oil and gas companies that have the procedures and know-how to adequately manage these risks. This trend has increased the barriers to entry in the industry. 7.3 The mobile offshore drilling market Introduction The market for mobile offshore drilling units is commonly divided into segments based on rig type and capabilities with respect to water depths and geographical area of operation. There are three main types of mobile offshore drilling units: semi-submersibles, drillships and jack-ups, and four water depth categories: shallow water (0 to 500 feet), midwater (500 to 3,000 feet), deepwater (3,000 to 7,500 feet) and ultra-deepwater (7,500 feet and more). Mobile offshore drilling units are also designated harsh environment or non-harsh environment, according to the geographical segment in which they are designed to operate (see Section The harsh environment market below). Mobile offshore drilling units are generally marketed on a worldwide basis and are transported between locations through the use of built-in propulsion systems or external rig-moving vessels. In recent years, a large influx of newbuild deliveries has created two further classes of units: modern rigs (fifth and sixth generation rigs) and rigs built prior to The older class of rigs receive lower day rates compared to modern rigs and have poorer utilisation visibility, because contract durations and the lead-time between signing and drilling are shorter. 52

59 USDk/day Odfjell Drilling Ltd - Prospectus Day-rates for semi-submersibles /drillships built before 2000 versus after 2000 (3 months average) Semis/Drillship built before 2000 Semis/Drillship built after 2000 Based on data from IHS Petrodata as of 8 September The ultra-deepwater market Oil and gas companies have increasingly ventured into deepwater regions in their search for new reserves, leading the ultra-deepwater market to experience its strongest period of growth to date. Historically, most ultra-deepwater rigs operated offshore West Africa, Brazil and in the Gulf of Mexico and these areas still account for the majority of the ultra-deepwater rigs currently operating. Ultra-deepwater exploration has also expanded to South East Asia, East Africa as well as China and India. Additionally, oil and gas companies have been moving into Arctic waters offshore Greenland, Alaska, Russia and Norway. Geographical market overview key harsh and deepwater locations Odfjell Drilling locations Deepwater Key regions Harsh environment Source: Company information The ultra-deepwater market is dominated by modern rigs: fifth and sixth generation semi-submersibles and drillships, and is the fastest growing segment in the offshore drilling industry. Industry demand for new and modern rigs has meant that ultra-deepwater units can also be found operating in shallow water to deepwater areas, as most new floaters are built with ultra-deepwater capabilities. Due to the large scale of ultra-deepwater projects, the segment generally benefits from demand visibility and has been relatively resistant to fluctuations in 53

60 Billion boe Odfjell Drilling Ltd - Prospectus E&P spending caused by short-term oil price movement. Its long-term outlook has been boosted by several large discoveries that are being developed into projects with significant drilling intensity. The number of deepwater discoveries has steadily increased over the past decade. Most of these are expected to develop into producing fields. The average lead time from discovery to a producing field is usually 6 9 years, thus development drilling is expected to be one of the key sources of rig demand in the future. Development drilling typically starts 1 2 years prior to well production. Offshore discoveries on increasing water depths fsw fsw fsw fsw Source: Rystad as of 15 February 2013 (fsw: feet of salt water) According to PwC s Africa Oil and Gas Survey of June 2013, Africa is estimated to hold more than 132 billion barrels of proven oil reserves, and produced 9 million barrels per day of crude oil in 2011: 81% of this oil production came from Nigeria, Libya, Algeria, Egypt and Angola. Offshore West Africa is one of the most active ultra-deepwater regions in the world with a large fleet of ultra-deepwater drilling units in operation, with further rigs under construction that are expected to enter the market. Following this success, major oil and gas companies have in recent years directed their attention to East Africa. There is strong growth in this region, and its limited infrastructure is driving demand for support services, such as engineering, equipment rental and well services. Activity in this East Africa is currently focused on exploration drilling. Brazil is another one of the most promising deepwater drilling regions in the world, with an estimated 14 billion barrels of proven oil reserves, according to the IEA (IEA, World Energy Outlook 2012, 12 November 2012). The pre-salt fields (Lula, Cernambi and Guara being the biggest) are expected to drive most of the growth in Brazil s oil production. If the resources in the fields mentioned above are proven, they would increase Brazil s total proven oil reserves by up to two-thirds (IEA, World Energy Outlook 2012, 12 November 2012). According to Petrobras, the Brazilian national oil company, the company will ramp-up its domestic oil production significantly, from current production of 2.5 million barrels per day to 5 million barrels per day by Petrobras has been actively procuring equipment and drilling units to help it achieve this goal, including deepwater and ultra-deepwater drilling rigs. Petrobras has been one of the most active charterers of ultra-deepwater rigs over the last five years. In 2012, Petrobras finalised an order with Sete Brasil and its partners for 29 ultra-deepwater rigs to be built in Brazil. These rigs have each been chartered for 15 years, with delivery scheduled for months after the award. The Macondo incident on 20 April 2010 created short term uncertainties in the oil and gas services industry. After the US government introduced a federal drilling moratorium, a significant number of rig years (meaning the number of days the rigs were operating, divided by the number of days in the period) were lost in the Gulf of Mexico. Drilling activity in the Gulf of Mexico has since resumed, with several new contracts being awarded since the Macondo incident and the region is currently one of the most active ultra-deepwater drilling regions in the world. The global fleet of ultra-deepwater rigs has grown significantly over the past decade. As the graph below illustrates, the fleet has multiplied since

61 USDk/day # of units Odfjell Drilling Ltd - Prospectus Number of ultra-deepwater rigs in the market (including 4 rigs in 2015 ordered by Sete Brasil and partners for 2015 delivery UDW rigs New UDW rigs delivered per year Based on data from IHS Petrodata as of 6 September 2013 Average day-rates for ultra-deepwater rigs fell from their peak of approximately USD 600,000 per day in 2008 and decreased to approximately USD 410,000 in 2010, before steadily increasing again as contracting activity improved. As of 6 September 2013, the market is deemed to be strong, with several ultra-deepwater contracts reported within the range of a high of USD 500,000 per day and a low of USD 600,000 per day. Average day rates for ultra-deepwater fleet (3 months average) Based on data from IHS Petrodata as of 6 September The harsh environment market Oil exploration and development is increasing in colder and more remote areas, such as the Arctic, off of the west coast of Australia and the Falkland Islands. These harsh environment locations are often characterised by low temperatures, rough seas, strong winds, limited daylight and in some cases the challenges of encountering ice. These conditions impose high barriers to entry from an operational perspective, thus suppliers in the harsh environment market have tended to enjoy higher utilisation rates and both longer contract durations and leadtimes compared to other offshore drilling markets. Rigs designed to operate in harsh environments are built to higher specifications than rigs intended for non-harsh environments. They are usually semi-submersibles due to their superior stability in rough seas. These rigs are also equipped with a larger generator capacity for greater thruster power as well as increased lighting and heat-tracing. The derrick and other deck locations are often winterised (meaning working areas on deck are covered and 55

62 # of units USDk/day Odfjell Drilling Ltd - Prospectus sheltered) for a safer working environment. Modern harsh environment rigs are designed to operate in all seasons, ice conditions permitting, whereas older harsh environment rigs cannot work during the winter in certain areas. Because of their specialised features and the need to comply with extensive regulatory requirements, harsh environment rigs cost more to build than rigs intended for non-harsh environments. As harsh environment rigs are more expensive to build, they usually command a premium day rate, as illustrated in the table below. However, day rates will fluctuate depending on the demand for harsh environment rigs. As drilling activity in harsh environments is projected to increase while the pool of suitable rigs remains limited, harsh environment rigs are expected to continue to command premium day rates in the future. Day rates for harsh and non-harsh 3 rd generation and newer semi-submersibles (3 months average) Harsh Env (ex Norway) Non-harsh (ex Norway) Based on data from IHS Petrodata as of 6 September The Norwegian rig market The Norwegian rig market has some of the highest barriers to entry in the drilling industry, as all rigs operating on the NCS need to meet more stringent regulatory requirements and special technical requirements. These requirements have limited the supply of new rigs in Norway, and few newbuilds delivered in recent years have been built according to Norwegian specifications. The historical development and current size of the fleet of semisubmersibles and drillships on the NCS is illustrated below. Due to limited supply of suitable rigs, contract coverage for the semi-submersible fleet in Norway is relatively high, giving companies operating in Norway relatively good visibility on rig utilisation. Fleet of semi-submersibles and drillships in Norway Based on data from IHS Petrodata as of 8 September 2013 From its peak in 2000, Norwegian oil production has declined. To compensate for this declining trend, the number of drilled wells has increased significantly since According to the CEO of Petoro, manager of the Norwegian 56

63 # of wells drilled Odfjell Drilling Ltd - Prospectus Government s oil and gas licenses on the NCS, there is a substantial challenge to secure sufficient rigs to drill production wells for securing the value in existing fields as well as exploration wells (Petoro Annual Results 2012). Continued high drilling activity on the NCS Development wells Exploration wells Source: Norwegian Petroleum Directorate 2012 Some of the largest discoveries on the NCS to date were made in 2011 and 2012: the major Johan Sverdrup oil and gas field in the North Sea and the Skrugard and Havis discoveries in the Barents Sea. Drilling contracts in Norway generally have shown longer durations and longer lead times compared to other comparable offshore drilling markets. Most of the recent awarded day rates for modern and high-specification semi-submersibles in Norway range from USD 480,000 USD 580,000, depending on contract type and length. Operating expense and tax levels, which affect the level of day rates, vary significantly across different markets and the Company believes that the UK is the closest peer market to the Norwegian rig market, although operating expenses generally are significantly lower in the UK due to the Norwegian crew rotation requirements. Recently, there has been an increased demand for standard semi-submersibles in the UK which has led to day-rates higher than USD 350,000. As a result of certain changes brought in by the UK government, there is now greater certainty regarding taxation and allowances on the UK Continental Shelf (the UKCS ) going forward, which is expected to result in a decrease in decommissioning activity on the UKCS. The rig market in the UK works as an alternative market for rigs operating in Norway. It is less complicated to relocate a rig operating in Norway to the UKCS than it is to relocate a rig from the UKCS to the NCS, due to the high barriers to entry in the NCS. It is expected that there will be a continued need for fleet renewal in Norway over the next few years, especially since the Macondo incident has highlighted the importance of having modern equipment. Almost 50% of the floaters operating in Norway are more than 20 years old and the average age of the floater fleet is close to 19 years. The lifetime of a rig is typically years, although major upgrades and maintenance projects can significantly extend this. 57

64 # of units # of units Odfjell Drilling Ltd - Prospectus Age profile of floaters in Norway Based on data from IHS Petrodata as of 5 September The newbuild market As shown in the chart below, very few new rigs were ordered between late 2008 and late A large number of orders were subsequently placed in the fourth quarter of 2010 and the first quarter of 2011, mostly by established drillers. Since the end of 2011, newbuild activity has been relatively high and Sete Brasil, together with partners, has placed orders for 29 rigs to be built in Brazil. Time of order for rig newbuilds (excluding 29 units ordered through Sete Brasil and its partners) Semisubmersible Drillship Based on data from IHS Petrodata as of 6 September 2013 Newbuild prices have come down from their peak in mid The yard cost for a standard ultra-deepwater drillship or semi-submersible can vary considerably depending on the equipment and specifications. The latest orders of ultra-deepwater drilling units have generally cost between USD 530 million and USD 560 million in yard cost. A yard cost of between USD 530 million and USD 560 million typically translates into a total cost of between USD 600 million and USD 650 million, which includes the cost of, among other things, capitalised interest, spare parts, contingency and construction management. Harsh-environment semi-submersibles are more expensive to build than drillships as they have more complex specifications. 58

65 # of units Odfjell Drilling Ltd - Prospectus The graph below illustrates the age profile of the floater fleet. Age profile of floater fleet (Sete Brasil rigs included with expected delivery starting 2015 onwards) Semisubmersible Drillship Based on data from IHS Petrodata as of 6 September The well services market Odfjell Drilling s Well Services segment provides a wide range of services to the drilling industry, including tubular and casing running services, drill tool rental, fishing services and well bore cleaning. The clients and consumers for these service areas are oil and gas companies involved in drilling operations, both onshore and offshore. Tubular and casing running services involve the handling and installation of multiple joints of pipe to establish a closed and controllable perimeter for the well (the casing) and the installation of a smaller pipe inside the wellbore to transport oil and gas from the reservoir to the surface (the production string). The casing of a wellbore isolates the wellbore from the surrounding geologic formations and water table, provides structural integrity and pressure resistance, and allows well operators to target specific zones for production. Efficient tubular services are vital to the management of the overall cost of a well, and are therefore an important part of the process of producing oil and gas. The well services industry is subject to the same market drivers that affect the offshore oil and gas services industry generally. See Section 7.2 General industry drivers. Well service providers also supply services to onshore drilling operations, thus they have access to a considerably larger market than just the offshore drilling sector. An increased emphasis on improving safety standards and reducing the risk of pollution has increased oil and gas companies focus on well integrity, particularly in offshore environments. Given the central role casing and tubular running services play in ensuring the structural integrity, reliability and safety of a well, the quality and reputation of companies that provide these services are becoming increasingly important to winning contracts. As of 6 September 2013, Rystad estimates that USD 28 billion will be spent on offshore well service activities in 2013, representing approximately 8% of total offshore E&P spending (USD 358 billion) in As wells become more complex and are drilled to greater depths, tubular services must provide solutions to increasingly challenging technical problems. Onshore wells are being constructed with longer horizontal laterals and deviated well bores, while offshore drilling is being carried out in deeper waters and to greater well depths. This requires longer and heavier strings, as well as tubular handling equipment capable of accommodating a more elaborate spectrum of equipment and hydraulic control lines deployed inside the well. These complicated drilling methods require new and more complex tubular services which are causing suppliers to develop new techniques and specialised tools to satisfy client demand. The costs of deepwater drilling have increased with their complexity. Although several recent fixtures of ultradeepwater rigs have been reported just below or above USD 600,000 per day, the total cost per day of drilling offshore, after including all related services, frequently exceeds USD 1,000,000. Consequently, it is important for 59

66 billion USD Billion USD Odfjell Drilling Ltd - Prospectus oil and gas companies to have efficient tubular services in order to minimise cost and maximise productivity. Oil companies generally spend more money on tubular services for more complex offshore wells compared to onshore. Offshore well service spending by geographical areas Europe South America Africa Other Source: Rystad as of 6 September 2013 The casing and tubular running services sector is composed of a few large international service companies as well as smaller, local companies that operate in a limited geographic area. 7.5 The drilling and technology market Odfjell Drilling engages in operations of offshore drilling platforms and the provision of engineering and support services through its Drilling & Technology business segment. The industry drivers described in Section 7.2 General industry drivers also apply to this market. On the NCS, Statoil is the leading operator: the rigs it operates account for the majority of all oil and gas production on the NCS. Demand for drilling and technology services on the NCS is thus largely dependent on Statoil s E&P spending. Offshore E&P spending on maintenance on the NCS by Statoil 3,0 2,5 2,0 1,5 1,0 0,5 0, Capex Opex Source: Rystad as of 6 September The platform drilling market Onshore drilling on a producing field is carried out from fixed platforms, whereas offshore drilling on a producing field may be carried out through the use of either mobile offshore drilling units or fixed or floating platforms with built-in drilling equipment. Such equipment also enables the production facility to conduct maintenance on existing wells without the use of mobile offshore drilling units. Platform drilling services relate to the provision of a 60

67 Odfjell Drilling Ltd - Prospectus specialised crew to operate the drilling equipment on board fixed or floating platforms. This crew is also responsible for the maintenance of all equipment relating to drilling operations. The job of the platform drilling crew is very similar to the work performed by the drilling crew on mobile offshore drilling units, with some differences depending on whether the wellhead is dry or submerged, and on the drilling equipment, which may be automatic or manual. On facilities with dry wellheads, the blowout preventer (BOP) is located on deck, whereas on facilities with wellheads located on the seabed, the BOP is placed on the wellhead and is often referred to as a subsea BOP. The drilling equipment associated with subsea BOPs is very similar to the equipment used on floating drilling rigs, while the equipment for surface located BOPs is similar to the equipment used on jack-ups and onshore drilling rigs. Most of the production facilities that Odfjell Drilling services are fixed platforms that stand on the seabed and have surface BOPs. There are a variety of offshore production platforms that have been built with their own drilling equipment. These include Spars, Tension Leg Platforms (TLPs), semi-submersibles and Floating Production Storage and Offloading units (FPSOs). Whether a production facility is built with its own drilling equipment depends on a variety of factors. Water depth is an important factor: it is more common to install drilling equipment on a fixed production plant for a large field than on a floating deepwater installation. The size of the field and the expected number of wells to be drilled is another factor. The characteristics of the reservoir and the accessibility of hydrocarbons from the production plant are also important parameters. The graph below shows how many of the common types of floating deepwater production platforms operating worldwide are built with its own drilling equipment. Number of production units worldwide (with and without drilling capabilities) FPSO FSO Semi Spar Other TLP Total # of units No drilling module With drilling module with drilling module 78 Based on data from IHS Petrodata FPSO base as of 9 September 2013 The demand for platform drilling services is directly linked to the number of active platform drilling contracts in the market. A stabile, high oil price that will support the aim of oil and gas companies to maintain production on their existing fields and new technology that increases overall recovery rates are also important drivers for the platform drilling services industry. The number of new production platforms built with their own drilling equipment also affects the level of activity in the market. The market for platform drilling contracts on the UKCS and NCS has been relatively stable and predictable in recent years, as illustrated in the chart below. Further growth is expected as there is a pipeline of new contracts for drilling in locations such as the Mariner, Bressay, Clair Ridge and Gudrun fields. The platform drilling services market on the NCS and UKCS is dominated by KCA Deutag, Archer and Odfjell Drilling. Outside the North Sea, the industry is serviced by several smaller companies, often with local focus. KCA Deutag is the world s largest platform drilling company and has operations all over the world. 61

68 Odfjell Drilling Ltd - Prospectus The engineering market There is demand for engineering services at all stages of offshore drilling units life cycle. Engineering services are requested for the design of newbuilds as well as for the modification and maintenance of existing offshore drilling units, both fixed and floating. Engineering expertise may also be needed when units are to be decommissioned. Demand for engineering services is thus affected by several factors, but foremost the level of activity in the offshore oil and gas industry. For Odfjell Drilling, the activity in the North Sea is of particular importance as this is a core market for the Company. The need for modifications to existing rigs and platforms is dependent on the age of the respective rig or platform, changing reservoir characteristics for the relevant fields and general maintenance requirements. As a large number of oil and gas drilling units approach the end of their designated life expectancy, life enhancement programmes or decommissioning projects are other sources of demand for engineering services. Engineering services within the offshore oil and gas industry are either provided for a specific project or to a particular client over a period of time. Projects provided over a period of time typically relate to maintenance, to ensure offshore drilling equipment is in the condition stipulated by relevant regulations, or such projects may be provided under frame agreements where the engineering company is tasked with the assessment and upgrading of platforms. Project specific engineering services typically have a more defined scope, and may relate to a specific modification on a rig, a newbuild project or preparations for a yard stay. The offshore engineering market is predominantly serviced by specialised engineering companies and yards specialising in the maintenance, modification and upgrade of offshore drilling and production units. 62

69 Odfjell Drilling Ltd - Prospectus 8 BUSINESS OF THE GROUP 8.1 Business overview Odfjell Drilling is an integrated drilling, engineering and well services provider with more than 40 years of experience focusing on the offshore harsh environment and deepwater markets. Today the Group has approximately 3,100 employees operating in more than 20 countries worldwide. Odfjell Drilling operates through three segments: Mobile Offshore Drilling Units (MODU), Well Services and Drilling & Technology. Odfjell Drilling s clients are primarily major oil and gas companies. Below is an overview of the segments of Odfjell Drilling: The following table sets forth each segment s revenues, EBITDA, plant, property and equipment (PP&E) and number of employees for the year ended 31 December Year ended 31 December 2012 MODU Well Services Drilling & Technology Revenues (USD millions) EBITDA (USD millions) PP&E (USD millions)... 2, Employees (as of 30 June 2013)... 1, ,520 1 Including 40% of Deep Sea Metro. 2 Includes property, plant and equipment for the Drilling Units, periodic maintenance and construction in progress and 40% of non-current assets of Deep Sea Metro. 3 Includes Deepsea Metro II personnel in Brazil Mobile Offshore Drilling Units (MODU) In the MODU segment, the Group operates drilling units owned by the Group and by third parties. Odfjell Drilling currently owns the three harsh environment semisubmersible drilling rigs Deepsea Atlantic, Deepsea Stavanger and Deepsea Bergen. Deepsea Atlantic and Deepsea Stavanger were delivered in 2009 and 2010, respectively, and are both sixth-generation ultra-deepwater semisubmersible drilling rigs. Deepsea Bergen is a third-generation semisubmersible drilling rig built in 1983 and has been continually upgraded to meet changes in regulatory requirements and client demands. Further, through a joint venture, Deep Sea Metro, the Group has a 40% ownership interest in two sixth-generation ultra-deepwater drillships, Deepsea Metro I and Deepsea Metro II, which were delivered in The Group charters its drillings rigs through a mixture of medium- and long-term contracts with major oil and gas companies, which include Statoil, BP, BG and Petrobras. The Group has one harsh environment ultra-deepwater semisubmersible drilling rig under construction with expected delivery from DSME in May The rig will be named Deepsea Aberdeen and is contracted to BP Exploration for a period of seven years with expected commencement of operations in the fourth quarter of In addition, the Group holds a 50% ownership interest in Odfjell Galvão B.V., a joint-venture company established with Galvão Oil and Gas Holding B.V. Odfjell Galvão B.V. holds 20% of the shares in three Dutch special purpose companies, each of which has entered into an engineering, procurement and construction contract with Dolphin Rig 7 PTE LTD, Dolphin Rig 3 PTE LTD and Dolphin Rig 5 PTE LTD, respectively, for the construction of a drillship mainly at Estaleiro Jurong Aracruz in Brazil. A guarantee has been issued by the Jurong Shipyard PTE LTD in favour of the three Dutch special purpose companies for the prompt payment and performance of all covenants, agreements, 63

70 Odfjell Drilling Ltd - Prospectus obligations and liabilities of the three Dolphin Rig entities. All three drillships are based on the Jurong shipyard s proprietary Espadon drillship design. The shipyard is in the process of constructing a prototype of this drillship at their own risk. The drillship is currently being constructed in Singapore, following which it will be moved to Brazil for completion in order to satisfy local content requirements in Brazil. The drillships are expected to be delivered in July 2016 (Guarapari), August 2017 (Itaoca) and December 2018 (Siri). The remaining 80% ownership of these companies is held by Sete Brasil. Each of the three special purpose companies has entered into a fifteen-year rig contract with Petrobras. The drillships are part of the Project Sete newbuilding programme, pursuant to which Sete Brasil will build 29 rigs for Petrobras in Brazil. As of 30 June 2013, USD 6.4 million of Odfjell Drilling s USD 45 million investment commitment in Odfjell Galvão B.V. has been paid. The remainder is expected to be paid over the period up to The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups, mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. Odfjell Drilling is currently responsible for the management of the following mobile offshore drilling units owned by third parties or owned jointly by the Group and third parties: (i) Deepsea Metro I and Deepsea Metro II and (ii) Island Innovator. In addition, Odfjell Galvão Perfurações Ltda, a subsidiary of Odfjell Galvão B.V., is to provide management services to Petrobras in connection with the fifteen-year rig contracts on the three drillships to be delivered under the Brazilian joint-venture mentioned above. Odfjell Drilling only offers management services to rigs owned by third parties to the extent such rigs will not directly compete with rigs owned by Odfjell Drilling. Below is an overview of Odfjell Drilling s history in MODU management: Controlled units Driller Saga Bergen Trym Delta Atlantic Stavanger Metro I Metro II Aberdeen Third party Gulnare Amazone Matdrill Cicero Viking Driller Pacific Petrolia Chris Chenery Omega Stardrill Duchess Ice Chancellorville Lomond Southern Cross Pioneer Trym Delta Freedom Intrepid Itaoca Siri Guarapari Island Innovator Dalian Developer Well Services The Well Services segment provides casing and tubular running services (both automated and conventional) as well as drilling tool and tubular rental services, both for exploration wells and for production purposes. The Group provides services in more than 20 countries, from 11 bases in Europe, Asia and the Middle East, with particular focus on the offshore markets in the North Sea and the Middle East. In total, the Group provides well services to more than 50 drilling rigs. Odfjell Drilling has more than 30 years of experience in the global well services market, and the Company is of the opinion that it is one of the leaders in remote operated handling equipment for casing and tubular running services. In the drilling tool rental business, the Group benefits from a well-developed supplier base, and offers a large inventory of modern and high quality drilling tools and equipment, which have been manufactured and certified in accordance with applicable industry standards. It aims to be a single supply source for drillers and operators and also has the capability to design custom-made equipment. The Well Services segment currently serves approximately 50 clients, of which 10 constitute material volumes Drilling & Technology The Drilling & Technology segment is divided into two business areas: Platform Drilling and Technology. The main service offering of the Platform Drilling business area is production drilling and well completion on client s rigs. Other types of services offered are slot recovery, plug and abandonment, work-overs and maintenance activities. In this business area, the Group offers platform drilling services on both fixed production platforms and on floating production platforms with subsea blowout preventers (BOPs). The Group has 35 years of experience in platform drilling operations and has been one of the leading platform drilling service providers in the North Sea since the 1980s, focusing on the high-end of the market for platform drilling services. Within the Platform Drilling business area, the Group s clients are Statoil, BP, Talisman, TAQA and Wintershall (operations under the contract with Wintershall are expected to commence in October 2013). 64

71 Odfjell Drilling Ltd - Prospectus The Technology business area offers engineering services ranging from design and engineering to building supervision, project management and operational support for newbuild projects, SPS certifications and yard stays. The Technology business area performs smaller or medium sized stand alone projects, including engineering, procurement, construction and installation projects. The services are provided internally and to external clients that represent a diverse group, consisting mainly of owners of mobile offshore drilling units and oil and gas companies. The Technology business area has a successful track record of MODU newbuild projects and yard stays spanning 40 years. It also occupies a strong position in the North Sea market. With respect to newbuild projects, the Group currently provides engineering services mainly to Odfjell Drilling s own units (Deepsea Atlantic ( ), Deepsea Stavanger ( ), Deepsea Metro I ( ), Deepsea Metro II ( ) and Deepsea Aberdeen (2012 present)). With respect to yard stays, the Technology business area provides services to drilling contractors and to both internal and external clients (e.g. the Drilling Units, Songa Trym ( ), Songa Delta ( ) and Island Innovator ( )). The Technology business area has operations in the North Sea, Singapore, the Philippines, South Korea, Brazil, Angola and Tanzania and has approximately 400 employees and 90 contractors in total. Its offices are located close to its key clients in Norway (approximately 290 employees and 60 contractors), the UK (approximately 10 employees and 25 contractors) and the Philippines (approximately 50 employees). Since 1973, the Group has been successfully involved in 31 newbuilding projects and more than 70 commissioning, upgrade and renewal projects on fixed and floating drilling units. The Group holds a 50% ownership interest in Ross Holding AS, the parent company of Ross Offshore AS, which is a provider of well and reservoir management services, including carbon storage. The joint venture was formed in connection with Odfjell Drilling s sale of Odfjell Well Management AS to Ross Offshore AS in See Section 8.4 History. The Group also holds a 50% ownership interest in PSW Group AS, a drilling and subsea service provider. 8.2 Competitive strengths An experienced, integrated and safe drilling service provider The Group is an integrated drilling services provider, building on experience and expertise developed during its 40- year operating history of delivering an integrated portfolio of complementary drilling and engineering services to its clients. The Company is of the opinion that its integrated business model provides the Group with a competitive advantage in its core markets due to its expertise in multiple areas of drilling services, its integrated operations and its large organisational size. The Group has extensive experience in harsh environment and deepwater drilling. In particular, the Company has a strong footprint on the NCS, which is one of the most demanding offshore markets with high barriers to entry due to stringent regulatory and technical requirements. The Group has a long-standing and strong relationship with Statoil, the major oil and gas company on the NCS, dating back to Odfjell Drilling s strong operational track record is further evidenced by the Group s ability to maintain relationships with other major oil and gas clients such as BP, Petrobras and BG through long-term contracts. For example, following the agreement for the first rig contract entered into with BP in 1977 regarding the rig Deepsea Saga, the Group has secured several contracts with BP across all of its segments. Odfjell Drilling has maintained these relationships in its core markets and as it has pursued global expansion into Brazil and Africa. Operationally, the Group not only has an advanced harsh environment and ultra-deepwater drilling fleet, the Group s Well Services and Drilling & Technology segments are also focused on harsh environment and ultradeepwater areas, thereby allowing the Group to support its clients in challenging operations through complementary services. The Company believes that its operational experience, capabilities and expertise in harsh environments and complex wells across all three of its segments provide a competitive advantage as the drilling industry moves towards regions with harsher environments, deeper waters and more complex wells. The Group has also developed and maintained a strong QHSE culture and performance. After the Macondo incident, there has been an increased focus in QHSE issues by regulators. As a result, many major oil and gas companies have imposed increasingly stringent QHSE rules on their contractors, especially in challenging regions where the QHSE risks are higher. Odfjell Drilling is pre-qualified to tender for a number of potential clients where QHSE track record is one of the key criteria taken into consideration. Furthermore, Odfjell Drilling has been awarded Talisman s Best Performance by Key Contractor Partner in 2010 and BP s Key Supplier Safety Award in December 2012 and was the first operator to enter into a deepwater drilling contract with BP after the Macondo incident. The Company 65

72 Odfjell Drilling Ltd - Prospectus is of the opinion that it benefits from its strong QHSE track record and standards when competing for new contracts Modern and advanced fleet of ultra-deepwater and harsh environment drilling units Odfjell Drilling operates a modern and advanced harsh environment and ultra-deepwater drilling fleet. The semisubmersible drilling rigs Deepsea Atlantic and Deepsea Stavanger are, and the newbuild semisubmersible drilling rig Deepsea Aberdeen will be, capable of operating in ultra-deepwater and harsh environments. The midwater semisubmersible drilling rig Deepsea Bergen is capable of operating in harsh environments. The drillships Deepsea Metro I and Deepsea Metro II are sister vessels, and Deepsea Atlantic and Deepsea Stavanger are sister rigs. Further, Deepsea Aberdeen will have the same design as Deepsea Atlantic and Deepsea Stavanger. The similarity of the Drilling Units allows for interoperability among crews and operating systems, which may allow members of the Group s crews to serve interchangeably amongst the sister units. Additionally, the similarity in technical specifications and equipment makes spare parts interchangeable amongst the sister units, reducing the capital requirements associated with keeping spare parts in stock and lowering maintenance and supply chain costs. The Company believes that the relative uniformity of the MODU assets and efficient rig management systems allow Odfjell Drilling to operate with a competitive cost structure and improved efficiency. The Group s Well Services and Drilling & Technology segments are well-suited to support efficient operations of the MODU assets Strong well services and engineering competence with demonstrated project execution capabilities The Group is one of the leading providers in the market for tubular running services. The Group s Well Services segment has a technologically advanced product and service portfolio, which includes automated tubular running services, remote operated handling equipment and a rental business with a large inventory of down-hole tools. The Company believes that its Rental Equipment is among the most modern in the industry and has been manufactured to high industry standards. The Well Services segment also has a proven track record of establishing and developing new services and business from in-house technological developments, joint developments with external parties and from being an early adopter of new commercially available technology. For example, the new generation, fully mechanical, Casing Running Tool (CRTi) has had a positive impact on the Group s casing operations by reducing the number of required personnel, saving rig time and improving safety by eliminating the need for personnel presence in high-risk working areas on the drill floor. The CRTi is also expected to increase the success rate of setting casing through problem zones. The technological achievements of the Technology business area have led to improved quality and safety results in its operations, and have reduced the impact of its operations on the environment. The Well Services segment has demonstrated steady revenue growth (CAGR of 12% in the period , with an average annual EBITDA margin of 44% during the same period) and has historically provided consistent cash flow to the Group. The Company foresees growth opportunities in its Well Services segment, with its expanding client base and its Rental Equipment supplied in more than 20 countries providing a basis for growth. The Well Services segment is a key element of the Group s strategy of providing integrated drilling services to clients. The segment has expanded gradually to markets such as Africa, Brazil and the Middle East, and expects to find further growth opportunities by following clients from other segments to new regions. Odfjell Drilling has more than 400 skilled engineers (including 90 contractors). The engineers support all three segments; their services include newbuilding supervision, project management, surveys and upgrading in the MODU segment, detail engineering related to Rental Equipment and remote operated casing services in the Well Services segment and upgrading or maintenance of drilling equipment and general modifications in the Drilling & Technology segment. Since 1973, the Group has been successfully involved in 31 newbuilding projects, more than 70 commissioning, upgrade and renewal projects on fixed and floating drilling units, and has implemented innovative design and technology with core expertise within harsh environment and deepwater drilling operations. For example, the Group has introduced innovative technologies such as integrated onshore support centres with real-time transfer of operational and technical data between the offshore drilling units and the onshore support centres, which facilitate the movement of personnel from offshore to onshore, resulting in more accurate and efficient support to the offshore operations and projects. These capabilities are important for running cost-efficient operations on the platforms in the Drilling & Technology segment and for the MODU segment where the engineering capabilities of the Group allow the Group to take delivery of drilling units and operate them in an efficient manner. 66

73 Odfjell Drilling Ltd - Prospectus The Group is a leading provider of fixed platform drilling services for rigs located on the NCS and UKCS. Currently, the Group has a large number of contracts in its Drilling & Technology segment. Notably it was awarded the maximum number of contracts allowed to be awarded to a single contractor from Statoil in The average contract length (including optional periods) remaining as of 30 June 2013 for the Group s Drilling & Technology segment was 8.7 years per platform. As contracts for 10 out of 20 platforms are still in their first year of operation or have not started as of 30 June 2013, the Drilling & Technology segment is expected to experience a sustained and high level of activity in the coming years. In the past, the Group has been able to add and sell other services under its contracts and thereby achieve greater economies of scale through more efficient usage of overhead and support functions. The Company intends to build on these experiences to achieve greater cost-efficiencies in the future. The Group s multiple contact points with its clients across its three segments provide cross selling opportunities. For example, Odfjell Drilling has been awarded several contracts with BP across its three segments throughout their long-standing relationship: Rig contract for Deepsea Saga awarded in 1977 (MODU); Platform drilling contract on the Gyda platform awarded in 1989 (Drilling & Technology); Rig contract for Deepsea Duchess awarded in 1992 (MODU); Well intervention contract on the Gyda and Ula platform awarded in 2002 (Well Services); Rig contract for Deepsea Bergen awarded in 2003 (MODU); Well intervention contract on several UK fields awarded in 2003 (Well Services); Platform drilling contract in the UK sector awarded in 2009 (Drilling & Technology); Rig contract for Deepsea Stavanger awarded in 2011 (MODU); and Rig contract for Deepsea Aberdeen awarded in 2012 (MODU). The same strategy has been followed with other key clients such as Shell, Statoil and BG Group who are the Group s clients across several segments Favourable market dynamics with key Odfjell Drilling strengths matching underlying growth drivers The global nature of the Group s organisation benefits it by affording the Group: (i) the ability to serve clients in several geographic locations; (ii) multiple revenue sources; (iii) increased flexibility in asset deployment; (iv) the ability to expand segment operations through existing relationships in other locations; and (v) the ability to use its experience in the challenging North Sea basin which is relevant as key growth areas globally are expected to be in challenging regions. Further, Odfjell Drilling is well-placed to respond to certain key trends in the offshore drilling industry: Oil and gas companies are seeking to drill deeper wells in deeper water and in harsher environments Odfjell Drilling has an advanced fleet of ultra-deepwater and harsh environment Drilling Units; Drilling operations are increasing in complexity, and are taking place in more challenging reservoirs Odfjell Drilling has multiple drilling competencies and strong engineering capabilities; Oil and gas companies are demanding more efficient operations to reduce total well costs Odfjell Drilling is increasing its automated operations across all of its segments; There is increasing focus on technology, innovation and the integration of services Odfjell Drilling has a reputation for quick implementation of new technologies; and 67

74 Odfjell Drilling Ltd - Prospectus Strong focus on QHSE and an increasingly demanding regulatory climate Odfjell Drilling has a strong QHSE track record, evidenced by its strategic partnerships with BP and Statoil for improved, safer and more efficient drilling operations Solid financial profile with diversified and predictable cash flow Odfjell Drilling has a mix of long- and medium-term contracts within the MODU segment and the Platform Drilling business area with an order backlog as of 30 June 2013 of USD 5.7 billion including priced option periods, and USD 3.4 billion excluding priced option periods. Backlog is not calculated for the Group s Well Services segment, the Technology business area or the rig management contracts in the MODU segment. This backlog provides the Group with cash flow visibility. The Group s mix of long- and medium-term contracts also provides upside potential if the Group is able to obtain new contracts upon expiration of old contracts and the drilling market remains strong. In addition, the Group s presence in the engineering, well services and third-party rig management services sectors helps provide multiple sources of income from segments, thereby providing more stable cash flow and lower volatility compared to the MODU segment. The Group s MODU segment, consisting of five drilling units, has been able to ensure a utilisation rate of approximately 93% for the five drilling units from 1 January 2013 until 30 June See Section Revenue generation. Deepsea Aberdeen is expected to commence its contract with BP in the fourth quarter of 2014 and contribute to an increase in EBITDA thereafter. Odfjell Drilling generally had good performance in the first half of 2013 with growth in EBITDA from all segments compared to the first half of Highly experienced organisation with reputable and experienced management team The Group s senior management team has extensive experience in the oil and gas industry, and particularly in oilfield services, drilling and engineering, both at the corporate and divisional level, with an average of 24 years of experience. In addition, the Group has developed significant human capital throughout the organisation based on its long history and strong ability to attract and retain competent personnel as a result of its reputation as an attractive employer. Through the Group s employee development programmes, a strong QHSE culture has been established, which the Company believes is a strong competitive advantage. The Company believes that the management team s experience, technical expertise and strong client relationships, together with its continued investments in the Group s employees, enhance its ability to deliver superior service to clients and operate effectively on a global basis. 8.3 Overall strategy The Group has developed an overall business strategy that includes the following elements: Continue to focus on the harsh environment and ultra-deepwater markets As a result of an increase in long-term demand for oil and gas and the depletion of existing reservoirs, it is expected that offshore drilling activities will increasingly move towards the more under-developed regions which are generally characterised by harsher environments and deeper waters. The Group s strategic goal is to be the preferred partner for drilling operations, engineering projects and well services in the harsh environment market and selected ultra-deepwater markets. In support of this strategy, the Group s MODU segment will take delivery of a new harsh environment ultra-deepwater semisubmersible drilling rig in May 2014, and continue to increase technical expertise and capabilities operating in these regions in the Drilling & Technology and Well Services segments Increase cost efficiencies without compromising on health and safety standards The Group is pursuing ways to increase cost efficiencies and it intends to continue to do so without compromising its QHSE standards. The Group has introduced several initiatives to save costs including pursuing greater operational integration by moving offshore positions onshore and selected onshore positions to lower cost countries. For example, the Group has approximately 50 employees in the Philippines providing engineering and support functions. As a large drilling services provider, the Group will continue to look for synergies by standardising procedures, technology, systems and controls. The Company also expects to benefit from economies of scale due to the relative uniformity of the fleet in combination with business expansion in geographical areas where the Group is already present Prudent expansion Historically, Odfjell Drilling has expanded its business in a prudent and conservative manner and the Company expects to continue pursuing growth that is sustainable and within acceptable risk parameters. The Company is 68

75 Odfjell Drilling Ltd - Prospectus aiming for organic expansion within all three of its segments, but intends to enter new markets by pursuing a prudent growth strategy which may be achieved through joint ventures with local partners in order to reduce risk and also to leverage local partners expertise operating in the market. The Company intends to promote all three segments and capitalise on cross-selling opportunities when expanding and entering into new markets. As an example, following the first rig contract entered into with BP in 1977 regarding the rig Deepsea Saga, the Group has secured several contracts with BP across all of its segments. Further, the Company intends to grow its MODU fleet by ordering additional rigs to the extent that it is able to secure acceptable advance contracts or is following advanced leads or discussions with strong, credit-worthy clients and the Company has appropriate balance sheet capacity to accommodate such projects. The Company does not intend to order additional MODU rigs on a speculative basis. For example, the Group commenced the construction of Deepsea Aberdeen after entering into a rig contract with BP. The Company is of the opinion that the Listing will enhance the Group s ability to pursue this strategy by broadening its investor base and providing it with additional means to finance expansion Achieve a balanced portfolio that includes a diversity of clients, a mix of medium- and long-term contracts, and growth across all of its segments All of the Drilling Units are contracted to major oil and gas companies such as Statoil, BP, Petrobras and BG. Across the Group s Drilling & Technology and Well Services segments, the core client base includes Statoil, BP, Talisman, Shell, Schlumberger and Halliburton. The Company intends to focus on building strong long-term relationships with a diverse range of oil and gas and service companies who can benefit from the Group s wide service offering. In addition to having a diverse and strong client base, the Company intends to maintain a balanced mix of medium- and long-term contractual periods in order to secure more predictable earnings as well as the capacity to react to and benefit from market improvements. As the three segments provide the Group with different strengths and exposure to market risks, the Company intends to grow its three segments proportionally going forward. While the Group s MODU segment requires a high initial capital investment and exposes the Group to greater price volatility when contracts are renegotiated, the Drilling & Technology and Well Services segments are less capital intensive and provide the Group with a steadier source of income with relatively lower market risks. The diversity of segments provides the Group with a competitive advantage as an integrated drilling service provider, and also allows the Group to manage its business and market risks more efficiently. 8.4 History 8 February 2013 marked the 40-year anniversary since the Company s predecessor was founded. Odfjell Drilling can, however, trace its roots back to 1914, when the shipping company Odfjell A/S was first established, developing into an industry leader in the chemical tankers shipping industry. Towards the end of the 1960s, the Odfjell family decided to construct a semisubmersible drilling rig in Norway, built and funded by Norwegians, as the activity in the oil industry was growing rapidly. In October 1971, the Odfjell family led a Norwegian investment group that formed the company Deep Sea Drilling Company A/S. The Aker group was initially a key partner of Odfjell Drilling, as its first construction contract was signed with Aker. After meeting several oil companies, a drilling contract was agreed with ELF in Paris on 15 January 1973, and the rig was delivered on 15 February This contract breakthrough and subsequent successful newbuild development, led to the establishment of Odfjell Drilling and Consulting Company A/S, which was later renamed Odfjell Drilling A/S, on 8 February When the Statfjord A platform was built, Odfjell Drilling rented its core machinery to the operating company, Mobil. Based on its past experience, Odfjell Drilling was able to build, own and operate drilling facilities for Mobil s new and prestigious Statfjord B platform in This was the first platform drilling contract ever awarded to a Norwegian company. In the years that followed, Odfjell Drilling established services in casing handling, tool rental and maintenance of drilling equipment, and well maintenance and engineering services. In an industry that was changing rapidly, the Group diversified its services to maintain a foothold in several business and geographical areas. In 1977, Odfjell Drilling established an office in the UK with the aim to manage its business on the UKCS. The Group s presence in the UK has gradually increased over the years. In the 1980s, Odfjell Drilling acquired ownership of several drilling rig projects in Asia. Accordingly, Odfjell Drilling Asia Pte Ltd was established in Singapore with the responsibility to manage the Group s involvement in ten 69

76 Odfjell Drilling Ltd - Prospectus different rigs and drillships that were active in Southeast Asia. In parallel with the projects in Asia, the Group also had the drilling rig Omega offshore South Africa, and further had presence in Italy, Benin and Libya. The Group s well service division secured contracts in the Netherlands, the UK and Canada in the 1980s, and, as its business grew geographically, the services it offered were managed from offices and bases in 20 countries across Europe, Africa and Asia. Today, several international contracts are managed from the office in Dubai, UAE. During 2002 and 2003, a new business was established in Aberdeen, UK to manage new platform drilling contracts for fixed installations. In recent years, the Group has succeeded in its strategic establishment in Brazil and a new office in Rio de Janeiro today monitors drilling activities in Brazil. With drilling activity in Europe, Africa and America, and well service activities also in Asia, Odfjell Drilling has established a global presence. In recent years, the Group has completed several material transactions, including: the listing of Odfjell Invest Ltd. (a jack-up drilling company) in 2004 (divested in 2005); the listing of the second Odfjell Invest Ltd. (a company owning semisubmersible drilling rigs) in 2006 (the company was delisted in 2009 and became wholly-owned by Odfjell Drilling in 2010); the sale of the offshore mobile drilling units Deepsea Trym and Deepsea Delta in 2007 and 2008, respectively; the sale of Odfjell Consulting AS in 2010; the sale of Odfjell Well Management AS in 2011 and the sale of Deep Sea Mooring AS and related mooring equipment in These dispositions have been part of the Group s strategy to complete a significant fleet renewal in which focus has shifted from mid-water drilling rigs to drilling rigs capable of ultra-deepwater drilling in addition to adjustment of its portfolio of services in order to meet changing market conditions. Throughout the Group s 40-year-long history, Odfjell Drilling has owned many different types of rigs, from jack-ups to floating rigs and drillships. Over the past few years, Odfjell Drilling has completed a significant fleet renewal, shifting its focus from mid-water drilling rigs to drilling rigs capable of ultra-deepwater drilling. Today, Odfjell Drilling owns two sixth-generation ultra-deepwater harsh environment semisubmersible drilling rigs, Deepsea Stavanger and Deepsea Atlantic, in addition to one third-generation harsh environment semisubmersible drilling rig, Deepsea Bergen. The Group has an additional sixth-generation ultra-deepwater harsh environment semisubmersible drilling rig under construction, Deepsea Aberdeen, and a 40% ownership interest in two sixthgeneration ultra-deepwater drillships, Deepsea Metro I and Deepsea Metro II and an indirect 10% ownership interest in the three sixth-generation ultra-deepwater drillships Guarapari, Itaoca and Siri currently under construction. For a description of the current legal structure of the Group, please see Section 15.2 Legal structure. 8.5 Main assets and key contracts Mobile Offshore Drilling Units Main assets Below is an overview of the Drilling Units. For a discussion of the securities pledged on these assets please see Sections and Material borrowings and Deep Sea Metro material borrowings. Deepsea Atlantic/ Deepsea Stavanger 1 Deepsea Aberdeen Deepsea Metro I/ Deepsea Metro II 2 Deepsea Bergen GENERAL Type 6 th generation semi 6 th generation semi 6 th generation drillship 3 rd generation semi Yard DSME DSME HHI Aker Verdal Delivery Feb 2009 (July 2010) May 2014 June 2011(Nov 2011) February Next Classification Feb 2014 (July 2015) June 2016 (Nov 2016) Q Design Enhanced GVA 7500 Enhanced GVA 7500 Gusto P 10,000 Aker H-3.2 modified Harsh environment Yes Yes No Yes Winterisation prepared Yes, C Yes, C No Yes, C DIMENSIONS Displacement drilling mt 55,100 (56,100) 56,100 67,700 28,000 Air gap/free board drilling mt 13,5 13,5 7,3 12,5 Deck area m x x x x

77 Odfjell Drilling Ltd - Prospectus Deepsea Atlantic/ Deepsea Stavanger 1 Deepsea Aberdeen Deepsea Metro I/ Deepsea Metro II 2 Deepsea Bergen GENERAL CAPACITIES Design water depth ft 10,000 10,000 10,000 1,500 Outfitted water depth ft 1,640 (10,000) 2,050 10,000 1,500 Minimum water depth ft , Drilling depth ft 37,500 37,500 40,000 20,500 VDL Survival moored/dp mt 6,500/7,500 6,000/7,300 20,000 4,100 Transit speed kn POB 128 (192) Station keeping DP3 & Mooring DP3 & Mooring DP3 Mooring Main deck crane mt 100/85 100/ /100/85/85 65/30 Total power MW Thruster power MW 8 x 4 8 x 4,2 6 x 5 4 x1,1 Liquid mud volume m 3 1,800 1,800 3, DRILLING EQUIPMENT Drilling package Dual NOV Dual NOV Dual NOV NOV BOPMUX 15kpsi 6 rams 15kpsi 6 rams 15kpsi 6 rams BOP Hydr contr 15kpsi 4 rams 4 15kpsi 5 rams 15kpsi 4 rams Top drive st 1,000 1,000 1, Aux top drive st 500/No topdrive N/A Mud pumps Hp 4 x 2,200 4 x 2,200 4 x 2,200 3 x 1,600 Riser tensioners kips 3,200 3,200 3, Setback capacity tons 1,000 1,000 1, Motion compensation Dual Active Drawwork Dual Active Drawwork Active Drawwork Passive/Active 1 Where Deepsea Stavanger deviates from Deepsea Atlantic, Deepsea Stavanger is shown in brackets. 2 Where Deepsea Metro II deviates from Deepsea Metro I, Deepsea Metro II is shown in brackets. 3 Upgraded in 1988, 1994, 1999, 2000, 2003, 2005, 2010 and Only Deepsea Atlantic. Below is an overview of the three drillships Guarapari, Itaoca and Siri which are under construction mainly at Estaleiro Jurong Aracruz shipyard in Brazil, and are owned by the three special purpose companies in which Odfjell Galvão B.V. holds a 20% interest: Guarapari Itaoca Siri GENERAL Type 6 th generation drillship 6 th generation drillship 6 th generation drillship Yard Estaleiro Jurong Aracruz Estaleiro Jurong Aracruz Estaleiro Jurong Aracruz Expected delivery July 2016 August 2017 December 2018 Design Jurong Espadon Jurong Espadon Jurong Espadon GENERAL CAPACITIES Design water depth ft 10,000 10,000 10,000 Drilling depth ft 40,000 40,000 40,000 CONTRACT Contract length 15 years 15 years 15 years Day rate 1,2 USD 518, , ,697 1 The day rates have a USD, EUR and BRL component. The USD figures provided for the day rates are rounded figures based on the currency exchange rates as of 3 October 2011 of EUR/USD of and USD/BRL of which Odfjell Drilling uses for internal calculations. In addition to the day rates there are bonus elements of up to 15% linearly from 93% to 98% utilisation. 2 Escalation clauses not yet agreed. For commercial reasons, the Company is currently assessing the possibility of, and potential for, relocating ownership of some of the Group s rigs and rig owning management activities from Bermuda to Singapore, 71

78 Odfjell Drilling Ltd - Prospectus including, but not limited to transferring some of the rigs to new rig companies incorporated in Singapore and transferring the rig owning management activities to a new rig management company incorporated in Singapore Main clients and competitors Odfjell Drilling s clients in the MODU segment include major national and international oil and gas companies, of which the largest are Statoil, BP, BG and Petrobras, which account for approximately 80% of the MODU segment s total revenues in the year ended 31 December The Group has established long-term relationships with its largest clients, and has in particular a long-standing and strong relationship with Statoil, the major oil and gas company on the NCS, and BP, dating back to 1979 and 1977, respectively. The mobile offshore drilling industry consists of a large number of drilling contractors. As the industry has experienced significant consolidation, in particular after the financial downturn in 2008, some market participants have gained significant market shares. Odfjell Drilling is focusing on harsh environment as well as deep- and ultradeepwater drilling. Although, there are a limited number of companies in the drilling industry which focus solely on the ultra-deepwater segment, the drilling industry consists of many companies with different types of drilling assets and operations, with companies such as Transocean, Noble, Ensco, Seadrill, North Atlantic Drilling, Ocean Rig, Diamond, Saipem, Maersk, Stena, Fred Olsen Energy and Pacific Drilling considered to be the main competitors of the Group within this segment Key contracts Rig contracts The rigs Deepsea Bergen and Deepsea Atlantic are both contracted to Statoil and operate on the NCS. Deepsea Stavanger is contracted to BP Angola for operations off the shores of Angola. Deepsea Metro I is contracted to BG and Ophir Energy and is operating off the shores of Tanzania and Kenya, while Deepsea Metro II is contracted to Petrobras for operations offshore Brazil. Deepsea Aberdeen has a contract with BP Exploration with scheduled commencement in the fourth quarter of 2014 in the West of Shetland region of the UK, following expected delivery in May The firm order backlog from these rig contracts amounted to USD 2.4 billion, with an additional USD 0.75 billion in priced options as of 30 June The following is a summary of the key terms of the rig contracts: Deepsea Stavanger Deepsea Atlantic Deepsea Aberdeen Contract holder/charterer... Odfjell Invest II Ltd. Odfjell Invest AS Odfjell Drilling Shetland Limited Operator... BP Statoil BP Area of operation... Offshore Angola Norwegian Continental Shelf UK, West of Shetland Commencement... November 2011 August 2009 Q (expected) End of contract term (firm period)... November 2014 August years after commencement Options to extend contract term... 2 x 12 months 1 x 24 months 3 x 12 months Contract law... English Norwegian English Day rate... Firm contract: Firm contract: USD 420,000 Options: Options are unpriced 4 USD 560,839 (mix of USD/NOK) until 4 August 2014, then USD 575,839 (mix of USD/NOK) until 4 August ,2 Option: USD 585,839 (mix of USD/NOK) 1 Firm contract: USD 454,775 (mix of USD/GBP) 2,3 Options: Options are unpriced 4 Mobilisation charge... N/A N/A USD 35,000,000 (excl. 72

79 Odfjell Drilling Ltd - Prospectus Deepsea Stavanger Deepsea Atlantic Deepsea Aberdeen fuel) Termination clause... Termination: Termination: Termination: The operator may The operator may The operator may terminate the contract at terminate the contract at terminate the contract at its convenience. its convenience. its convenience. Termination fee Termination fee Termination fee (maximum): (maximum): (maximum): Remaining contract period Remaining contract period Remaining contract period multiplied by 75% of the multiplied by 80% of the multiplied by 80% of the day rate. day rate. day rate. 1 The day rates have both a USD (approximately 75%) and a NOK (approximately 25%) component. The USD figures provided for such day rates are rounded figures based on the currency exchange rate of USD/NOK 5.75 which Odfjell Drilling uses for internal calculations. 2 The contract includes escalation clauses intended to cover cost increases. 3 The day rate has both a USD (approximately 75%) and a GBP (approximately 25%) component. The USD figures provided for such day rate is a rounded figure based on the currency exchange rate of USD/GBP which Odfjell Drilling uses for internal calculations. 4 The day rates for the optional periods are to be mutually agreed. Deepsea Bergen Deepsea Metro I Deepsea Metro II Contract holder/charterer... Deep Sea Metro Holland B.V. Deep Sea Drilling Company I AS Deep Sea Metro Holland III B.V. (party to the Charter Agreement) Odfjell Gestão De Perfurações do Brasil Ltda (party to the Service Agreement) Operator... Statoil BG and Ophir Energy Petrobras Area of operation... Norwegian Continental Shelf Offshore Tanzania and Kenya Offshore Brazil Commencement... June 2012 June 2013 May 2012 End of contract term (firm period)... Options to extend contract term... June 2017 November 2014 May x 12 months 1 x 18 months One, up to 1,095 days Contract law... Norwegian English Brazilian Day rate... Firm contract: Firm contract: Firm contract: USD 353,878 (mix of USD/NOK) 1,2 Option: Same as for firm contract USD 676,471 (Tanzania) and USD 575,000 (Other) until 6 June 2014, then USD 683,529 (Tanzania) and USD 581,000 (Other) from 7 June 2014 to end of contract term Service Agreement: USD 81,485 2,3 Charter Agreement: USD 350,400 2,3 Incentive fee: Up to 10% Option: Option: Option is unpriced 4 Option is unpriced 4 Mobilisation charge... N/A N/A N/A Termination clause... Termination: Termination: The operator may The operator may terminate Termination: terminate the contract at its convenience. the contract at its convenience. Service agreement / Charter agreement: No Termination fee (maximum): Termination fee (maximum): Remaining contract period termination at convenience. Remaining contract period multiplied by 98% of the day 73

80 Odfjell Drilling Ltd - Prospectus Deepsea Bergen Deepsea Metro I Deepsea Metro II multiplied by 60% of the day rate. rate, less any savings realised to contract holder for the remainder of the period. 1 The day rate has both a USD (approximately 60%) and a NOK (approximately 40%) component. The USD figure provided for such day rate is a rounded figure based on the currency exchange rate of USD/NOK 5.75 which Odfjell Drilling uses for internal calculations. 2 The contract includes escalation clauses intended to cover cost increases. 3 The daily operating rate of the Service Agreement is denominated in BRL. The aggregate day rate of both the Service Agreement and Charter Agreement thus comprises a USD (approximately 80%) and a BRL (approximately 20%) component; the USD figure provided for such day rate is a rounded figure, based on the currency exchange rate of USD/BRL which Odfjell Drilling uses for internal calculations. 4 The day rate for the optional period are to be mutually agreed. Management contracts The following is a summary of the key terms of the management contracts for the management of mobile offshore drilling units owned by third parties or jointly by Odfjell Drilling and third parties: Units... Deep Sea Metro Deepsea Metro I and Deepsea Metro II Maracc Island Innovator Contract holder... Odfjell Drilling AS Odfjell Drilling AS Length... Fee structure... Termination clause... Contract law... 5 years from delivery of each Drillship Fixed daily fee of USD 5,445 per Drillship, 5% EBITDA incentive fee and a mark-up of 10% on reimbursable operating costs 1 Termination: No termination at convenience. Termination fee: If terminated due to owner s default, total loss of the drillship or certain change of control events on the part of the owner, 1.5% of the fair market value of the Drillship. English 5 years from delivery Fixed daily fee of USD 5,500, 5% EBITDA incentive fee and 25% of any client bonuses 2 Termination: Either party may terminate the agreement at their convenience, subject to 12 months prior notice. Termination fee: If terminated due to owner s default or at owner s convenience, (i) for a period of 12 months, the owner shall pay manager the fixed daily fee and the incentive fee, and (ii) for the remaining contract period the owner shall pay to the manager the fixed daily fee. Items (i) and (ii) are however always limited to the maximum amount of USD 6 million. Norwegian 1 All manager s direct and indirect onshore support cost and offshore personnel cost to be paid by Golden Close and Chloe Marine in addition to the fees for Deepsea Metro I and Deep Sea Metro II, respectively. 2 All manager s direct and indirect onshore support cost and offshore personnel cost to be paid by Maracc in addition to the fees. 74

81 Odfjell Drilling Ltd - Prospectus The Group s management contract for Dalian Developer was terminated by Dalian Deepwater Developer Ltd on 4 September 2013 following a 30-day grace period as a result of Dalian Deepwater Developer Ltd s termination of its construction contract for the drillship. The Construction Contract Odfjell Rig III Ltd. is party to a construction contract signed 12 November 2011, effective 20 December 2011, with DSME for the construction and delivery of Deepsea Aberdeen, with scheduled delivery in May 2014 (the Construction Contract ). The contract price is approximately USD 622 million, subject to variations due to adjustments or modifications. The payments of the contract price are as follows: (i) The first instalment in the amount of USD 94,002,700 (approximately 15% of the contract price) was paid in the first quarter of (ii) The second instalment in the amount of USD 527,850,000 (approximately 85% of the contract price) will be due upon delivery, subject to variations due to adjustments or modifications, if any. Please see Section Material borrowings for a description of the bank loan facility agreement related to the second instalment. Additional project costs are estimated to be USD 91 million (net of the mobilisation fee of USD 35 million), and include costs relating to operational preparation (approximately USD 58.6 million), project management (approximately USD 25 million), contingencies and variation orders (approximately USD 19.1 million) and projected financing costs (approximately USD 23.6 million. As of 30 June 2013, USD 28 million of these additional project costs had been paid; the remainder is expected to be financed with cash on the balance sheet. Accordingly, the all-in ready to drill cost of Deepsea Aberdeen is approximately USD 713 million. As of the date of this Prospectus, construction of Deepsea Aberdeen is on schedule. Odfjell Rig III Ltd. is entitled to liquidated damages if Deepsea Aberdeen is delivered more than 60 days after the contractual delivery date, as extended by permissible delays, and/or in the event of deficiencies in the variable load capacity of Deepsea Aberdeen. In the event of a delay of more than 240 days, Odfjell Rig III Ltd. is entitled to terminate the Construction Contract. A refund guarantee from Korea Eximbank covers the total amount of USD 94,002,700. DSME is entitled to terminate the Construction Contract in the event that (a) Odfjell Rig III Ltd. fails to pay any of the instalments; (b) Odfjell Rig III Ltd. fails to take delivery of the rig; (c) Odfjell Rig III Ltd. fails to comply with any of its material obligations under the contract; or (d) Odfjell Rig III Ltd. and/or the corporate guarantor becomes insolvent. Shareholders agreement and shareholder loan agreement regarding Deep Sea Metro In connection with the establishment of the Deep Sea Metro joint venture, the Company entered into a shareholders agreement with Metro Exploration and Deep Sea Metro on 10 October The shareholders agreement provides, inter alia, that the Company is entitled to appoint two out of the five members of the board of directors and that all decisions at board and shareholders meetings must be approved by at least one representative of each joint venture partner. Odfjell Drilling has a right of first refusal and a tag-along right upon sale of shares in Deep Sea Metro. There are no drag-along obligations. In a deadlock situation, Odfjell Drilling may require Metro Exploration to purchase all of its shares in Deep Sea Metro at their fair market value. On 4 May 2012, the Company through its wholly-owned subsidiary Odfjell Offshore Ltd., as lender, entered into a loan agreement with Deep Sea Metro. The shareholder loan was made available to fund working capital and other funding requirements in relation to Deepsea Metro II, which was delayed in its initial operations. The shareholder loan was initially in the principal amount of USD 80 million, but was reduced to USD 53 million after part of the loan was converted into shares in Deep Sea Metro following several shareholder capital calls in 2012 under the shareholders agreement. In June 2013, the shareholder loan was increased by USD 12 million. As of 30 June 2013, the outstanding balance of the shareholder loan was USD 65 million excluding accrued interest. 75

82 Odfjell Drilling Ltd - Prospectus Under the terms of the loan agreement, Deep Sea Metro is required to repay the shareholder loan in full on the final maturity date in May Interest is payable at the rate of 12% per annum, payable semi-annually in May and November. The shareholder loan is prepayable if certain events occur, including if any material assets of Deep Sea Metro are sold or if a surplus of cash is received as a result of a refinancing of the Deep Sea Metro group s debt. As of 30 June 2013, total gross interest bearing debt on the balance sheet of Deep Sea Metro was USD million (net of capitalised fees). Further, Metro Exploration has pledged its 60% interest in the shares of Deep Sea Metro in favour of the lender. The shareholder loan restricts the payment of dividends by Deep Sea Metro prior to the full repayment of the shareholder loan. The table below sets out the key financial data for Deep Sea Metro on a 100% basis from Deep Sea Metro s audited consolidated financial statements for the financial years ended 31 December 2012 and 2011, and from Deep Sea Metro s unaudited financial information for the six months period ended 30 June 2013 and 2012, prepared in accordance with simplified IFRS pursuant to section 3-9 of the Norwegian Accounting Act and with the Directives of simplified IFRS specified by the Norwegian Ministry of Finance on 21 January Deep Sea Metro (100%) Six months ended 30 June Year ended 31 December (USD millions) (simplified IFRS) (simplified IFRS) (Simplified IFRS) (Simplified IFRS) (unaudited) (unaudited) (audited) (audited) Total operating income Operating expenses... (85.6) (48.1) (129.9) (10.5) EBITDA (8.1) Depreciation and impairment... (36.7) (21.0) (57.7) (0.5) Operating profit (EBIT) (8.6) Net financial items... (47.3) (34.4) (83.5) (3.5) Profit before tax... (3.5) (7.1) (24.7) (12.1) Tax... (11.4) (6.5) (19.3) (0.2) Net profit... (14.9) (13.6) (44.0) (12.3) Non-current assets... 1, , , ,602.3 Cash Current assets Total assets... 1, , , ,771.7 Equity Non-current liabilities , Current liabilities Total equity and liabilities... 1, , , ,771.7 Joint venture agreement with Galvão Oil and Gas Holding B.V. regarding Odfjell Galvão B.V. In connection with the establishment of Odfjell Galvão B.V, Odfjell Drilling Netherlands B.V. entered into a joint venture agreement with Galvão Oil and Gas Holding B.V. on 20 July 2012 for the purpose of governing the 50/50 ownership in Odfjell Galvão B.V. The joint venture agreement provides, inter alia, that the board of directors shall consist of up to four directors to be jointly appointed by the shareholders, and that certain reserved matters require a unanimous resolution by the shareholders. Furthermore, there are certain transfer restrictions, including a lock-up period, right of first offer and a tag along right. On 29 August 2012, Odfjell Galvão B.V. invested in 20% of the shares in each of the three Dutch special purpose companies, Guarapari Drilling B.V., Itaoca Drilling B.V. and Siri Drilling B.V., whereby each has entered into an engineering, procurement and construction contract for the construction of a drillship with the Jurong shipyard. The remaining 80% ownership is held by Sete Brasil, through Sete International GmbH. Odfjell Galvão B.V is also the owner of Odfjell Galvão Perfurações Ltda, a company established under the laws of Brazil which will provide management services in connection with the three drillships under construction at the Estaleiro Jurong Aracruz shipyard. All three special purpose companies have entered into a fifteen-year charter contract with Petrobras and Odfjell Galvão Perfurações Ltda has entered into corresponding service agreements with Petrobras. 76

83 Odfjell Drilling Ltd - Prospectus Well Services Main assets The Well Services segment s assets mainly consist of casing and tubular running and rental drilling, wellbore cleaning and fishing equipment which is rented to rig sites from the Well Services segment s bases around the world. It also employs skilled technicians providing casing and tubing running, fishing and wellbore cleanout services. The drill tool rental equipment includes a broad range of high performance drilling tools covering all drilling phases from exploration to completion and intervention. Below is an overview of the capex of the Well Services segment and the book value of the Rental Equipment of the Well Services segment for the years 2010 to In addition, Rental Equipment typically has a value beyond the length of its life for depreciation purposes, as it can be utilised in regions with less demanding environmental and regulatory requirements. The average age of the Rental Equipment is 4 to 5 years. (In USD million) Year ended 31 December Capex of the Well Services segment of which relates to the divested mooring business Book value of Rental Equipment of which relates to the divested mooring business Accumulated cost price of Rental Equipment of which relates to the divested mooring business The 2010 numbers are not directly comparable with the 2011 and 2012 numbers as the 2010 numbers were prepared using NGAAP and the 2011 and 2012 numbers were prepared using IFRS. The 2010 numbers were reported in NOK and have been converted to USD using an exchange rate of USD/NOK from Norges Bank average exchange rate for the year Main clients and competitors Statoil, Shell, Schlumberger, BP, Songa, Dragon Oil, Baker Hughes, Halliburton, Maersk and Petrom are Odfjell Drilling s largest external clients within the Well Services segment, accounting for 60% of the Well Services segment s total revenues in the year ended 31 December The Group has developed good long-term relationships with its clients in the Well Services segment, which include the most active operators and drilling contractors in the North Sea. For example, the Group s client relationships with Shell, Statoil and BP within the Well Services segment date back to more than a decade. Approximately 80% of Odfjell Drilling s main clients were also clients of the Group s Well Services segment five years ago. Odfjell Drilling s main competitors within the Well Services segment in the North Sea are Weatherford, Frank s International and a number of smaller local service providers. Globally, competitors include Weatherford, Frank s International, ITS, Tesco, Workstrings, Schlumberger, Baker Hughes and various local service providers Key contracts The contract portfolio of the Well Services segment consists of a combination of exclusive and non-exclusive framework agreements, under which the clients may call upon services to be provided periodically on pre-agreed terms, as well as exclusive service agreements priced at day rates or for lump sum payments. The Well Services segment s contract portfolio consists mainly of contracts where the Group is the primary provider. However, under some contracts the Group is the secondary provider or the back-up provider. Most rental service contracts do not impose a delivery obligation on the Group, while most casing contracts do impose such an obligation. The rental service contracts are for rental of equipment only, with the exception of fishing contracts which also include hire of an operator. Casing and tubular running contracts are a combination of equipment rental and personnel hire with teams of personnel on rotation to operate the casing running. 77

84 Odfjell Drilling Ltd - Prospectus Below is an overview of Odfjell Drilling s key service contracts. The estimated total revenues of these contracts, calculated from 30 June 2013 to the expiry of the relevant contracts, are approximately USD 123 million. Client Scope of work Commencement date Expiry date (incl options) Statoil Shell BP Schlumberger Dragon Oil Halliburton Maersk Drilling OMV Petrom Casing Running Services MODU rigs (Norway) Casing running services (Norway, UK, Netherlands, Ireland) Casing running services (Norway) Rental of stabilisers, subs, collars etc. (Europe) Casing Running Services, fishing and rental of drilling tools (Turkmenistan) Rental of stabilisers, subs, collars etc. (Europe) Rental of drill pipe and accessories (Norway and Denmark) Rental of drilling jars, casing scrapers etc. (Romania) 31 December 10 December (2 nd option) 1 March 2019 (NO) 1 March April 2021 (UK/NL/IR) 1 June 2015 (2 nd 1 June 2010 option) 31 December 1 September November 10 December September 1 October August August February 2017 (fishing and 1 April 2012 milling) / 31 March 2017 (tubular running) Drilling & Technology Main assets The main assets of the Drilling & Technology segment are human resources and system capital. The Platform Drilling business area has approximately 1,100 employees, both offshore and onshore, located in Norway and the UK, while the Technology business area has approximately 400 employees, whereof more than 300 engineers in Norway, the UK, South Korea, the Philippines and the Middle East, in addition to approximately 90 contractors. Drilling & Technology s management system combines experience, technology and core values. The management system comprises the Group s consolidated procedures and guidelines for each type of operation the Drilling & Technology segment undertakes globally, including installation specific procedures and checklists. Further, the systems also include environments for measurement, controlling and validation of QHSE-performance, maintenance and drilling operations Main clients and competitors Odfjell Drilling s clients in the Drilling & Technology segment are typically large oil and gas companies. The main clients within this segment are Statoil, BP and Talisman, accounting for 74% of the Drilling & Technology segment s total revenues in However, based on newly awarded contracts under which operations will commence in 2013, TAQA and Wintershall will also be key clients in this segment going forward. Odfjell Drilling s main competitors within the Platform Drilling business area are Archer and KCA Deutag. The Technology business area s competitors are mainly local yards and smaller engineering companies specialising in drilling services. None of these engineering companies are associated with a drilling contractor and hence cannot offer the same overall engineering and operational services as Odfjell Drilling Key contracts Platform drilling contracts Below is an overview of Odfjell Drilling s key platform drilling contracts on the NCS and UKCS: 78

85 Odfjell Drilling Ltd - Prospectus Statoil BP Talisman Installations/platforms... Visund, Njord, Heidrun, Snorre A, Snorre B, Sleipner A and Grane Clair, Andrew, Bruce, Magnus and Clair Ridge Claymore, Clyde, Saltire, Piper, Tartan and Fulmar Contract holder... Odfjell Drilling Management AS Odfjell Drilling UK Ltd Odfjell Drilling UK Ltd Operator... Statoil BP Talisman Sinopec Area of operation... Norwegian Continental Shelf UK Continental Shelf UK Continental Shelf Commencement... October 2012 October 2012 October 2013 End of contract term (firm period)... October December 2014 (July 2016) 2 October 2015 Options to extend contract term... 3 x 2 year 3 x 2 year 2 x 1 year Contract law... Norwegian English English 1 The contract (or parts thereof) may be cancelled by Statoil at its convenience by giving 60 days notice. In such case, Statoil is only liable to pay the unpaid balance due for the part of work already performed, as well as documented and necessary expenses incurred as a direct result of the cancellation. 2 Clair Ridge only. Wintershall TAQA Statoil Installations/platforms... Brage Harding Mariner 1 Contract holder... Odfjell Drilling Management AS Odfjell Drilling UK Ltd Odfjell Drilling UK Ltd Operator... Wintershall TAQA Statoil UK Area of operation... Norwegian Continental Shelf UK Continental Shelf UK Continental Shelf Commencement... October 2013 June 2013 November 2016 End of contract term (firm period)... October 2016 June 2015 November 2020 Options to extend contract term... 3 x 2 year 1 x 2 year 3 x 2 year Contract law... Norwegian English Norwegian 1 This contract contains an option for Statoil to enter into a platform drilling contract with Odfjell Drilling for the Bressay Platform on the UKCS, such contract to begin in 2017 and to have a duration of four years, with three options to extend the contract by two years. As of 30 June 2013, the Platform Drilling business area had a firm contract backlog of USD 824 million (USD 251 million in 2014 alone), and the total value of optional periods was approximately USD 1,762 million. During the 2008 to 2012 period, add-on services from the Well Services segment and the Technology business area to a selected client in the Platform Drilling business area averaged 30% of the initial platform drilling contract revenue in the same period. The additional services provided included: (i) engineering services, including studies, modifications, upgrades and equipment installations and (ii) rental services and casing operational services. Technology contracts The Technology business area s services are provided under contracts that vary between short- to medium-term reimbursable fixed rates or cost-plus contracts. Fixed rate contracts involve fixed revenue amounts being received by the Group upon completion of certain milestones whereas cost-plus contracts involve clients paying the costs of inputs with the addition of an agreed percentage of profit to the Group. The services are generally contracted under existing framework agreements with oil companies and rig owners. 79

86 Odfjell Drilling Ltd - Prospectus The Technology business area has three different sources of revenue: external clients, indirect external clients (that is, clients of the Group s Platform Drilling business area who are also offered engineering services) and affiliated companies. (i) External clients: In terms of external clients, the Technology business area has strong relationships with the drilling contractors Songa (with which Odfjell Drilling entered into a lease and management agreement that expired in August 2012) and Maracc, which together accounted for approximately 35% of the Technology business area s revenues for the year ended 31 December The Group also has inter alia a framework agreement with Lundin for consultancy services. (ii) Indirect external clients: The Technology business area generates a significant part of its revenues from long-term contracts with clients of the Platform Drilling business area who are also offered engineering services. Odfjell Drilling currently has drilling modification frame agreements on the majority of platforms where it is also the drilling contractor. This accounted for approximately 30% of the Technology business area s revenue for the year ended 31 December The key indirect external clients include Statoil, BG, BP, Talisman and Wintershall. The Company expects to see additional volume to the Technology business area s portfolio in Norway based on the recently awarded platform drilling contracts with Statoil in 2012, the award of the Mariner contract with Statoil and the optional extension in connection with Bressay, which is expected to be exercised by Statoil. (iii) Affiliated companies: In addition, the Technology business area derives its revenues from various affiliated companies within Odfjell Drilling such as the partly-owned Deep Sea Metro joint venture. This accounted for approximately 35% of the Technology business area s revenues in the year ended 31 December Shareholders agreements Odfjell Drilling Technology Ltd. and Subsea Technology Group AS, the owner of the remaining shares in Ross Holding AS, have entered into a shareholders agreement to govern their joint shareholding in Ross Holding AS. Further, Odfjell Drilling Technology Ltd. has entered into a shareholders agreement with Dalseide og Fløysand AS, the joint-venture partner in PSW Group AS. 8.6 Key operational focus areas and long-term strategy and growth opportunities Mobile Offshore Drilling Units Key operational focus areas The key operational focus areas of the MODU segment are to: (i) enhance training of employees, in particular, local onshore personnel and crew; (ii) ensure longer contracts for expatriate personnel in order to reduce rotation and increase competence levels onboard rigs; (iii) continue to carry out management training for onshore and offshore senior personnel and strengthen the Group s onshore support organisation; (iv) strengthen logistics and the supply system for critical spare parts; (v) increase subsea equipment competence and training; and (vi) further strengthen the Group s interaction with BOP vendors Long-term strategy and growth opportunities The long-term strategy and growth opportunities for the MODU segment are to: (i) continue to focus on the harsh environment and ultra-deepwater markets; (ii) establish at least three MODU operations on the NCS, in Africa and in Brazil through prudent growth; (iii) work closely with a select number of blue-chip oil and gas companies; (iv) achieve a balanced mix of medium- and long-term contractual periods; and (v) increase cost efficiencies without compromising on QHSE standards Well Services Key operational focus areas The key operational focus areas of the Well Services segment are to: (i) deliver safe and high quality services and meet clients needs and expectations; (ii) train and enhance the competence of its personnel and the organisation; (iii) conduct lean and cost-efficient operations and increase process standardisation and efficiency throughout the organisation; (iv) increase market awareness of the Well Services segment; (v) continue to develop existing 80

87 Odfjell Drilling Ltd - Prospectus product lines to stay ahead of competition; and (vi) ensure that it has proprietary equipment and/or methods for all service areas Long-term strategy and growth opportunities The long-term strategy and growth opportunities for the Well Services segment are to: (i) expand its portfolio of well bore clean-up, fishing and remedial and well abandonment services; (ii) continue international expansion by targeting areas and product lines with high profit margins and high equipment utilisation potential, and by capitalising on existing client relationships and the presence of the Group s MODUs in new areas; and (iii) consider selective acquisitions of new technology or well service companies Drilling & Technology Key operational focus areas The key operational focus areas of the Platform Drilling business area are to: (i) secure efficient operations for its contract portfolio; (ii) maintain a high level of QHSE performance; (iii) improve operating margins on existing contracts through add-on sales; (iv) increase the volume of cross-divisional sales and business; and (v) integrate operations by moving tasks onshore. The key operational focus areas of the Technology business areas are to: (i) achieve continued profitable growth by hiring an additional 50 new engineers each year and by broadening and growing its portfolio and client base globally; (ii) deliver consistently high-quality services; (iii) build adequate capabilities; and (iv) establish a new engineering hub Long-term strategy and growth opportunities The long-term strategy and growth opportunities for the Platform Drilling business area are to: (i) maintain its position as one of the leading providers of platform drilling services in the North Sea; (ii) extend its scope of services; (iii) continue its strong focus on safe and efficient operations; and (iv) use its competitive advantages and market position to establish a firm presence in a region outside the North Sea (e.g. in the Gulf of Mexico or West Africa), and follow clients into new regions. The long-term strategy and growth opportunities of the Technology business area are to: (i) maintain its position as one of the leading providers of drilling engineering and technology services on the NCS and UKCS; (ii) selectively expand into new potential business areas such as subsea drilling, completion and well intervention, plug and abandonment and modular drilling units; (iii) introduce new drilling technology; and (iv) broaden its service portfolio. 8.7 Health, safety and environment The Group s ability to provide safe and reliable services is crucial to its future development. The Group strives to improve its efforts in health, safety, security and the environment and its main objective is to achieve zero faults through continuous improvement. Throughout its 40-year history, the Group has endeavoured to develop governance structure, organisational competence, capacity and a leadership culture that promote the objective of maintaining the highest safety standards. Through this approach, the Group aims to safeguard the health of all people involved in its operations, reduce environmental risks through effective risk management and develop a quality culture in which tasks are performed right the first time and in which the goal is to constantly strive to add value for clients. The highest priorities in all QHSE efforts are to manage risks and prevent injuries to personnel. Improved risk management and the strengthening of safety barrier management are important measures in order to ensure a high safety level and prevent major accidents. The Group believes that, particularly after the Macondo incident in the US Gulf of Mexico, the Group s and its competitors QHSE records and ability to provide safe operations have become increasingly important to compete for and win contracts. Maintenance of a strong QHSE record acts as a high barrier to entry, limiting smaller and speculative providers participation in the market. See Section 7.2 General industry drivers. The Group believes that it has and will continue to benefit from this trend in view of its long and strong QHSE track record. 81

88 Odfjell Drilling Ltd - Prospectus The following table summarises Odfjell Drilling s QHSE results for the years ended 31 December 2012, 2011 and Lost time incident frequency (H1) per 1 million working hours Total recordable incident frequency (H2) per 1 million working hours Dropped objects frequency per 1 million working hours Sick leave percentage of total normal working days Lost time incidents during the last twelve months multiplied by 1 million divided by the number of actual working hours during the last twelve months. 2 Lost time incidents and incidents resulting in medical treatment during the last twelve months multiplied by 1 million divided by the number of actual working hours during the last twelve months. 3 Number of dropped objects (above 40 joule) during the last 12 months multiplied by 1 million divided by the number of actual working hours during the last twelve months. 4 Number of hours absent divided by total normal working days. On 10 April 2013, there was a fire in a machine room onboard Deepsea Metro II. The fire was isolated and put out rapidly and all emergency procedures were followed and all personnel was quickly accounted for. There were no injuries to personnel. The offshore crew was supported by Odfjell Drilling s emergency organisation. 8.8 Employees At the date of this Prospectus, the Group had approximately 3,100 employees (including approximately 150 employees for Deepsea Metro II operation in Brazil) and approximately 290 contractors (whose actions the Group remains responsible for). The table below shows the development in the numbers of full-time employees and contractors over the last three years. Full-time employees Contractors 30 June Dec Dec Dec June Dec Dec Dec 2010 Total Group... 3,080 2,918 2,732 2, By segment:... - MODU... 1, Well Services Drilling & Technology... 1,520 1,443 1,354 1, Approximate figures. Each of the Group s local offices are encouraged to source and train its own local workforce rather than use expatriate personnel and the Group utilises in-house training schemes to promote this. In most jurisdictions, the senior workforce consists of expatriates, while the local workforce is trained onsite. The Company is of the opinion that its employee relations are good and has experienced neither significant labor-related work stoppages nor high turnover rates in each of 2012, 2011 and 2010 or in the six months ended 30 June The Group has specific procedures for screening, hiring, monitoring and training contractors. During the period of hire, the contractors are assigned an internal sponsor that follows the contractors during training and deliveries through an onboard programme to secure the correct level of quality in deliveries and utilisation. The onboard programme is based on a defined checklist. 8.9 Dependency on contracts, patents and licences It is the Company s opinion that the Group s existing business or profitability is not dependent upon any contracts other than the rig contracts, as further described in Section Key contracts Rig contracts and the financing agreements, as further described in Section Material borrowings. It is further the opinion of the Company that the Group s existing business or profitability is not dependant on any patents or licences. 82

89 Odfjell Drilling Ltd - Prospectus 8.10 Litigation and disputes From time to time, the Company and other companies in the Group are involved in litigation, disputes and other legal proceedings arising in the normal course of its business. During the course of the preceding twelve months, the Group has been and is currently involved in the following tax cases: Tax court case Odfjell Rig Ltd. is a company incorporated in Bermuda, and its ultimate shareholder is the Company. During the years 2009 to 2011 Odfjell Rig Ltd. was the owner (limited partner) of % of Deep Sea Drilling Company II KS (DSDCII), which was the owner of the rig Deepsea Bergen. The general partner of DSDCII was Deep Sea Drilling Company AS, and additionally there were two other limited partners. The rig Deepsea Bergen has operated on the NCS since spring 2006 under a bareboat charter with Deep Sea Drilling Company KS. All main decisions pertaining to the rig (purchase, sale, financing etc) are made by the partnership meeting of DSDCII. The company Odfjell Drilling AS resident in Norway has been contracted to carry out the day-to-day operations/management of the bareboat charter. The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. has a limited tax liability to Norway as a result of its ownership in DSDCII. The tax authorities made their decision for the years 2009 to 2010 on 29 June 2012, and later also for The case for 2009 to 2011 was brought before the Norwegian courts by Odfjell Rig Ltd. pursuant to a writ of summons on 20 December 2012, and the district court made its decision on 12 July For all three income years, the disputed amount (before-tax income) is approximately NOK 387,000,000. The district court concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus a limited tax liability exists for the owner Odfjell Rig Ltd. on the basis of the Norwegian Tax Act section 2-3 para. 1, letter b. The district court came to this conclusion inter alia on the basis that the day-to-day management of the bareboat charter by Odfjell Drilling AS in Bergen involves considerable activity in Norway on behalf of DSDCII, and also that the rig Deepsea Bergen has been deployed within Norwegian jurisdiction (i.e. on the NCS). Furthermore, the district court concluded that a tax exemption in the Norwegian Tax Act section 2-34 was not applicable as this only relates to international business which in the court s opinion is not the case as long as the rig is operated on the NCS. The Company will appeal the district court s judgement, however, if the district court s verdict is upheld on appeal, the USD 62.8 million loss (already expensed as of 30 June 2013) for the Company will be final. The loss is comprised of USD 24.5 million in payable tax (which already has been paid) and USD 38.3 million in deferred tax. The additional impact on cash will be 20% of the deferred tax to be paid in 2014 with the remaining balance to be paid on a declining basis (i.e. 20% of the remaining balance) each year Tax audit case Odfjell Invest I Ltd. (Odfjell Invest I), a wholly-owned subsidiary of the Group incorporated in Bermuda, is the owner of the rig Deepsea Atlantic, which has been leased to Odfjell Invest AS under a bareboat charter at a fixed day rate of USD 300,000. Odfjell Invest AS has in turn entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the NCS. Soon after commencement of drilling services under the drilling contract, Statoil stopped paying the operating rate based on the contention that Odfjell Invest AS was not able to provide the drilling services as contemplated by the drilling contract. Odfjell Invest AS challenged Statoil s decision to stop payment of the operating rate and instigated legal proceedings to recover lost income. Odfjell Invest AS lost the court case in the first instance. As part of a settlement with Statoil, Odfjell Invest AS decided not to appeal the decision. Odfjell Invest AS has taken the position that it had no legal basis for stopping payment of bareboat hire to Odfjell Invest I under the bareboat charter during the period of non-payment of the operating rate by Statoil under the drilling contract. The tax authorities have notified that they do not consider Odfjell Invest AS as entitled to a tax deduction under the Norwegian Tax Act section 6-1, resulting in an increase of the taxable income for 2009 of NOK 103,305,720 and for 2010 of NOK 520,607,220. Following the tax audit (report dated 5 July 2013) the notice of reassessment also relates to the omission of taking a payment of hire from Statoil as income, resulting in an increase of the income for 2010 of NOK 6,552,467. Furthermore, the tax authorities have notified that they do not consider the bareboat charter between Odfjell Invest AS and Odfjell Invest I to be in accordance with the arm's length principle. 83

90 Odfjell Drilling Ltd - Prospectus This results in a total reduction of bareboat hire for the years 2009 to 2012 of NOK 209,434,800. The above notifications from the tax authorities have not yet resulted in any decision of reassessment. The potential tax exposure amounts to USD 39.0 million excluding interest cost. Estimated potential interest cost amounts to USD 9 million as per the date of this Prospectus, but is subject to increase depending on actual time of a potential payment. Odfjell Invest AS will dispute any assessment based on the notification, and hence no tax expense is recognised in the Interim Financial Statements for the six months period ended 30 June 2013, as the Company s best estimate of the amount it will ultimately pay is nil. Odfjell Invest AS will revert to the tax authorities within the deadline for response. However, as Odfjell Invest AS will need to pay the full amount immediately upon the receipt of the final claim amount from the Norwegian tax authorities, there may be a negative impact on liquidity in the amount of USD 50 million if the Norwegian tax authorities do not change their assessment based on input from Odfjell Invest AS. If the Norwegian tax authorities do not change their assessment and Odfjell Invest AS reclaims the full amount through the court system there may be a temporary liquidity impact even if Odfjell Invest AS is ultimately successful in the case. For the first half year of 2013, there is an additional tax exposure of USD 2 million related to the transfer pricing issue of Deepsea Atlantic as described above. Other than this, the Company nor any other company in the Group are, nor have been during the course of the preceding twelve months involved in any legal, governmental or arbitration proceedings which may have, or have had in the recent past, significant effects on the Group s financial position or profitability, and the Company is not aware of any such proceedings which are pending or threatened Regulation The Group is subject to a large number of national and international regulatory and environmental laws and regulations governing all business activities of the Group in the respective jurisdictions. This includes, in particular, provisions on (i) permitting, (ii) energy operations, (iii) waste treatment, (iv) water protection and (v) the handling, storage and transport of hazardous goods and chemical substances. Further, the Group is subject to requirements on occupational health and safety as well as export control regulations. Also, laws relating to the import and operation of drilling rigs and related onshore and offshore equipment, currency conversions and repatriation, taxation of offshore earnings and earnings of expatriate personnel or the use of local employees and suppliers by foreign contractors may be affected. The application of the various laws and regulations depends on the specific facilities, installations and activities at the business locations in the relevant jurisdictions. For example, the permits of public authorities required for a specific business operation depend on many individual factors, including the specific purpose of the facility, its capacity and physical structure, the environmental impacts originating from the facility, and the existence of any auxiliary facilities. Operational sites may have to comply with several environmental and regulatory requirements. In addition, environmental liabilities can occur due to public or civil environmental laws. Generally, the provisions under environmental and regulatory laws applicable to the Group s operations are regularly subject to change. They are continuously being adapted, at the national and international levels, in particular by the European Union, to the level of technical sophistication and the increased need for safety and environmental protection in the energy sector. Due to the broad geographical scope of the Group s business operations, the contents and details as well as the practice of enforcement of the applicable legal framework varies throughout the different jurisdictions concerned. Generally, non-compliances may result in administrative (e.g. fines or suspension or withdrawal of permits) or criminal sanctions. The Group s offshore activities are subject to numerous specific laws and regulations in the form of international conventions and treaties, national, state and local laws, in particular relating to the maritime environment, and national and international regulations in force in the jurisdictions in which the Group operates or is registered. These regulations include, but are not limited to, the International Convention for the Safety of Life at Sea 1974, the International Convention for the Prevention of Pollution from Ships 1973, the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, the International Convention on Civil Liability for Oil Pollution Damage 1969, the International Convention on Civil Liability for Bunker Oil Pollution Damage 2001, 84

91 Odfjell Drilling Ltd - Prospectus the International Convention for the Control and Management of Ships Ballast Water and Sediments 2004, which is expected to enter into force in the course of the year 2014, the Convention on the Prevention of Marine Pollution by Dumping of Waste and other Matters 1972 (as amended by the 1996 London Protocol) and the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers These laws and standards govern safety and the discharge of materials into the environment or otherwise relate to environmental protection. In certain circumstances, these laws may impose strict liability, rendering companies in the Group liable for environmental and natural resource damages without regard to negligence or fault on the part of the Group. Implementation of new environmental laws or regulations that may apply to the oil and gas or offshore accommodation industries may impact on the Group s business activity, financial condition or results of operations. For example, a number of countries have announced that they are undertaking a review of the regulation of the offshore drilling industry following the Macondo incident in the Gulf of Mexico in Please see Section 2 Risk factors for an overview of risk factors relating to environmental laws and regulations applicable to the Group Intellectual property and information technology The intellectual property rights relating to the Drilling Units and related equipment are the proprietary rights of the Group s suppliers or sub-suppliers. Please see Section 2.4 Risk relating to laws, regulation and litigation Technology disputes involving the Group, the Group s suppliers or sub-suppliers could impact the Group s operations for an overview of risk factors relating to potential technology disputes. The Group has several trademarks registered in countries all over the world, including among others the name Odfjell Drilling, Deepsea and the Odfjell Drilling logo. Further, although not material to the business of the Group as a whole, the Well Services segment has several patents registered and applications pending with the intention of patenting various processes relating to operational aspects and improvements. The Group further relies on information technology systems to communicate with its Drilling Units and conduct its business. The Group has implemented customary virus control systems and access control systems, and continuously evaluates its information technology and information security. Information technology systems that support for instance maintenance processes are implemented so that each Drilling Unit s system is operative independently of whether the central system is operative or not (replication technology). The Group also relies upon security measures and technology to securely maintain confidential and proprietary information maintained on its information technology systems Insurance As is customary in the oilfield services industry, the Group mitigates its exposure to the risks normally associated with a drilling contractors operation such as environmental damage and accidents through indemnification arrangements and insurance policies. The Group s charter and service contracts generally contain contractual indemnities against liability for pollution, well and environmental damages, damages to equipment and property, and personal injury. These indemnities provide that the Group s clients, the oil and gas companies, will retain liability and indemnify the Group for (i) environmental pollution caused by any oil, gas, water or other fluids and pollutants originating from below the seabed, (ii) damage to client and third-party equipment and property including any damage to the sub-surface and reservoir, and (iii) personal injury to or death of client personnel. The Group also carries insurance coverage for its operations and is self-insured for certain claims in amounts that the Company believes to be customary and reasonable to retain for its own account. The Group maintains insurance worldwide for liability arising from its operations, and its insurance covers all of its material assets, including all capital items such as the Drilling Units and Rental Equipment. Among the risks insured are loss of, or damage to, the Drilling Units (hull and machinery), third-party property, death or injury to employees and/or third parties (protection and indemnity insurance and third party liability insurance) and statutory workers compensation. To cover the Group s charter contracts, it maintains the following insurance coverage: (i) hull and machinery, (ii) protection and indemnity, and (iii) war risk insurance. 85

92 Odfjell Drilling Ltd - Prospectus To protect the Group s service contracts, the Group has an insurance policy for general third party- and product liability. The policy covers NOK 130 million per occurrence of legal liability for damage caused to a third party and an annual aggregate limit of NOK 50 million for professional indemnity as a result of faulty product design, feasibility or engineering studies etc. Odfjell Drilling s general third party- and product liability insurance policy does, however, expressly exclude coverage for certain types of environmental damages normally being the responsibility of the Group s clients, the oil and gas companies. In all locations, except North America, the policy covers only environmental damages that are the direct and unavoidable consequences of a sudden, unforeseen and identifiable event and, in the case of recoverable pollution damage, the policy also covers clean-up related expenses imposed by public authorities. The Group also maintains an insurance policy for transport and storage of the Group s equipment (excluding the Drilling Units) for coverage of up to NOK 53 million per occurrence. The determination of the appropriate level of insurance coverage is made on an individual asset basis taking into account several factors, including the age, market value, cash flow value and replacement value of the asset in hand. However, there can be no assurance that the amount of insurance the Group s carries is sufficient to protect the Group fully in all events, and a successful liability claim for which the Group s is underinsured or uninsured could have a material adverse effect on the Group. Additionally, insurance rates have in the past been subject to wide fluctuations, and changes in coverage could result in less coverage, increases in cost or higher deductibles and retentions. See Section 2 Risk factors. Odfjell Drilling has not made any material insurance claims under any of its insurance policies during 2012, 2011 and 2010 or in the six-month period ended 30 June

93 Odfjell Drilling Ltd - Prospectus 9 CAPITALISATION AND INDEBTEDNESS 9.1 Capitalisation The tables below should be read in conjunction with the information included elsewhere in this Prospectus, including Section 10 Selected financial information and the Financial Statements and the Interim Financial Statements and related notes, included in Appendix B and Appendix C of this Prospectus. The following table sets forth information about the Group s unaudited consolidated capitalisation as of 30 June There has been no material change since 30 June As of 30 June 2013 (In USD millions) Actual (unaudited) Indebtedness Current financial debt: Guaranteed and secured... - Guaranteed but unsecured... - Secured but unguaranteed Unguaranteed and unsecured... - Non-current financial debt: Guaranteed and secured... - Guaranteed but unsecured... - Secured but unguaranteed ,177.6 Unguaranteed and unsecured... - Total indebtedness... 1,358.6 Shareholders equity Share capital Other contributed capital Other reserves... (75.3) Retained earnings Total equity... 1,083.6 Total capitalisation... 2, Secured by pledges either on receivables and bank deposits or plant and equipment. Please also see Section Material borrowings. 2 The share capital of the Company as of the date of this Prospectus is USD 2,000,000. Please see Section 15.4 Share capital history for the development in the Company s issued share capital following 30 June The Group is not aware of any indirect or contingent indebtedness other than the tax audit case described in Section 8.10 Litigation and disputes. 9.2 Indebtedness The following table sets forth information about the Group s unaudited net indebtedness as of 30 June As of 30 June 2013 (Figures in USD millions) Actual (unaudited) Net indebtedness (A) Cash (B) Time deposits (C) Trading securities... - (D) Liquidity (A)+(B)+(C) (E) Current financial receivables... - (F) Current bank debt... - (G) Current portion of non-current debt

94 Odfjell Drilling Ltd - Prospectus As of 30 June 2013 (Figures in USD millions) Actual (unaudited) (H) Other current financial debt... - (I) Current financial debt (F)+(G)+(H) (J) Net current financial indebtedness (I)-(E)-(D)... (64.3) (K) Non-current bank loans... 1,177.6 (L) Bonds issued... - (M) Other non-current loans... - (N) Non-current financial indebtedness (K)+(L)+(M)... 1,177.6 (O) Net financial indebtedness (J)+(N)... 1, Working capital statement The Company is of the opinion that the working capital available to the Group is sufficient for the Group s present requirements, for the period covering at least 12 months from the date of this Prospectus. 88

95 Odfjell Drilling Ltd - Prospectus 10 SELECTED FINANCIAL INFORMATION 10.1 Introduction The tables set out in this Section 10 present selected financial information derived from the Group s audited consolidated financial statements (including the notes thereto) as of and for the years ended 31 December 2012, 2011 and 2010 (the Financial Statements) (included in Appendix B), as well as the unaudited interim consolidated financial information as of and for the three and six month periods ended 30 June 2013 and 2012 (the Interim Financial Statements) (included in Appendix C). The Financial Statements for the year ended 31 December 2012, with comparable figures for the year ended 31 December 2011, have been prepared in accordance with IFRS, as adopted by the EU, while the Financial Statements for the year ended 31 December 2011 and 2010 have been prepared in accordance with NGAAP. The Interim Financial Statements, combined with relevant information in the financial review, has been prepared in accordance with IAS 34. For a discussion of the material differences between IFRS and NGAAP please see Section Analysis of material differences between IFRS and NGAAP. The Interim Financial Statements does not include all of the information required for full annual financial statements of the Group and should be read in conjunction with the Financial Statements. The Company s auditor is PricewaterhouseCoopers AS, Dronning Eufemias gate 8, 0191 Oslo, Norway. PricewaterhouseCoopers AS and its auditors are members of The Norwegian Institute of Public Accountants (Nw. Den Norske Revisorforening). PricewaterhouseCoopers AS has been the Company s auditor since The Financial Statements have been audited by PricewaterhouseCoopers AS, and the auditor s reports are included together with the Financial Statements in Appendix B. The Interim Financial Statements has not been audited, however, PricewaterhouseCoopers AS has issued a review report on the interim financial information in the Interim Financial Statements. The review report is included together with the Interim Financial Statements in Appendix C. PricewaterhouseCoopers AS has not audited, reviewed or produced any report on any other information provided in this Prospectus. The amounts from the Financial Information are presented in USD, rounded to the nearest million, unless otherwise stated. However, the amounts from the NGAAP Financial Statements are presented in NOK, rounded to the nearest million. As a result of rounding adjustments, the figures in one or more rows or columns included in the financial information may not add up to the total of that row or column. Please see Note 26 to the Group s audited financial statements for the year ended 31 December 2012 for a comparison of the financial information prepared in accordance with NGAAP for the year ended 31 December 2011 and presented in USD with the financial information prepared in accordance with IFRS for the year ended 31 December 2012 and presented in NOK. The selected financial information presented herein should be read in connection with Section 11 Operating and financial review and the Financial Statements and Interim Financial Statements (included in Appendix B and Appendix C to the Prospectus) Summary of accounting policies and principles For information regarding accounting policies and the use of estimates and judgments, please refer to note 1 of the Financial Statements as of and for the year ended 31 December 2012, included in this Prospectus as Appendix B Condensed consolidated income statement The table below sets out selected data from the Group s audited consolidated income statement for the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim income statement for the three and six month periods ended 30 June 2013 and Three months ended 30 June Six months ended 30 June Year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Operating revenue , ,056.7 Other gains/losses Share of profit from joint ventures... (2.3) (1.7) (4.6) (3.3) (13.4) (6.8) 89

96 Odfjell Drilling Ltd - Prospectus Three months ended 30 June Six months ended 30 June Year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Personnel expenses... (132.2) (116.5) (271.2) (241.1) (486.2) (465.7) Other operating expenses... (62.4) (61.0) (128.8) (120.8) (266.6) (247.8) EBITDA Depreciation and impairment... (36.1) (35.8) (73.7) (72.3) (147.3) (145.0) Operating profit (EBIT) Net financial items... (15.5) (24.7) (38.7) (26.9) (35.7) (83.9) Profit/(loss) before tax Income taxes... (70.9) (7.3) (77.2) (16.4) (31.2) (32.2) Profit/(loss) for the period... (9.2) The table below sets out other financial data for the Group. Three months ended 30 June Six months ended 30 June Year ended 31 December 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2011 (IFRS) (unaudited) Revenue growth % % - 3.5% - EBITDA growth % % - (13.4%) - EBIT growth % % - (22.6%) - EBITDA-margin % 31.2% 34.5% 30.7% 30.3% 36.2% EBIT-margin % 17.3% 21.9% 16.9% 16.8% 22.5% The table below sets out selected data from the Group s audited consolidated income statement for the years ended 31 December 2011 and Year ended 31 December (In NOK millions) 2011 (NGAAP) (audited) 2010 (NGAAP) (audited) Operating income... 5, ,724.9 Gain on sale of assets Income from associates... (41.6) 25.7 Personnel expenses... (2,614.5) (2,544.8) Other operating expenses... (1,397.2) (1,673.1) EBITDA... 1, Depreciation and impairment... (822.1) (538.3) Operating profit/loss... 1,106.1 (5.3) Net financial items... (272.3) Profit/loss before tax Income taxes... (180.6) 29.8 Profit/(loss) for the period Attributable to non-controlling interests Attributable to owners of Odfjell Drilling Ltd Condensed consolidated statement of comprehensive income The table below sets out selected data from the Group s audited consolidated statement of comprehensive income for the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim statement of comprehensive income for the three and six month periods ended 30 June 2013 and As the statement of 90

97 Odfjell Drilling Ltd - Prospectus comprehensive income does not exist under NGAAP, the figures for the year ended 31 December 2010 are not included in the table. Three months ended 30 June Six months ended 30 June Year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Profit/(loss) for the period... (9.2) Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on post employment benefit obligations (16.3) Total (16.3) Items that are or may be reclassified to profit or loss: Interest rate swaps, reclassified to profit or loss Forward foreign exchange contracts, reclassified to profit or loss (4.6) Cash flow hedges (0.5) (1.7) (0.1) Currency translation differences... (4.7) (4.6) (14.4) (37.0) Total... (1.1) (4.6) (10.3) (18.3) Other comprehensive income, net of tax... (1.1) (1.1) (10.3) (34.6) Comprehensive income for the period... (10.3) Attributable to non-controlling interests Attributable to owners of Odfjell Drilling Ltd... (10.3) Condensed consolidated statement of financial position The table below sets out selected data from the Group s audited consolidated statement of financial position as of 31 December 2012 and 2011 and from the unaudited consolidated interim statement of financial position as of 30 June 2013 and As of 30 June As of 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Assets Intangible assets Property, plant and equipment 2,3... 1, , , ,794.8 Financial fixed assets Total non-current assets... 2, , , ,158.4 Spare parts Trade receivables Other current assets Cash and cash equivalents Total current assets Total assets... 2, , , ,740.6 Equity and liabilities Total paid-in capital Other equity Non-controlling interests Total equity... 1, , , ,032.8 Borrowings... 1, , , ,290.0 Post employment benefits

98 Odfjell Drilling Ltd - Prospectus As of 30 June As of 31 December (In USD millions) (IFRS) (IFRS) (IFRS) (IFRS) (unaudited) (unaudited) (audited) (audited) Deferred tax liability Other non-current liabilities Total non-current liabilities... 1, , , ,410.6 Borrowings Trade payables Other current liabilities Total current liabilities Total liabilities... 1, , , ,707.8 Total equity and liabilities... 2, , , ,740.6 Equity ratio % 39.7% 41.2% 37.7% Net debt to LTM EBITDA 4, Interest coverage Debt/equity Net interest bearing debt/equity The Group s main intangible fixed assets are goodwill and deferred income tax asset. At 31 December 2012, goodwill accounted for USD 29 million compared to USD 27 million at 31 December Goodwill as of 31 December 2012 related to the following acquisitions: USD 23.2 million for the group structuring in 2002, USD 0.5 million for the acquisition of Drilltools AS in 2004 and USD 3.3 million for the acquisition of Ntera Ltd in 2005, there was also a currency translation difference of USD 2.1 million. At 31 December 2012, deferred income tax asset accounted for USD 0.8 million compared to USD 5.3 million at 31 December The Group s main tangible fixed assets are Drilling Units, its Aberdeen newbuild and Rental Equipment. At 31 December 2012, the book value of the MODU segment s tangible fixed assets, which includes Drilling Units, periodic maintenance and construction in progress as well as 40% of Deep Sea Metro s non-current assets, was USD 2,311 million compared to USD 2,252 million at 31 December The book value of the Group s own rigs, which includes periodic maintenance and construction in progress, was USD 1,652 million at 31 December 2012 and USD 1,611 million at 31 December The book value of the Well Services segment s tangible fixed assets at 31 December 2012 was USD 173 million (of which USD 41 million was related to the mooring business) compared to USD 139 million (of which USD 37 million was related to the mooring business) at 31 December At December 31, 2012, the accumulated cost price of Rental Equipment in use was USD 406 million (of which USD 67 million was related to the mooring business) compared to USD 319 million (of which USD 55 million was related to the mooring business) at 31 December At 30 June 2013, the book value of the MODU segment s tangible fixed assets, which includes Drilling Units, periodic maintenance and construction in progress as well as 40% of Deep Sea Metro s non-current assets, was USD 2,262.9 million compared to USD 2,332.5 million at 30 June The book value of the Group s own rigs, which includes periodic maintenance and construction in progress, was USD 1,616.0 million at 30 June 2013 and USD 1,669.5 million at 30 June The book value of the Well Services segment s tangible fixed assets at 30 June 2013 was USD million compared to USD million (of which USD 39.1 million was related to the mooring business) at 30 June At 30 June 2013, the accumulated cost price of Rental Equipment in use was USD million compared to USD million (of which USD 59.5 million was related to the mooring business) at 30 June The table below sets out a breakdown of the cost price and book value of the Group s tangible fixed assets as at 31 December The table presents the cost price and book value of Rental Equipment from those of other machinery and equipment. Mobile drilling units Periodic maintenance Construction in progress Well service equipment Other machinery 1 and equipment Total fixed assets Tangible fixed assets Cost price 1 January , ,288 Additions Disposals and other... (7) (72) (7) Currency translation differences Cost price 31 December , ,487 Accumulated depreciation and impairment losses 1 January Depreciation for the year Disposals and other... (1) (0) (4) (35) (41) Currency translation differences... (2) Accumulated depreciation and impairment losses 31 December Carrying amounts 31 December , ,872 1 Includes an idle second BOP available for Deepsea Atlantic and similar units. 2 Includes USD 67 million, the book value of the Rental Equipment related to the mooring business, which was disposed of in Includes USD 41 million, the book value of the Rental Equipment related to the mooring business, which was disposed of in

99 Odfjell Drilling Ltd - Prospectus 4 Unaudited 5 Net debt consists of non-current and current borrowings less cash and cash equivalents. The table below sets out selected data from the Group s audited consolidated statement of financial position as of 31 December 2011 and As of 31 December (In NOK millions) 2011 (NGAAP) (audited) 2010 (NGAAP) (audited) Assets Intangible assets Property, plant and equipment , ,543.8 Financial fixed assets... 2, ,406.5 Total non-current assets... 12, ,144.4 Spare parts Trade receivables... 1, ,236.1 Other current assets Cash and bank deposits... 1, ,605.3 Total current assets... 3, ,159.1 Total assets... 16, ,303.4 Total paid-in capital... 1, ,986.0 Other equity... 4, ,803.1 Non-controlling interests Total equity... 6, ,944.7 Borrowings... 8, ,748.1 Post employment benefits Other non-current liabilities Total non-current liabilities... 8, ,033.8 Trade payables Other current liabilities ,123.7 Total current liabilities... 1, ,325.0 Total liabilities... 9, ,358.7 Total equity and liabilities... 16, ,303.4 Interest coverage Debt/equity Net interest bearing debt/equity The book value of the Rental Equipment at 31 December 2011 was NOK million (of which NOK million was related to the rig mooring business) compared to NOK million (of which NOK million was related to the rig mooring business) at 31 December The accumulated cost price of the Rental Equipment in use at 31 December 2011 was NOK 1,910.7 million (of which NOK million was related to the rig mooring business) compared to NOK 1,657.3 (of which NOK million was related to the rig mooring business) at 31 December Unaudited Condensed consolidated statement of cash flow The table below sets out selected data from the Group s audited consolidated statements of cash flows for the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim statements of cash flows for the three and six month periods ended 30 June 2013 and

100 Odfjell Drilling Ltd - Prospectus Three months ended 30 June Six months ended 30 June Year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Cash flow from operating activities Profit before income tax Adjustments for: Depreciation and impairment Unrealised loss on interest rate swaps... (4.3) 0.2 (7.0) (0.1) (1.6) 23.4 Interest expense net Borrowing cost Share of (profit)/loss from joint ventures Net (gain)/loss on sale of shares... (3.1) - (3.1) - - (46.0) Net (gain)/loss on sale of tangible fixed assets... (18.0) (0.7) (18.3) (1.2) (2.6) 0.4 Post-employment benefit expenses less post employment benefit payments... - (3.1) (1.4) (6.3) (6.5) 6.7 Foreign exchange losses/(gain) on operating activities... (2.0) 20.1 (2.7) 8.3 (21.9) (25.7) Impairment of investments in shares Changes in working capital: Spare parts... (1.4) 0.5 (1.3) (0.3) Trade receivables... (1.1) (39.4) Trade payables (3.6) Other accruals... (10.7) (24.5) (21.0) (35.4) (5.2) (35.0) Cash generated from operations Interest paid... (14.5) (13.2) (28.0) (24.7) (55.7) (49.1) Income tax paid... (3.1) (0.8) (16.7) (2.8) (14.5) (19.2) Net cash generated from operating activities Cash flows from investing activities: Purchase of property, plant and equipment... (22.1) (75.9) (38.8) (158.1) (210.9) (148.8) Proceeds from sale of property, plant and equipment (1.3) Loans granted to employees... - (0.2) 0.1 (0.1) 0.1 (0.6) Sub-ordinated loan to related parties... (12.2) (78.4) (12.2) (78.4) (80.0) - Other long term receivables... (4.7) 0.7 (8.2) (1.9) (21.2) - Purchase of shares incl. joint ventures... (3.4) - (4.1) - - (92.9) Proceeds from sale of shares and bonds Net cash used in investing activities (155.0) 4.4 (237.6) (305.9) (213.0) Cash flows from financing activities: Proceeds from debt to financial institutions ,413.8 Repayments of debt to financial institutions... (51.7) (43.8) (346.7) (43.8) (99.9) (1,324.0) Acquisition shares non-controlling interests (64.3) Dividends paid to owners of the parent... (8.6) - (14.8) - (1.8) (7.5) Dividends paid to non-controlling interests... - (6.0) - (6.0) (8.7) (16.2) Net cash used in financing activities... (60.2) (49.7) (78.0) (49.7) (61.0) 66.0 Net change in cash and cash equivalents (142.1) 42.3 (141.9) (99.7) 50.6 Cash and cash equivalents at beginning of period Exchange gains/(losses) on cash and cash equivalents (1.6) (2.8) (21.6) Cash and cash equivalents at end of period

101 Odfjell Drilling Ltd - Prospectus The table below sets out selected data from the Group s audited consolidated statements of cash flows for the years ended 31 December 2011 and Year ended 31 December (In NOK millions) 2011 (NGAAP) (audited) 2010 (NGAAP) (audited) Cash flow from operating activities Profit before income tax Adjustments for: Depreciation and impairment Unrealised loss on interest rate swaps... (144.4) - Share of (profit)/loss from joint ventures (25.7) Net (gain)/loss on sale of shares... (221.9) - Net (gain)/loss on sale of tangible fixed assets... (15.0) (26.0) Post-employment benefit expenses less post employment benefit payments Changes in working capital: Spare parts... (105.2) (107.6) Trade receivables... (264.6) (173.4) Trade payables Other accruals... (187.5) (178.8) Cash generated from operations Income tax paid... (73.8) (216.2) Net cash generated from operating activities Cash flows from investing activities: Purchase of property, plant and equipment... (589.0) (2,516.2) Proceeds from sale of property, plant and equipment Other long term receivables... (6.0) Purchase of shares incl. joint ventures... (624.4) (795.3) Proceeds from sale of shares and bonds Net cash used in investing activities... (1,001.9) (3,025.4) Cash flows from financing activities: Net proceeds from debt to financial institutions ,679.5 Dividends paid to owners of the parent... (45.0) (40.0) Dividends paid to non-controlling interests... (90.8) (72.4) Net cash used in financing activities ,567.0 Net change in cash and cash equivalents... Cash and cash equivalents Cash and cash equivalents at (1,323.8) 1, , ,822,4 1, Condensed consolidated statement of changes in equity The table below sets out selected data from the Group s audited consolidated statements of changes in equity for the years ended 31 December 2012 and 2011 and from the unaudited consolidated interim statement of changes in equity for the six months ended 30 June 2013 and Six months ended 30 June Year ended 31 December (In USD millions) (IFRS) (IFRS) (IFRS) (IFRS) (unaudited) (unaudited) (audited) (audited) Balance at the beginning of the period... 1, , , Profit/(loss) for the period

102 Odfjell Drilling Ltd - Prospectus Six months ended 30 June Year ended 31 December (In USD millions) 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) 2012 (IFRS) (audited) 2011 (IFRS) (audited) Other comprehensive income for the period... (10.3) (34.6) Total comprehensive income for the period Dividends... (8.6) 6.0 (16.6) (22.7) Acquisition minority share... (64.3) Transactions with owners... (72.8) 6.0 (16.6) (22.7) Balance at period end... 1, , , ,032.8 The table below sets out selected data from the Group s audited consolidated statements of changes in equity for the years ended 31 December 2011 and Year ended 31 December (In NOK millions) 2011 (NGAAP) (audited) 2010 (NGAAP) (audited) Balance at the beginning of the period... 5, ,047.2 Profit/(loss) for the period Currency translation differences... (41.9) (474.7) Other adjustments... (3.5) 1.5 Total changes in other equity in the period (167.6) Dividends... (135.8) (40.0) Net issued capital ,105.5 Transactions with owners... (135.8) 1,065.5 Balance at period end... 6, , Segment information The table below is derived from the notes to the Group s Financial Statements and Interim Financial Statements. As the segment information does not exist in this format under the NGAAP Financial Statements, the 2010 figures are not included in this table. In accordance with the internal financial reporting, the Group s 40% ownership interest in Deep Sea Metro has been presented in the MODU segment using the line-by-line proportionate method. (amounts in USD millions) Year 2012 Mobile offshore drilling units Drilling and technology Well services Income Statement Total income EBITDA Depreciation & impairment.... (122.7) (5.9) (42.6) EBIT Revenue growth % (1.6)% 7.9% EBITDA growth % (41.4)% 5.3% EBIT growth % (42.4)% 7.8% EBITDA-margin % 7.9% 45.8% EBIT-margin % 6.0% 25.3% Share of group revenue % 26.0% 17.1% Share of group EBITDA % 6.1% 23.5% Share of group EBIT % 8.1% 22.5% 1 Before group eliminations and corporate overheads. 96

103 Odfjell Drilling Ltd - Prospectus (amounts in USD millions) Year 2011 Mobile offshore drilling units Drilling and technology 1 Well services Income Statement Total income EBITDA Depreciation & impairment.... (94.6) (9.6) (41.6) EBIT Revenue growth EBITDA growth EBIT growth EBITDA-margin % 13.2% 46.9% EBIT-margin % 10.2% 25.4% Share of group revenue % 29.5% 17.7% Share of group EBITDA % 11.8% 25.2% Share of group EBIT % 15.3% 22.9% 1 Includes contribution from the well management business sold in 2011 of USD 17.4 million, USD 5.9 million and USD 5.8 million in operating income, EBITDA and EBIT, respectively. 2 Before group eliminations and corporate overheads. (amounts in USD millions) Six months ended 30 June 2013 Mobile offshore drilling units Drilling and technology Well services Income Statement Total income EBITDA Depreciation & impairment.... (66.2) (2.7) (20.8) EBIT Revenue growth % 19.9% 13.7% EBITDA growth % 26.2% 19.4% EBIT growth % 37.0% 36.6% EBITDA-margin % 7.2% 46.6% EBIT-margin % 5.6% 28.6% Share of group revenue % 26.7% 17.5% Share of group EBITDA % 5.6% 23.7% Share of group EBIT % 7.2% 24.1% 1 Before group eliminations and corporate overheads. (amounts in USD millions) Six months ended 30 June 2012 Mobile offshore drilling units Drilling and technology Well services Income Statement Total income EBITDA Depreciation & impairment.... (57.1) (2.8) (21.0) EBIT Revenue growth EBITDA growth EBIT growth EBITDA-margin % 6.8% 44.4% EBIT-margin % 4.9% 23.8% Share of group revenue % 25.3% 17.5% Share of group EBITDA % 5.3% 24.2% Share of group EBIT % 6.9% 22.9% 1 Before group eliminations and corporate overheads. 97

104 Odfjell Drilling Ltd - Prospectus (amounts in USD millions) Three months ended 30 June 2013 Mobile offshore drilling units Drilling and technology Well services Income Statement Total income EBITDA Depreciation & impairment.... (33.2) (1.6) (9.6) EBIT (amounts in USD millions) Three months ended 30 June 2012 Mobile offshore drilling units Drilling and technology Well services Income Statement Total income EBITDA Depreciation & impairment.... (29.0) (1.4) (10.5) EBIT Sales revenues by geographical area The table below sets out Odfjell Drilling s sales revenues by geographic area for the years ended 31 December 2012 and Combined year ended 31 December In USD million 2012 (IFRS) (unaudited) 2011 (IFRS) (unaudited) Sales revenues... 1,094 1,057 - Norway UK Europe (excluding Norway and the UK) Middle East Philippines Africa The table below sets out Odfjell Drilling s sales revenues by geographic area for the years ended 31 December 2011 and Combined year ended 31 December In NOK million 2011 (NGAAP) (unaudited) 2010 (NGAAP) (unaudited) Sales revenues... 5,925 4,725 - Norway... 4,611 3,810 - UK Europe (excluding Norway and the UK) Middle East Philippines Africa

105 Odfjell Drilling Ltd - Prospectus Analysis of material differences between IFRS and NGAAP General Odfjell Drilling has performed an analysis of currently prevailing standards of IFRS and NGAAP as they relate to the activities of the Group. The purpose of this analysis was to identify material differences between IFRS and NGAAP which are assumed to have a material effect on the Group's results, positions or cash flows presented in the Financial Statements. The analysis covered only those differences in accounting policies in force at the time of the preparation of the consolidated financial statements for year ended 31 December Future developments or changes in IFRS or NGAAP may give rise to additional differences between IFRS and NGAAP, which could have a significant impact on the Group. No attempts have been made to identify such differences. For the Group's consolidated financial statements as of and for the year ended 31 December 2012 prepared in accordance with IFRS, IFRS have been applied retrospectively on the comparable figures for the year ended 31 December 2011, including the income statement and the financial positions as at 1 January 2011 and 31 December Other comprehensive income The transition from NGAAP to IFRS introduces the concept of other comprehensive income. Accumulated other comprehensive income is often attributable to gains and losses yet to be realized from a variety of sources including unrealised pension costs, gains and losses on securities and derivatives, foreign currency hedges and exchange differences on translation of foreign subsidiaries. Under NGAAP such items would normally be recognised directly in equity Goodwill Goodwill is under NGAAP subject to amortisation over its useful life, whereas amortisation of goodwill is not permitted according to IFRS. Goodwill is tested for impairment under both NGAAP and IFRS, but there are more formalised requirements under IFRS relating to the frequency and calculation method Financial derivatives The accounting treatment of financial derivatives are different under NGAAP and IFRS. The Group has several interest rate swaps, whereas some qualify for hedge accounting under IFRS. For further details regarding the effect of transition from NGAAP to IFRS, see note 26 in the consolidated financial statements for year ended 31 December Employee benefits The Group has applied IAS 19 (revised) when accounting for employee benefits. Under IFRS, the employee benefits are recognised at fair value, while under NGAAP it is allowed to allocate the actuarial gains and losses over the expected remaining period of service. Potential investors should be aware that there are differences between IFRS and NGAAP related to the classification of financial items in the financial statements. Such differences have not been accentuated in this analysis, as they do not affect the figures, except in how they are presented. 99

106 Odfjell Drilling Ltd - Prospectus 11 OPERATING AND FINANCIAL REVIEW The following review of the Group s financial condition and operating results should be read in conjunction with Section 10 Selected financial information, the IFRS Financial Statements (including the notes thereto), the NGAAP Financial Statements (including the notes thereto), and the Interim Financial Statements (and the notes thereto), included in the appendices B and C of this Prospectus. Note 26 to the Group s Financial Statements for the year ended 31 December 2012 discloses the impact of the Group s transition to IFRS from NGAAP in connection with the preparation of its initial IFRS Financial Statements as at and for the year ended 31 December The Interim Financial Statements do not include all of the information required for the full annual financial statements of the Group and should be read in conjunction with the Financial Statements. This review contains forward-looking statements based on current expectations and assumptions about the Group s future business. The actual results of the Group may differ materially from those discussed in these forwardlooking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Prospectus, including in Section 2 Risk factors and Section 4.3 Cautionary note regarding forward-looking statements Overview and presentation Odfjell Drilling is an integrated drilling, engineering and well services provider with more than 40 years experience focusing on the offshore harsh environment and deepwater markets, including on the NCS Reporting segments The Group s three IFRS reporting segments, with effect from 1 January 2012 are: MODU: In the MODU segment, the Group operates drilling units wholly or partly owned by the Group. The MODU segment also carries out management services on behalf of other owners of semisubmersibles, drillships and jack-ups, including services related to operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. Well Services: The Well Services segment provides casing and tubular running services as well as drilling tool and tubular rental services both for exploration wells and for production purposes. Drilling & Technology: Within the Drilling & Technology segment, the main service offered by the Platform Drilling business area is production drilling and well completion on clients rigs. Other types of services that the Platform Drilling business area offers are slot recovery, plug and abandonment, workovers and maintenance activities. The Technology business area offers engineering services, including design, project management and operational support relating to newbuild projects, SPS and yard stays Presentation of Financial Information The Group has prepared its financial statements under IFRS since the year ended 31 December The IFRS Financial Statements include a comparison of the Group s consolidated income statement, statement of financial position, statement of cash flows and statement of changes in equity as of and for the year ended 31 December Its Interim Financial Statements as of and for the three months and six months ended 30 June 2013 and 2012 have been prepared in accordance with IAS 34. The IFRS Financial Statements and the Interim Financial Statements are presented in USD. The NGAAP Financial Statements are presented in NOK. Financial information for 2010 and 2011 prepared under NGAAP and financial information for 2012 and for the six months ended 30 June 2013 prepared under IFRS are not comparable, because they have been prepared in accordance with different sets of accounting standards. Accordingly, no comparisons can be made between the Group s results of operations for 2010 and its results of operations for 2012 or for the six months ended 30 June Note 26 to the IFRS Financial Statements contains reconciliations of the Group s consolidated statement of financial position, consolidated income statement and statement of comprehensive income, in each case as previously reported under NGAAP. Note 26 also details the principal adjustments that have been required in order to effect such a transition. The primary differences between IFRS and NGAAP that impact the Group relate to amortisation of goodwill, net 100

107 Odfjell Drilling Ltd - Prospectus pension liabilities and derivative financial instruments. IFRS financial statements do not exist for the Group as of and for the year ended 31 December Accordingly, in order to facilitate the comparison between periods in this operating and financial review, the discussion and analysis of the Group s results of operations and cash flows below includes: a discussion and analysis of the Group s results of operations and cash flows for the years ended 31 December 2012 and 2011 based on the IFRS Financial Statements; and a discussion and analysis of the Group s results of operations and cash flows for the years ended 31 December 2011 and 2010 based on the NGAAP Financial Statements. In connection with its transition to IFRS, the Group also adopted reporting segments to conform to IFRS requirements to report its results of operations by operating segments in a manner that is consistent with the internal financial reporting provided to the Group s chief operating decision-maker. This operating and financial review therefore contains a discussion and analysis of revenue and EBIT for the Group s three IFRS reporting segments for each of the periods covered by the IFRS Financial Statements. Under NGAAP, there is no corresponding requirement to present business segmentation and accordingly no such segmentation exists in the NGAAP Financial Statements. This operating and financial review does not, therefore, contain such a segmental discussion for the periods covered by the NGAAP Financial Statements Key factors affecting the Group s results of operations and financial performance Client demand and spending Demand for the Group s services is principally driven by clients (primarily oil and gas companies ) spending to explore and develop oil and gas reserves and produce oil and gas products, as well as their need for ancillary services. The Group s clients also include companies who sell products and services to the oil and gas companies. The oil and gas companies level of E&P activity will, consequently, also affect the level of activity of these clients and their demand for the Group s services. The oil and gas industry is highly cyclical. Many factors can affect the level of exploration, development and production activities by the Group s clients including macroeconomic trends in the oil and gas industry. Global macroeconomic conditions and trends have a direct effect on the activity level of the Group, including, for example, its ability to secure new contracts and to build a stable contract backlog, and therefore its results of operations and financial performance. See Section 7 Industry and market overview for a discussion of the principal macroeconomic and industry trends affecting the Group s results of operations. During the periods under review, global industry conditions have developed favourably, with all of the oil and gas companies with which the Group has significant client relationships increasing their level of E&P spending. E&P spending in Norway remained high with the number of drilled wells increasing to compensate for the decline in Norwegian oil production. In the two year period from 2009 to 2011, a total of 162 exploration wells were drilled on the NCS compared to 184 wells during the previous seven years (The Norwegian Petroleum Directorate). See Section The Norwegian rig market for a discussion of trends in the drilling of wells on the NCS. Oil and gas companies' budget announcements and spending plans released to date indicate growth of approximately 8% yearon-year for the year ended 31 December As a result of increased E&P spending and, therefore, increased demand for drilling services, the Group has been able to maintain high utilisation of its assets and employees in all of its business segments during the periods under review. This has generally affected the Group s results of operations positively. The results of operations of the Group s MODU segment and its Platform Drilling business area are affected by longer-term spending decisions of their clients, which are themselves based on long-term trends in oil and gas prices, while the results of operations of the Technology business area and the Well Services segment are more sensitive to client decisionmaking based on short-term fluctuations in oil and gas prices. Demand for the Group s services is also positively impacted by its clients increasingly seeking opportunities in deeper and harsher waters, as this favours the Group s products and services. Harsh environments, in particular, and ultra-deepwater areas have high barriers to entry and the day rates that the Group earns in these areas in its MODU segment are higher than day rates applicable in less deep waters or more benign conditions. As between harsh environment and ultra-deepwater drilling, the Group generally earns higher day rates in harsh environments 101

108 Odfjell Drilling Ltd - Prospectus in view of the difficulty of operating conditions and the Group s acknowledged expertise. See Section 7 Industry and market overview for a discussion of day rates in harsh environments. With its sixth-generation Drilling Units, the Group believes it is well positioned to secure drilling contracts in these areas in the future Revenue generation The Group s three segments use different contracting models and performance indicators due to the different types of services offered by each segment, which have an impact on revenue generation, and therefore EBIT, for each segment. MODU The Group considers that the related performance indicators, contracts and day rates, and financial utilisation, together with backlog (discussed below) are key to understanding the MODU segment s revenues and results of operations. Contracts and day rates For the MODU segment, the Group generally enters into medium-term (one to two years) and long-term (over two years) Drilling Unit contracts, customarily with an option for the client to extend the contract for one or several optional periods, and often including mobilisation fees for new contracts. Day rates are the rates at which the MODU segment earns revenue for its services under its Drilling Unit contracts with clients and the Group generally invoices its clients monthly in arrears. The Group s contracts provide for lower day rates that apply under certain circumstances that prohibit or reduce the financial utilisation of the Drilling Unit (for example delays due to weather, repairs, maintenance, standby arrangements and force majeure). Day rates often vary by geographic market as they reflect cost levels, tax rates and capital expenditure required for each jurisdiction, as well as the supply of available drilling units. However, changes in market day rates generally only affect the MODU segment s day rates when the MODU segment signs a new contract, as day rates are fixed over the contract term. The Group also enters into contracts to manage mobile offshore drilling units owned by third parties or jointly owned by the Group and third parties. These contracts, which include contracts for services provided on the drillships Deepsea Metro I and Deepsea Metro II as well as the rig Island Innovator, generally provide for fixed daily fees, incentive fees based on financial performance, support fees and other commissions. Financial utilisation Financial utilisation for the MODU segment s Drilling Units is measured on a monthly basis and comprises the actual monthly invoice amount (encompassing different hourly day rates) for all hours in a month, expressed as a percentage of the full day rate for all hours in a month. Financial utilisation, by definition, does not take into account periods of non-utilisation when the Drilling Units are not under contract. As is customary in the industry, Drilling Units are subject to periods of non-utilisation to permit upgrades, repair, maintenance, inspections and surveys, which periods can be significant. The Drilling Units also go through additional periods of non-utilisation in connection with the SPS each fifth year to obtain re-classification, during which the Drilling Unit could be idle for 30 days or more. The Group estimates that its capital expenditure every five years for SPS is USD 30 million per rig. The Group's last SPS occurred in 2010 for Deepsea Bergen. The Group s remaining Drilling Units have not yet been subject to SPS, since all of them are less than five years old. Deepsea Atlantic is due for SPS in 2014, Deepsea Stavanger in the third quarter of 2015 and Deepsea Metro I and Deepsea Metro II in Financial utilisation takes into account scheduled non-utilisation that occurs after the commencement of a contract. Accordingly, financial utilisation for Deepsea Stavanger was not adjusted during its yard stay between the Ophir and BP contracts in 2011; however, financial utilisation took into account Deepsea Bergen s last SPS, which occurred during the term of a contract. 102

109 Odfjell Drilling Ltd - Prospectus The table below sets out the historical financial utilisation for each Drilling Unit under drilling contracts in the applicable period. Financial utilisation is measured from the commencement date to the expiry date of the drilling contracts. Year ended 31 December Six months ended Month ended 30 June 31 July 31 Aug Deepsea Stavanger % 91.2% 79.0% 85.9% 98.1% 84.2% Deepsea Atlantic % 97.4% 98.0% 99.3% 99.7% 98.7% Deepsea Bergen % 96.8% 97.0% 99.7% 99.5% 99.7% Deepsea Metro I % 97.5% 97.5% 99.9% 100% Deepsea Metro II % 81.5% 99.6% 97.6% 1 Deepsea Stavanger was delivered from the shipyard on 8 July 2010 and commenced operations for Ophir in Tanzania on 16 September Deepsea Stavanger s contract with Ophir in Tanzania ended on 18 April Between 18 April 2011 and 17 November 2011 Deepsea Stavanger was mobilised and was at the shipyard for client modifications until commencement of operations in Angola under its contract with BP on 17 November Deepsea Stavanger s low utilisation in 2012 and in the first half of 2013 was due to challenges with BOPs and subsea equipment. 2 Deepsea Atlantic was docked from 24 November 2009 due to a contractual dispute until it re-commenced operations for Statoil on the NCS on 5 December The reported utilisation above is for the period when Deepsea Atlantic re-commenced operations. 3 In 2010, the rig had a yard stay of 55 days for SPS, modifications and upgrades. 4 Deepsea Metro I was delivered from the shipyard on 22 June It commenced operations for BG in Tanzania on 26 December Deepsea Metro II was delivered from the shipyard on 25 November It commenced operations for Petrobras in Brazil on 17 May Deepsea Metro II s low utilisation in 2012 and in the first half of 2013 was due to challenges with BOPs and subsea equipment. Well Services Contracts In the Group s Well Services segment, the Group provides a wide range of services under a variety of contractual arrangements, including medium- to long-term framework agreements (one year to four years) for Rental Equipment and services at identified rates but generally with no volume commitment from the client, as well as exclusive service agreements priced at day rates or for lump sum payments. The Well Services segment has both exclusive and non-exclusive contracts. As there are generally no volume commitments under the contracts, deployment of equipment and personnel is a key factor for revenue generation. The cost structure for Well Services contracts generally is evenly divided between fixed and variable costs. From 2009 to 2012, the Well Services segment had a revenue CAGR of 12% and an average EBITDA margin of 44%. Drilling & Technology Contracts Within the Group s Drilling & Technology segment, the Platform Drilling business area s contracts in the NCS and UKCS are long-term (three years and longer) for fixed periods with an option for the client to extend the contract for additional specified periods, as is customary in the market. These contracts are customarily at fixed rates for the firm contracted period. The cost structure for Platform Drilling contracts may differ by client and geographic market. The Technology business area s services are provided under contracts that vary between short- to medium-term reimbursable fixed rate or cost-plus contracts. Fixed rate contracts involve fixed revenue amounts being received by the Group upon completion of certain milestones or fixed day rates received for the work performed whereas cost-plus contracts involve clients paying the costs of inputs with the addition of an agreed percentage of profit to the Group. The services are generally contracted under existing framework agreements with oil companies and rig owners. The Technology business area generates a significant part of its revenues from longterm contracts with clients of the Platform Drilling business area (approximately 40% of the Technology business area s revenue for the year ended 31 December 2012). Utilisation As the Platform Drilling business area s contracts are long-term contracts at fixed rates, utilisation of its services is normally fixed for the contract term. During the contract term, clients may change their production plans and, within identified notice periods, the Group may change the services it provides. There are different day rates applicable for the various types of services that may be provided. Capital expenditure for the Platform Drilling business area is mainly linked to the periodic maintenance of the platforms and is approximately USD 2 million per platform every five years. Growth in revenues in the Platform Drilling business area generally derives from new contracts rather than price increases. 103

110 Odfjell Drilling Ltd - Prospectus Most of the Technology business area s contracts are framework agreements, where the Group generates revenue only when its personnel are being utilised under the relevant contract. Utilisation is measured as the number of billable hours per employee expressed as a percentage of total hours available and is a key factor in revenue growth for this business area Backlog Backlog means contracted future revenue under contracts for Drilling Units in the MODU segment and services in Platform Drilling business area s contracts. Backlog is not calculated for the Group s Well Services segment and Technology business area as their contracts are typically long-term framework agreements which do not provide for fixed volumes; however, these businesses have nonetheless had a relatively predictable revenue stream. Backlog is also not calculated for the management contracts in the MODU segment. The Group presents backlog both inclusive and exclusive of any priced optional periods exercisable by clients. The Group seeks to enter into medium- (one to two years) to long-term (over two years) contracts for the MODU segment and long-term contracts for the Platform Drilling business area, both customarily with an option for the client to extend the contract for one or more optional periods. There are typically high costs for the client associated with replacing Drilling Units and platform drilling contractors. This provides an incentive for clients to exercise an option to extend the contract especially with the Platform Drilling business area. Backlog is calculated as the aggregate of such contracted future revenue for the MODU segment and Platform Drilling business area over the relevant contracted period for each contract. Backlog provides an indication of future revenues, but not future EBIT, as costs may not fluctuate in proportion to revenue. While backlog is a key performance indicator of the Group s future business, backlog may change over time depending on any early termination of contracts, changes to the scope of work and changes to the applicable day rate. Changes in backlog provide an early indication of the future direction of sales and earnings and also provide an early indicator for management to adjust resource levels or seek additional sales opportunities. As of 30 June 2013, the Group s total backlog was approximately USD 5,704 million inclusive of priced optional periods and approximately USD 3,395 million exclusive of priced optional periods. The following table sets out the Group s backlog for the periods indicated: (In USD million) H After Total Mobile offshore drilling units ,118 Firm contract ,571 Priced options Platform Drilling ,586 Firm contract Priced options ,762 Total backlog ,704 Firm contract ,395 Priced options ,309 1 Includes pro-rata backlog figures according to Odfjell Drilling s 40% ownership in Deep Sea Metro. 2 Total annual backlog figures may not equal the sum of firm contracts and priced option periods for the respective year due to rounding. 104

111 Odfjell Drilling Ltd - Prospectus Costs of operations Personnel costs Personnel costs are the costs related to: (i) for the MODU segment, offshore crews and onshore personnel operating the Drilling Units; (ii) for the Platform Drilling business area, onshore personnel and offshore crews that provide the drilling and maintenance services; (iii) for the Technology business area, the engineers that perform services; (iv) for the Well Services segment, personnel that provide the casing and tubular running services and rental services; and (v) corporate and administrative personnel. These costs, which vary by geographic market and location, consist of employees salaries and wages, bonuses, employer s national insurance contributions, pension expenses, other benefits and hired personnel. The Group s operations depend on a skilled and experienced workforce of onshore personnel, offshore crew and offshore personnel and are all labour intensive. For the Technology and Platform Drilling business areas, personnel costs accounted for 90% of the business areas total operating costs in For the MODU segment, the Group s personnel cost is directly correlated to the number of Drilling Units under contract, as its crews are paid for the number of days worked at a set day rate, rather than by a salary. The Group has in the past maintained, and may in the future maintain, a core crew on Drilling Units when they are off-hire for shorter periods so that they can be mobilised quickly and at a lower cost when they are contracted, which may result in the incurrence of some personnel costs even when a rig is off-hire. Subject to customer demand and requirements, the MODU segment may also utilise subcontractors and extra personnel in addition to the requirements specified in the contract. These personnel expenses are in general reimbursable from the client plus a margin. For the Technology and Platform Drilling business areas and the Well Services segment it may be necessary to use hired personnel from third parties depending on the availability and current utilisation/workload of the Group's employees, the cost of which may be reimbursable plus a margin depending on the contract type. Third party personnel costs in the MODU and Well Services segments and the Technology and Platform Drilling business areas may not be reimbursable from the client if the Group needs additional personnel to fulfil its contractual obligations. The structure described above assists the Group in adapting its cost base to reduced activity levels. Depreciation costs Depreciation costs primarily consist of depreciation of the Group s Drilling Units and Rental Equipment. Drilling Units are depreciated using the straight line method as from the date of first commencement of the unit, and taking into account an estimated residual value (approximately 11% of the total purchase price, which the Group defines as costs incurred until the commencement of the contract). For the purpose of calculating depreciation, Drilling Units are divided into main components that are depreciated over their expected useful lifetime. The main group of components are the rig, derrick and drain system (approximately 52% of the total purchase price), which are expected to have an economic useful lifetime of 30 years, the drilling package, cranes and crew equipment (approximately 32% of the total purchase price) which are depreciated over 20 years and other equipment (approximately 5% of total purchase price) which is being depreciated over five years. The Well Services segment s Rental Equipment is depreciated over the expected useful life of each individual asset. The Group's depreciation schedules are subject to on-going review based on experience and changes in technology and other factors which impact on the expected useful life Borrowing costs The Group has incurred, and may in the future incur, significant amounts of debt. As of 30 June 2013, the Group had USD 1,358.6 million in interest bearing debt, representing 49.6% of its total equity and liabilities. As a result, borrowing costs have been and may continue to be a significant cost for the Group, and the Group is, and will continue to be exposed to interest rate risk primarily in relation to the portion of its long-term borrowings bearing floating interest rates. The Group s current quarterly interest cost, excluding interest costs on Deep Sea Metro debt, is approximately USD 14 million. See Section Material borrowings. The Group evaluates the extent to which it needs to enter into interest rate hedging transactions based on assessment of the Group s total interest rate risk and currently has a combination of borrowings that bear interest 105

112 Odfjell Drilling Ltd - Prospectus at fixed and floating interest rates in order to limit exposure. Approximately 50% of the Group s long-term floating rate debt was hedged as of 30 June Although interest rates were generally low during the periods under review, increases in interest rates may, to the extent not hedged pursuant to the Group s hedging policies, impact the Group s cash flow and financial condition in the future Investments in joint ventures and disposals Historically, the Group has made material acquisitions and disposals, although no material acquisitions have been made during the periods under review. The Group has, however, made significant investments in a joint venture with Metro Exploration for Deep Sea Metro. In addition, the Group holds a 50% ownership interest in Odfjell Galvão B.V., a joint-venture company established with Galvão Oil and Gas Holding B.V. As of 30 June 2013, the Group holds a 40% ownership in Deep Sea Metro, which owns the two drillships Deepsea Metro I and Deepsea Metro II, and which the Group accounts for under the equity method and which is reported under share of profit/losses from joint ventures. In its segmental reporting for the MODU segment, however, the Group s share of revenue, EBITDA and EBIT for Deep Sea Metro are included in segmental revenue, EBITDA and EBIT, respectively. The average book value for each of these two drillships was USD million at 30 June The Company estimates that their market value is in the range of USD million. The quarterly depreciation charge for Deep Sea Metro is USD 18 million. The Group s investment in Deep Sea Metro was USD million at 30 June As of 30 June 2013, USD 6.4 million of Odfjell Drilling s USD 45 million investment commitment in Odfjell Galvão B.V. has been paid. The remainder is expected to be paid over the period up to 2018 with cash from the Group to be contributed as equity in the joint venture. The Group s capital exposure is limited to the USD 45 million commitment. However, if the drillships experience delays or cost overruns, the Group is not committed to follow up with the remainder payment as it may instead opt to accept dilution of its equity holding in the joint venture. See Section Mobile Offshore Drilling Units (MODU) for a more detailed description of the Odfjell Galvão B.V. joint venture. In August 2011, the Group disposed of its well management and consulting business area, which had been part of its Drilling & Technology segment, with a net gain of USD 43.2 million. As part of the consideration, the Group received shares in the joint venture Ross Holding AS, a provider of total well and reservoir management, including carbon storage. The Group holds a 50% ownership in Ross Holding AS as of 30 June 2013, with a book value of USD 19.0 million, which it accounts for under the equity method, and which is reported under share of profit/losses from joint ventures. In its segmental reporting for the Drilling & Technology segment, the Group s share of revenue, EBITDA and EBIT for Ross Holding AS is not included in segmental revenue, EBITDA and EBIT, respectively. However, the Group s share of net profit for Ross Holding AS is included in Share or profit/loss from joint venture in the Group s income statement. In addition, on 16 April 2013, Odfjell Partners Invest Ltd, a subsidiary of the Group, entered into sale and purchase agreements by which it sold its rig mooring business, Deep Sea Mooring AS, which was established in 2008, and related mooring equipment to DSM Holding AS and Equipment Rental Solutions Ltd, subsidiaries of HitecVision. The disposal of the rig mooring business, which offered rental mooring equipment, pre-lay mooring solutions and ancillary mooring services to oil and gas companies and rig owners in Norway, and was previously part of the Well Services segment, was completed on 16 May 2013 with a return on invested capital of approximately 40% including the disposal. This disposal resulted in a net gain of USD 20.6 million. The contribution of the rig mooring business to Revenue, EBITDA and EBIT for the period from January 2013 until its sale in April 2013 was USD 11.4 million, USD 9.5 million and USD 6.7 million, respectively. 106

113 Odfjell Drilling Ltd - Prospectus The table below sets out the contribution of the rig mooring business to revenue, EBITDA and EBIT for the years ended 31 December 2012 and Year ended 31 December In USD million 2012 (IFRS) (unaudited) 2011 (IFRS) (unaudited) Revenue EBITDA EBIT The Group will continue to consider acquisition and disposal opportunities as part of its business development strategy Recent developments and trends The Group has experienced generally good market conditions and operating performance since 30 June The Group believes that the current revenue backlog provides a relatively high degree of financial visibility for the next few years. The Group believes the outlook for its three business segments is positive. The MODU segment has a strong medium- to long-term outlook in the drilling market. Deepsea Aberdeen, which is expected to commence operations in the fourth quarter of 2014, and potential incremental investment opportunities are expected to drive the Group s growth. Although the Deep Sea Metro joint venture so far has been loss-making due to relatively high financing cost in the joint venture and low financial utilisation of Deepsea Metro II, the Group expects this joint venture to contribute positively in the future due to Deepsea Metro I s contract extension at higher day rates in combination with a more normalised financial utilisation of Deepsea Metro II. The Group also expects continued strong growth in the Well Services segment in the coming years in-line with recent years. Finally, in the Drilling & Technology segment, the Group expects modest growth for the Platform Drilling business based on existing backlog and growth in the Technology business area as a consequence of expected high activity in the drilling industry in the coming years. The Group s management contract for Dalian Developer was terminated by Dalian Deepwater Developer Ltd on 4 September 2013 following a 30-day grace period as a result of Dalian Deepwater Developer Ltd s termination of its construction contract for the drillship Explanation of IFRS income statement line items Operating revenue. Operating revenue primarily consists of revenue generated under the Group s contracts. Operating revenue includes lump sum fees for mobilisation and demobilisation recognised over the contract period and reimbursed salary and personnel expenses for crews on Drilling Units with management agreements. Operating revenue reported for the MODU segment as reported in note 4 to the IFRS Financial Statements includes the Group s share of revenue from Deep Sea Metro. Other gains/losses. Other gains/losses primarily consist of gains and losses arising from disposals of well services equipment and gains and losses from disposals of subsidiaries and other assets. Share of profit/losses from joint ventures. Share of profit/losses from joint ventures primarily consists of the Group's share of profit/losses from investments classified as joint ventures, including in relation to Deep Sea Metro. The share of profit/losses from each joint venture investment is measured using the equity method in accordance with IFRS 11. Personnel expenses. Personnel expenses primarily consist of salaries and wages, including bonuses, and employer s national insurance contributions, pension expenses, other benefits and hired personnel (for the Group s operations). Depreciation and impairments. Depreciation and impairments consists primarily of depreciation of property, plant and equipment in addition to impairment of non-current assets. 107

114 Odfjell Drilling Ltd - Prospectus Other operating expenses. Other operating expenses consists primarily of administrative expenses, hired services and subcontractors (including consultants and subcontractors for specific projects), hired well service equipment, inspection and repair and maintenance. Interest income. Interest income includes interest income from bank and time deposits and interest on subordinated loans to related parties. Operating profit (EBIT). EBIT for the Group consists of operating revenue minus total operating expenses. EBIT for the MODU segment, as reported in note 4 to the IFRS Financial Statements, includes the Group s share of revenue from and operating expenses of Deep Sea Metro on a line-by-line basis. However, in the Group s consolidated income statement, its share of profit/loss from Deep Sea Metro is reported net under share of profit/losses from joint ventures. Borrowing cost. Borrowing cost consists primarily of interest expense on Group borrowings and fees related to borrowing facilities. Other financial items. Other financial items consist primarily of currency gains and losses, gains/losses on interest rate swaps and other financial income and expenses, including interest on net pension liabilities. Income tax (expense) income. Income tax (expense) income consists primarily of (i) income tax at domestic tax rates applicable to profits in countries where the Group operates, (ii) change in deferred tax and (iii) withholding tax on border crossing gross income generated in Angola Results of operations for the Group Six months ended 30 June 2013 compared to the six months ended 30 June Income statement The table below is extracted from the Group s Interim Financial Statements for the three month and six month periods ended 30 June 2013 and Three months ended 30 June Six months ended 30 June In USD million 2013 (unaudited) 2012 (unaudited) 2013 (unaudited) 2012 (unaudited) Operating revenue Total operating income Other gains/losses Share of profit/(loss) from joint ventures 2... (2.3) (1.7) (4.6) (3.3) Total other items (1.0) 16.8 (2.1) Personnel expenses... (132.2) (116.5) (271.2) (241.1) Depreciation and impairments... (36.1) (35.8) (73.7) (72.3) Other operating expenses... (62.4) (61.0) (128.8) (120.8) Total operating expenses... (230.7) (213.4) (473.8) (434.2) Operating profit (EBIT) Net financial items 3... (15.5) (24.7) (38.7) (26.9) Profit/(loss) before tax Income tax income (expense)... (70.9) (7.3) (77.2) (16.4) Profit/(loss) for the period... (9.2) Operating revenue in the Group includes reimbursed salary and personnel expenses for crews on Drilling Units with management agreements. 2 Share of profit/loss from Deep Sea Metro is reported net under share of profit/losses from joint ventures in the Group s consolidated income statement. This differs from the Group s segmental revenue, EBITDA, depreciation and EBIT for the MODU segment as reported in note 4 to the IFRS Financial Statements, where the Group s share of revenue, EBITDA, depreciation and EBIT from Deep Sea Metro are included on a line-byline basis. 3 Other financial items consists of currency gains, other financial income, currency loses, gain/loss on interest rate swaps and other financial expenses. 108

115 Odfjell Drilling Ltd - Prospectus Operating revenue Operating revenue for the six months ended 30 June 2013 was USD million compared to USD million for the six months ended 30 June 2012, an increase of USD 60.1 million, or 11.4%. Revenue grew in all business segments in the six months ended 30 June 2013, with a particularly strong growth in external revenue for the Drilling & Technology segment. The increase in revenue was primarily attributable to increased average financial utilisation for the MODU segment, a stronger market in general for Well Services, as well as new platform drilling contracts and increased engineering activity for the Drilling & Technology segment in the six months ended 30 June 2013 compared to the six months ended 30 June The total eliminations for operating revenue for the six months ended 30 June 2013 were USD (77.8) million, of which USD (66.5) million related to Deep Sea Metro and USD (11.3) million related to the net of inter-segment revenue and revenue not allocated to specific segments. The total eliminations for operating revenue for the six months ended 30 June 2012 were USD (59.3) million, of which USD (38.5) million related to Deep Sea Metro and USD (20.8) million related to the net of inter-segment revenue and revenue not allocated to specific segments. MODU Operating revenue for the MODU business segment for the six months ended 30 June 2013 was USD million (of which USD 66.5 million was related to Deep Sea Metro) compared to USD million (of which USD 38.5 million was related to Deep Sea Metro) for the six months ended 30 June 2012, an increase of USD 35.2 million, or 10.5%. The increase was primarily attributable to an increase in the average utilisation for Deepsea Stavanger and increased revenue from the management agreements with Deep Sea Metro, Dalian Developer and Island Innovator. Utilisation for Deepsea Stavanger was low in the first half of 2012 due to BOP challenges. Although there have also been some challenges with the BOP and subsea equipment in 2013, the average utilisation has increased, which has contributed to the growth in operating revenue for Deepsea Stavanger. Revenue from Deep Sea Metro operations increased by USD 28.0 million mainly due to Deepsea Metro II being in operation from 1 January to 30 June in 2013, a longer period than the period from 17 May to 30 June for which it was in operation in the first half of This increase was partially offset by challenges with subsea equipment on Deepsea Metro II caused by a leak on a hydraulic control line in April 2013 which was rectified during that same month. The growth in revenue was partially offset by the expiration of the Songa Trym and Songa Delta management agreements in Well Services Operating revenue for the Well Services business segment for the six months ended 30 June 2013 was USD million compared to USD million for the six months ended 30 June 2012, an increase of USD 14.0 million, or 13.7%. The increase was primarily attributable to increased demand in all business areas in the Well Services segment, partly offset by the disposal of the mooring business unit. Drilling & Technology Operating revenue for the Drilling & Technology business segment for the six months ended 30 June 2013 was USD million compared to USD million for the six months ended 30 June 2012, an increase of USD 29.4 million, or 19.9%. The increase was primarily attributable to an increase in platform drilling contracts, from seven to nine contracts, in addition to increased delivery of engineering services generated through management agreements in the MODU segment as well as engineering services to the mobile drilling unit Island Innovator. Other gains and losses Other gains and losses for the six months ended 30 June 2013 were USD 21.4 million compared to USD 1.2 million for the six months ended 30 June 2012, an increase of USD 20.2 million. The increase was primarily attributable to the disposal of Deep Sea Mooring AS and related mooring services equipment owned by Odfjell Partners Invest Ltd. Share of loss from joint ventures Share of loss from joint ventures for the six months ended 30 June 2013 was USD (4.6) million compared to USD (3.3) million for the six months ended 30 June 2012, an increase of USD 1.3 million, or 40.8%. The increase was primarily attributable to increased share of loss from Deep Sea Metro. Even though Deepsea Metro I extended its contract with BG from early June 2013 at increased day rates, Deep Sea Metro has so far been loss-making overall due to relatively high financing costs, low financial utilisation of Deepsea Metro II and contracted day rates lower than those that would otherwise be obtainable in the current market for both Deepsea Metro I and Deepsea Metro 109

116 Odfjell Drilling Ltd - Prospectus II. The share of loss increased in the second quarter of 2013 compared to the first quarter due to reduced financial utilisation of Deepsea Metro II from the first to the second quarter caused by the challenges with subsea equipment on Deepsea Metro II discussed above in Operating Revenue. Personnel expenses Personnel expenses for the six months ended 30 June 2013 were USD (271.2) million compared to USD (241.1) million for the six months ended 30 June 2012, an increase of USD 30.1 million, or 12.5%. The increase was primarily attributable to an increase in number of employees due to new platform drilling contracts. Depreciation and impairments Depreciation and impairments for the six months ended 30 June 2013 was USD (73.7) million compared to USD (72.3) million for the six months ended 30 June 2012, an increase of USD 1.4 million, or 2.0%. The increase was primarily attributable to depreciation of new investments in Drilling Units and Rental Equipment in the period, partly offset by the disposal of the mooring business in May Other operating expenses Other operating expenses for the six months ended 30 June 2013 were USD (128.8) million compared to USD (120.8) million for the six months ended 30 June 2012, an increase of USD 8.1 million, or 6.7%. The increase was to meet the increased demand for the Group s services and was in line with the growth in revenue for the same period. Operating profit (EBIT) Operating Profit (EBIT) for the six months ended 30 June 2013 was USD million compared to USD 88.9 million for the six months ended 30 June 2012, an increase of USD 39.3 million, or 44.3%. The increase was primarily attributable to growth in EBIT for all segments, in addition to a net gain from sale of the mooring business of USD 20.6 million. The increased EBIT was partly offset by an increased share of loss from joint ventures. The total eliminations and corporate items for EBIT for the six months ended 30 June 2013 were USD (9.8) million, of which USD (17.5) million related to Deep Sea Metro, USD (9.4) million related to corporate overheads, USD 20.6 million related to gains, USD (4.6) million related to the other joint ventures and disposals and USD 1.0 million related to accounting differences. The total eliminations for EBIT for the six months ended 30 June 2012 were USD (17.3) million, of which USD (10.9) million related to Deep Sea Metro, USD (9.2) million related to corporate overheads, USD (3.3) million related to the other joint ventures and disposals and USD 6.1 million related to accounting differences. MODU EBIT for the MODU business segment for the six months ended 30 June 2013 was USD 94.8 million compared to USD 74.6 million for the six months ended 30 June 2012, an increase of USD 20.2 million or 27.1%. The increase was primarily attributable to the increased EBIT for Deepsea Stavanger operations. The growth in EBIT for the management of Deep Sea Metro, Dalian Developer and Island Innovator increased, but the increase was offset by the expiration of management agreements for Songa Trym and Songa Delta in The Group has management contracts for the management of mobile offshore drilling units owned by third parties or jointly by the Group and third parties. EBIT from these management contracts grew in the six months ended 30 June 2013 as Deepsea Metro II had been in operation for all six months, as opposed to less than two months in the six months ended 30 June In addition, the Group started managing Dalian Developer in 2013 and Island Innovator at the end of 2012, both of which further increased the EBIT from management contracts in the six months ended 30 June The growth in EBIT from these contracts was offset by the expiration of the Group s management of Songa Trym and Songa Delta in August Well Services EBIT for the Well Services business segment for the six months ended 30 June 2013 was USD 33.2 million compared to USD 24.3 million for the six months ended 30 June 2012, an increase of USD 8.9 million, or 36.6%. The increase was primarily attributable to the growth in revenue and stable margins relative to previous years. 110

117 Odfjell Drilling Ltd - Prospectus Drilling & Technology EBIT for the Drilling & Technology business segment for the six months ended 30 June 2013 was 10.0 million compared to USD 7.3 million for the six months ended 30 June 2012, an increase of USD 2.7 million, or 37.0%. The increase was primarily attributable to an increased number of platform drilling contracts and growth in the technology business. Net financial items Net financial items for the six months ended 30 June 2013 was USD (38.7) million compared to USD (26.9) million for the six months ended 30 June 2012, an increase of USD (11.8) million, or (43.9%). The increase primarily reflects an increase in net exchange losses and expensed financing fees in relation to the refinancing of Deepsea Bergen in the period. Profit/(loss) before taxation For the reasons described above, profit before taxation for the six months ended 30 June 2013 was USD 89.5 million compared to USD 61.9 million for the six months ended 30 June 2012, an increase of USD 27.6 million, or 44.6%. Income tax expense Taxation expense for the six months ended 30 June 2013 was USD 77.2 million compared to USD 16.4 million for the six months ended 30 June 2012, an increase of USD 60.9 million. The increase was primarily attributable to USD 62.8 million in recognised tax expense following the outcome of the tax court case described in Section Tax court case. The Group is appealing the outcome of the case. If the court s verdict in the tax court case is upheld on appeal, the USD 62.8 million loss (already expensed as of 30 June 2013) for the Company will be final. The loss is comprised of USD 24.5 million in payable tax (which has already been paid) and USD 38.3 million in deferred tax. The additional impact on cash in such scenario will be 20% of the deferred tax to be paid in 2014 with the remaining balance to be paid on a declining basis (i.e. 20% of the remaining balance) each year. Profit/(loss) for the period For the reasons described above, Group profit from continuing operations for the six months ended 30 June 2013 was USD 12.3 million compared to USD 45.6 million for the six months ended 30 June 2012, a decrease of USD 33.3 million, or 73.0% Year ended 31 December 2012 compared to the year ended 31 December Income statement The table below is extracted from the Group s IFRS Financial Statements for the year ended 31 December 2012 and including the year ended 31 December 2011 comparative period. Year ended 31 December In USD million 2012 (audited) 2011 (audited) Operating revenue , ,056.7 Total operating income... 1, ,056.7 Other gains/losses Share of profit/(loss) from joint ventures 2... (13.4) (6.8) Total other items... (10.0) 39.1 Personnel expenses... (486.2) (465.7) Depreciation and impairments... (147.3) (145.0) Other operating expenses... (266.6) (247.8) Total operating expenses... (900.1) (858.4) Operating profit (EBIT) Interest income Borrowing costs... (64.0) (80.5) 111

118 Odfjell Drilling Ltd - Prospectus Year ended 31 December In USD million 2012 (audited) 2011 (audited) Other financial items (7.1) Financial income/(expenses)... (35.7) (83.9) Profit/(loss) before tax Income tax income/(expense)... (31.2) (32.2) Profit/(loss) for the period Of which attributable to the equity holders of the parent Of which non-controlling interests Operating revenue in the Group includes reimbursed salary and personnel expenses for crews on Drilling Units with management agreements. 2 Share of profit/loss from Deep Sea Metro is reported net under share of profit/losses from joint ventures in the Group s consolidated income statement. This differs from the Group s segmental revenue, EBITDA, depreciation and EBIT for the MODU segment as reported in note 4 to the IFRS Financial Statements, where the Group s share of revenue, EBITDA, depreciation and EBIT from Deep Sea Metro are included on a line-byline basis. 3 Other financial items consists of currency gains, other financial income, currency loses, gain/loss on interest rate swaps and other financial expenses. Operating revenue Operating revenue for the year ended 31 December 2012 was USD 1,093.8 million compared to USD 1,056.7 million for the year ended 31 December 2011, an increase of USD 37.1 million, or 3.5%. The increase in operating revenue was primarily attributable to an increase in operating revenues from the MODU and Well Services segments. This was partially offset by a decrease in the Drilling & Technology segment s operating revenues. The total eliminations for operating revenue in 2012 were USD (123.8) million, of which USD (98.6) million related to Deep Sea Metro and USD (25.3) million related to other revenue, including inter-segment revenue. The total eliminations for operating revenue in 2011 were USD (31.0) million, of which USD (0.9) million related to Deep Sea Metro and USD (30.1) million related to other revenue, including inter-segment revenue. MODU Total operating revenue for the MODU segment for the year ended 31 December 2012 was USD million (of which USD 98.6 million was related to Deep Sea Metro) compared to USD million (of which USD 0.9 million was related to Deep Sea Metro) for the year ended 31 December 2011, an increase of USD million, or 20.9%. The increase was primarily attributable to the first full year of operations in 2012 for Deepsea Metro I, as well as the commencement of operations for Deepsea Metro II in May Deepsea Metro I was delivered from the shipyard in June 2011 and commenced operations in December Deepsea Stavanger s contract with Ophir ended in April 2011 and the drilling unit was mobilised from April to November 2011, a period which included a yard stay for client modifications. Well Services Total operating revenue for the Well Services segment for the year ended 31 December 2012 was USD million compared to USD million for the year ended 31 December 2011, an increase of USD 15.3 million, or 7.9%. The increase was primarily attributable to new client contracts and increased orders under framework agreements as a result of the Group s increased investments in Rental Equipment. Drilling & Technology Total operating revenue for the Drilling & Technology segment for the year ended 31 December 2012 was USD million compared to USD million for the year ended 31 December 2011, a decrease of USD 5.2 million, or 1.6%. The decrease was primarily due to the sale of the well management and consulting business in Operating revenues were otherwise stable between the periods. Other gains/losses Other gains for the year ended 31 December 2012 were USD 3.4 million compared to USD 46.0 million for the year ended 31 December 2011, a decrease of USD 42.6 million, or 92.6%. The gain in 2012 was due to gain on disposals of casing, mooring and Rental Equipment as a result of payments by clients for loss or damage to 112

119 Odfjell Drilling Ltd - Prospectus equipment, while the gain in 2011 was primarily due to the disposal of the well management and consulting business. Share of loss from joint ventures Share of loss from joint ventures for the year ended 31 December 2012 was USD (13.4) million compared to USD (6.8) million for the year ended 31 December 2011, an increase of USD 6.6 million. The increase in share of loss from joint ventures was primarily attributable to an increased loss in the Deep Sea Metro group. Operational costs are generally higher in the start-up phase of drilling unit operations, and 2012 was the first full year of operations for Deepsea Metro I, and Deepsea Metro II commenced operations in May In particular, financing costs increased for Deep Sea Metro in 2012 following the new borrowing facilities in connection with delivery of the two drillships Deepsea Metro I and II from the shipyard in 2011, which also contributed to the increased share of loss. Personnel expenses Personnel expenses for the year ended 31 December 2012 were USD (486.2) million compared to USD (465.7) million for the year ended 31 December 2011, an increase of USD 20.5 million, or 4.4%. The increase in personnel expenses was primarily attributable to: (i) increases in wages in certain markets due to increased activity and higher competition for qualified personnel in those jurisdictions; and (ii) increased personnel costs for the management of Deepsea Metro I and Deepsea Metro II under the management agreement with Deep Sea Metro, reflecting the full year of operations for Deepsea Metro I in 2012 and the commencement of operations of Deepsea Metro II in May The increase was partly offset by a reduction in personnel costs following the expiration of the Songa Delta and Songa Trym management contracts in mid Depreciation and impairment Depreciation and impairment for the year ended 31 December 2012 was USD (147.3) million compared to USD (145.0) million for the year ended 31 December 2011, an increase of USD 2.3 million, or 1.6%. There were no impairments in either 2011 or The increase in depreciation and impairment was primarily attributable to depreciation on additions of property, plant and equipment in 2012 as a result of additional Rental Equipment and upgrades on Drilling Units. Other operating expenses Other operating expenses for the year ended 31 December 2012 were USD (266.6) million compared to USD (247.8) million for the year ended 31 December 2011, an increase of USD 18.8 million, or 7.6%. The increase in other operating expenses was primarily due to the Group's Drilling Units starting up operations in new geographical areas at the end of 2011 and over the course of This included an increase in other operating expenses such as training costs and travel expenses in connection with the mobilisation of Drilling Units outside the NCS (i.e., in Brazil, Angola and Tanzania). Operating profit (EBIT) EBIT for the year ended 31 December 2012 was USD million compared to an EBIT of USD million for the year ended 31 December 2011, a decrease of USD 53.7 million or 22.6%. The decrease was due to higher other gains in 2011 as a result of the disposal of the well management and consulting business and increased personnel costs and increased share of losses from joint ventures in 2012, which more than offset the increase in revenue in the MODU and Well Services segments in The total eliminations and corporate items for EBIT in 2012 were USD (50.3) million, of which USD (23.5) million related to Deep Sea Metro, USD (23.3) million related to corporate overheads, USD (13.4) million related to the other joint ventures and disposals and USD 9.9 million related to accounting differences. The total eliminations for EBIT in 2011 were USD 23.6 million, of which USD 3.4 million related to Deep Sea Metro, USD (16.5) million related to corporate overheads and USD 36.4 million related to the other joint ventures and disposals. MODU EBIT for the MODU segment for the year ended 31 December 2012 was USD million (of which USD 23.5 million related to Deep Sea Metro) compared to EBIT of USD million (of which USD (3.4) million related to Deep Sea Metro) for the year ended 31 December 2011, an increase of USD 30.2 million or 22.9%. The increase in EBIT for MODU was primarily attributable to growth in revenue reflecting the first full year of operations in 2012 for 113

120 Odfjell Drilling Ltd - Prospectus Deepsea Stavanger and Deepsea Metro I, as well as the commencement of operations in May 2012 for Deepsea Metro II, which was partially offset by higher costs associated with the initial operations of these Drilling Units. Well Services. EBIT for the Well Services segment for the year ended 31 December 2012 was USD 52.7 million compared to USD 48.9 million for the year ended 31 December 2011, an increase of USD 3.8 million, or 7.7%. The increase was primarily attributable to increased revenue (as described above) and stable margins. Drilling & Technology EBIT for the Drilling & Technology segment for the year ended 31 December 2012 was USD 19.0 million compared to USD 32.8 million for the year ended 31 December 2011, a decrease of USD 13.8 million, or 42.0%. The decrease was primarily attributable to the disposal of the higher margin well management and consulting business. Margins were also affected by the Platform Drilling business area s contract with Statoil which, in 2012 included work on two new platforms which carry higher start-up costs associated with the initial part of the contract period. Interest income Interest income for the year ended 31 December 2012 was USD 7.4 million compared to USD 3.6 million for the year ended 31 December 2011, an increase of USD 3.7 million. The increase primarily reflected an increase in interest income from a shareholder loan provided by the Group to Deep Sea Metro in See Section Key contracts Shareholders agreement and shareholder loan agreement regarding Deep Sea Metro. Borrowing cost Borrowing cost for the year ended 31 December 2012 was USD (64.0) million compared to USD (80.5) million for the year ended 31 December 2011, a decrease of USD 16.5 million, or 20.5%. The decrease was primarily attributable to the reversal of capitalised borrowing expenses following the refinancing of long-term borrowings in See Section Material borrowings. Other financial items Other financial items for the year ended 31 December 2012 consisted of a gain of USD 20.9 million compared to a loss of USD (7.1) million for the year ended 31 December The gain in 2012 was primarily attributable to a gain on interest rate swaps of USD 1.6 million in 2012 compared to a loss of USD (26.2) million on interest rate swaps that were disallowed under hedge accounting policies following the refinancing of long-term borrowings in Other financial items in 2012 also consisted of a net currency gain of USD 22.8 million and other net financial expenses of USD (3.4) million that were in line with Income tax expense Income tax expense for the year ended 31 December 2012 was USD (31.2) million compared to USD (32.2) million for the year ended 31 December 2011, a decrease of USD 1.0 million, or 3.2%. The decrease was primarily due to reduced profit before taxation. The Group s effective tax rate was 21.1% in 2012 compared to 21.0% in Income tax expenses are mainly paid in Norway, while withholding tax expenses are mainly paid in Angola. There is no withholding tax in Brazil. Profit/(loss) for the year Profit from continuing operations for the year ended 31 December 2012 was USD million compared to profit of USD million for the year ended 31 December 2011, a decrease of USD 4.4 million. The decrease was primarily attributable to the factors noted above Explanation of NGAAP income statement line items Operating income. Operating income primarily consists of revenue generated under the Group s contracts. Operating income includes lump sum fees for mobilisation and demobilisation recognised over the contract period and reimbursed salary and personnel expenses for crews on Drilling Units with management agreements. There is no difference between revenue recognition in the Group's IFRS Financial Statements and the NGAAP Financial Statements. Gain on sale of assets. Gain on sale of assets primarily consists of gains on disposals of well services equipment. 114

121 Odfjell Drilling Ltd - Prospectus Personnel expenses. Personnel expenses primarily consist of salaries and wages, including bonuses, and employer s national insurance contributions, pension expenses, other benefits and hired personnel (for the Group s operators). Depreciation and write-offs. Depreciation and write-offs primarily consists of depreciation of property, plant and equipment, amortisation of goodwill and other intangible-assets and impairment of non-current assets. When the market value of the assets increases above the book value, previous write-downs will be reversed according to the original depreciation plan. Depreciation and write-offs consist of change in provisions for bad debt related to trade receivables, as well as loss on bad debt during the year. Bad debts. Bad debts primarily consist of incurred losses on trade receivables and change in provisions for bad debt related to trade receivables. Other operating expenses. Other operating expenses consists primarily of administrative expenses, hired services and subcontractors (including consultants and subcontractors for specific projects), hired well service equipment, inspection and repair and maintenance. Income from associates. Income from associates consists of the Group s share of profit from investments in associated companies. The share of profit is measured using the equity method and comes mainly from the Deep Sea Metro group and the Ross Holding AS group. Income from associates is classified as share of profit from joint ventures in the IFRS Financial Statements as an operating item. Other net financial items. Other net financial items consists primarily of interest income, other financial income, interest expense to related parties, interest expenses and other financial expenses. Other financial income includes gains on disposals of subsidiaries that are classified as other gains and losses under IFRS. Tax on ordinary result. Income tax (expense) income consists primarily of (i) income tax at domestic tax rates applicable to profits in countries where the Group operates, (ii) change in deferred tax and (iii) withholding tax on border crossing gross income generated in Angola Year ended 31 December 2011 compared to the year ended 31 December Income statement The table below is extracted from the Group s NGAAP Financial Statements for the years ended 31 December 2011 and Year ended 31 December In NOK million 2011 (audited) 2010 (audited) Operating income... 5, ,724.9 Gain on sale of assets Total operating income... 5, ,750.9 Personnel expenses... (2,614.5) (2,544.8) Depreciation and write-offs... (822.1) (538.3) Bad debts... (15.3) (673.6) Other operating expenses... (1,382.0) (999.5) Total operating expenses... (4,833.8) (4756.2) Operating profit/(loss)... 1,106.1 (5.3) Income from associates... (41.6) 25.7 Interest income Other financial income Interest expenses to related parties... (1.4) - Interest expenses... (311.2) (185.1) Other financial expenses... (547.8) (201.2) 115

122 Odfjell Drilling Ltd - Prospectus Year ended 31 December In NOK million 2011 (audited) 2010 (audited) Net Financial items... (272.3) Ordinary Profit/(loss) before tax Tax on ordinary result (29.8) Net Profit/(loss) for the year Minority share of profit for the year Majority share of profit for the year Operating income Operating income for the year ended 31 December 2011 was NOK 5,924.9 million compared to NOK 4,724.9 million for the year ended 31 December 2010, an increase of NOK 1,200.0 million, or 25.4%. The increase was primarily attributable to reduced revenue for the Mobile Offshore Drilling Units business in 2010 when Deepsea Atlantic was docked for most of the year following a contractual dispute with Statoil and subsequent replacement of a BOP and other modifications. The increase also reflected an increase in activity for Deepsea Stavanger in 2011, which was in operation for five months in 2011 (Deepsea Stavanger was in operation in Angola from September 2010 to April 2011 and, following mobilisation and docking at the shipyard for client modifications, in Tanzania from November 2011, compared to three months in 2010, as it commenced operations in Tanzania on 16 September 2010). Gain on sale of assets Gain on sale of assets for the year ended 31 December 2011 was NOK 15.0 million compared to NOK 26.0 million for the year ended 31 December 2010, a decrease of NOK 11 million, or 42.3%. The decrease was primarily attributable to decreases in Rental Equipment damage and losses by clients, and the corresponding decrease in payments for lost or damaged Rental Equipment to the Well Services business. Personnel expenses Personnel expenses for the year ended 31 December 2011 were NOK (2,614.5) million compared to NOK (2,544.8) million for the year ended 31 December 2010, an increase of NOK 69.7 million, or 2.7%. The increase was primarily attributable to increased staffing due to increased activity in the Mobile Offshore Drilling Units business, following the mobilisation of Deepsea Stavanger in 2011, construction of Deepsea Metro I and Deepsea Metro II and the full year of operations for Deepsea Atlantic, which was docked for most of This was partly offset by the reduced activity level in the Platform Drilling business area in 2011 compared to 2010, due to the expiration of platform drilling contracts on four platforms, which reduced personnel expenses. Depreciation and write-offs Depreciation and write-offs for the year ended 31 December 2011 were NOK (822.1) million compared to NOK (538.3) million for the year ended 31 December 2010, an increase of NOK million, or 52.7%. The increase was primarily attributable to the delivery of Deepsea Stavanger during the second half of 2010 and investments in the Mobile Offshore Drilling Units business, where depreciations were accounted for a full year from Bad debts Bad debts for the year ended 31 December 2011 were NOK (15.3) million compared to NOK (673.6) million for the year ended 31 December 2010, a decrease of NOK million, or 97.7%. The decrease was primarily attributable to an extraordinary write-off in 2010 of a receivable recognised in relation to the docking of Deepsea Atlantic in 2010 following a contractual dispute with Statoil. Other operating expenses Other operating expenses for the year ended 31 December 2011 were NOK (1,382.0) million compared to NOK (999.5) million for the financial year ended 31 December 2010, an increase of NOK million, or 38.3%. The increase was primarily attributable to increased operating expenses due to the full year of operation for Deepsea Atlantic in 2011 after the docking period in 2010 and the start-up of operations of Deepsea Stavanger in 2011 in connection with the new contract with BP in Angola. 116

123 Odfjell Drilling Ltd - Prospectus Operating profit/loss The Group recognised an operating profit for the year ended 31 December 2011 of NOK 1,106.1 million compared to an operating loss of NOK (5.3) million for the year ended 31 December The increase was primarily attributable to the factors noted above. Net financial items Net financial items for the year ended 31 December 2011 were NOK (272.3) million compared to NOK million for the year ended 31 December 2010, a decrease of NOK million. The decrease was primarily attributable to a decrease in share of profit from associates of NOK 67.3 million, increased interest expense of NOK million and currency translation effects caused by changes in the NOK/USD exchange rate as long-term borrowings denominated in USD were translated into NOK for preparation of the NGAAP Financial Statements. Taxation on ordinary result Taxation on ordinary result for the year ended 31 December 2011 was NOK million compared to NOK (29.8) million for the year ended 31 December 2010, an increase of NOK million. This increase is primarily explained by the tax effect on the bad debt recognition in 2010 explained above under Bad debts. Net Profit/(Loss) for the year Net profit for the year ended 31 December 2011 was NOK million compared to NOK million for the year ended 31 December 2010, an increase of NOK million. The increase was primarily attributable to the factors noted above Liquidity and capital resources Sources and uses of cash The Group s principal sources of liquidity are cash flows from operations and borrowings under its bank facilities. See Section Material borrowings. The Group primarily uses cash for investments in drilling units, joint ventures (including via shareholder loan) and well services equipment and to otherwise fund its operations as well as to service its long-term debt obligations and pay dividends. The primary objective of the Group s capital management policy is to ensure that the Group maintains capital ratios and adequate liquidity within such parameters that would enable the Group to take advantage of investment opportunities and generally support the business. The Group manages its capital structure so that it is sufficiently robust to withstand prolonged adverse conditions in financial markets and ensure that the Group is positioned to comply with covenants under the terms of its interest-bearing debt. The Group continually evaluates its cash position, available financing, working capital requirements and expected capital expenditures and makes adjustments to its capital structure in order to maintain an optimal structure adapted to current economic conditions. The Group defines net working capital as the difference between non-interest bearing current assets and noninterest bearing current liabilities. Net working capital mainly consists of trade receivables, other receivables, trade payables, current income tax, social security, value added tax (VAT) and other taxes and other current liabilities. The Group's policy is to have working capital equivalent to two months of operating expenses. As of 30 June 2013, net working capital was USD 73.5 million Cash flows IFRS Financials The following table summarises the Group s historical cash flows under IFRS, and is extracted from the Group s Interim Financial Statements and the Group s IFRS Financial Statements, for each of the financial periods presented: 117

124 Odfjell Drilling Ltd - Prospectus Six months ended 30 June Year ended 31 December In USD million 2013 (unaudited) 2012 (unaudited) 2012 (audited) 2011 (audited) Net cash from/(used in) operating activities Net cash from/(used in) investing activities (237.6) (305.9) (213.0) Net cash from/(used in) financing activities... (78.0) (49.7) (61.0) 66.0 Net cash and cash equivalents at end of period Cash flows from/(used in) operating activities Six months ended 30 June 2013 compared to the six months ended 30 June 2012 Net cash inflow from operating activities for the six months ended 30 June 2013 was USD million compared to USD million for the six months ended 30 June 2012, a decrease of USD 29.5 million, or 20.3%. The decrease was primarily related to adjustment of gain on sale of shares and gain on sale of tangible assets due to the disposal of the mooring business. Cash generated from operations is adjusted for gain on sale of shares and gain on sale of tangible fixed assets, as the gross cash inflow from sale of shares and sale of property, plant and equipment are reported as cash flows from investing activities in the cash flow statement. Adjustment of gain on sale of shares and gain on sale of tangible fixed assets was USD 21.3 million for the six months ended 30 June 2013, compared to USD 1.2 million for the six months ended 30 June In addition, cash outflows from changes in working capital for the six months ended 30 June 2013 was USD 5.3 million compared to a cash inflow from changes in working capital for the six months ended 30 June 2012 of USD 5.3 million. The cash inflow from changes in working capital in the six months ended 30 June 2012 was primarily related to cash inflow from a decrease of trade receivables of USD 43.9 million, which offset cash outflow from changes in trade payables and other accruals. The decrease in trade receivables in the six months ended 30 June 2012 was mainly due to delayed payments when a fee discussion with a client from 2011 was resolved in During the six months ended 30 June 2013, cash inflow from decreased trade receivables was USD 14.4 million and cash inflow from increased trade payables was USD 2.5 million. These inflows were offset by cash outflows for increased spare parts of USD 1.3 million and a change in other accruals of USD 20.9 million. Year ended 31 December 2012 compared to the year ended 31 December 2011 Net cash inflow from operating activities for the year ended 31 December 2012 was USD million compared to USD million for the year ended 31 December 2011, an increase of USD 69.6 million or 35.3%. The increase, which occurred despite a decrease in EBIT, was primarily attributable to increased cash inflow from changes in working capital in 2012 compared to In 2012, trade receivables decreased resulting in a cash inflow related to trade receivables of USD 8.4 million compared to a cash outflow of USD 39.4 million in Trade receivables in 2011 increased as a result of strong revenue growth, which was primarily attributable to Deepsea Atlantic coming back into operation. In addition, a large client delayed payments in 2011 due to fee discussions, which were resolved in This contributed to the decrease in trade receivables in 2012 compared to 2011, although this decrease was partly offset by the growth in trade receivables due to growth in revenue. Trade payables experienced a small increase in Cash outflow from other accruals in 2012 was USD (5.2) million compared to USD (35) million in 2011 which was primarily due to a decrease in accrued expenses in Income taxes paid in 2012 were USD 14.5 million compared to USD 19.2 million in The decrease was mainly related to utilisation of a tax loss carried forward from the bad debt write-off in 2010 related to Deepsea Atlantic resulting in lower income taxes payable for Cash flows from/(used in) investing activities Six months ended 30 June 2013 compared to the six months ended 30 June 2012 Net cash inflow from investing activities for the six months ended 30 June 2013 was USD 4.4 million compared to a net cash outflow of USD million for the six months ended 30 June 2012, an increase of USD million. The increase was primarily attributable to reduced purchase of property, plant and equipment in the six months ended 30 June 2013 compared to the six months ended 30 June 2012 and increased proceeds from sale of property, plant and equipment in 2013 compared to The Group paid USD 94 million in instalments under the construction contract for Deepsea Aberdeen in 2012, while the remaining yard instalments are due in 2014 upon delivery of the drilling unit. The increase in proceeds from sale of property, plant and equipment are primarily due to the sale of the mooring business. In addition, the Group issued a shareholder loan to Deep Sea Metro in 2012 in the amount of USD 78.4 million, while the loan issued to Deep Sea Metro in 2013 was USD 12 million. In 2012 and 118

125 Odfjell Drilling Ltd - Prospectus 2013, portions of the loan to Deep Sea Metro were converted to equity. As of 30 June 2013, the outstanding balance of the loan was USD 65 million. Year ended 31 December 2012 compared to the year ended 31 December 2011 Net cash outflow from investing activities for the year ended 31 December 2012 was USD (305.9) million compared to USD (213.0) million for the year ended 31 December 2011, an increase of USD 92.9 million, or 43.7%. The Group s key investment activities in 2012 were purchases of property, plant and equipment of USD million in connection with Deepsea Aberdeen and Well Services Rental Equipment and a shareholder loan to Deep Sea Metro of USD 80.0 million. See Section Key contracts Shareholders agreement and shareholder loan agreement regarding Deep Sea Metro. In 2011, the Group's key investment activities included purchase of property, plant and equipment in relation to modifications and upgrades of existing Drilling Units, additional investments in Rental Equipment and other equipment and investment in the joint venture Deep Sea Metro. The Group received a cash contribution from the disposal of the well management and consulting business in 2011, which partially offset the cash outflow for investing activities in Cash flows from/(used in) financing activities Six months ended 30 June 2013 compared to the six months ended 30 June 2012 Net cash outflow from financing activities for the six months ended 30 June 2013 was USD 78.0 million compared to USD 49.7 million for the six months ended 30 June 2012, an increase of USD 28.3 million. The increase was primarily attributable to refinancing of loan facilities following the acquisition of non-controlling interests, acquisition of non-controlling interests and dividends paid in In January 2013, the Group acquired all of its minority shares for a total of USD 64.3 million. For the purpose of completing the Group's acquisition of the minority shares in January 2013, the Group entered into a short-term loan facility agreement of USD 80 million with DNB Bank ASA on 24 January 2013, and repaid the facility on 20 February 2013 with proceeds from a new loan agreement of USD 270 million. In addition, the Group prepaid two loan facilities related to Deepsea Bergen and paid scheduled instalments on other existing facilities. Total dividends paid in the six months ended 30 June 2013 totalled USD 14.8 million, while no dividends were paid in the six months ended 30 June Year ended 31 December 2012 compared to the year ended 31 December 2011 Net cash outflow from financing activities for the year ended 31 December 2012 was USD (61.0) million compared to a net cash inflow of USD 66.0 million for the year ended 31 December The Group s net cash outflow from financing activities for 2012 primarily reflected the payment of instalments of USD 99.9 million, which were only partially offset by an inflow of USD 49.4 million in relation to additional drawdowns from the USD million facility agreement for Odfjell Rig Ltd. Of the USD 99.9 million paid in instalments, USD 75 million were made under the USD 950 million facility described below, in Section Material borrowings. The remaining instalments were related to previous loan facilities for Deepsea Bergen, which were repaid in full in February 2013 following the acquisition of non-controlling interests in Deepsea Bergen. Financing activities resulted in a net cash inflow in 2011 due to a significant refinancing with the establishment of the USD 300 million facility for Odfjell Drilling Services Ltd. and the USD 950 million facility for Odfjell Invest Ltd., as described below in Section Material borrowings. In addition, the Group paid total dividends of USD 10.5 million in 2012 compared with dividends of USD 23.7 million in NGAAP Financials The following table summarises the Group s historical cash flows under NGAAP, and is extracted from the Group s NGAAP Financial Statements for each of the financial periods presented: Year ended 31 December In NOK million 2011 (audited) 2010 (audited) Net cash from/(used in) operating activities Net cash from/(used in) investment activities... (957.5) (3,025.4) Net cash from/(used in) financing activities ,567.0 Net cash and cash equivalents for the year (1,323.8) 119

126 Odfjell Drilling Ltd - Prospectus Cash flows from/(used in) operating activities Net cash inflow from operating activities for the year ended 31 December 2011 was NOK million compared to NOK million for the year ended 31 December 2010, an increase of NOK million. The increase in net cash inflow from operating activities was primarily attributable to a significant increase in profit before tax in 2011 compared to The increase in cash flows from operating activities was partly offset by an increase in net working capital. Net working capital increased by NOK million in 2011, which mainly consisted of an increase in trade receivables and other factors following an increase in operating revenue from 2010 to Trade and other receivables increased by NOK million in 2011, primarily due to the prepaid mobilisation fee received from BP related to the commencement of operations on Deepsea Stavanger Cash flows from/(used in) investing activities Net cash outflow for investing activities for the year ended 31 December 2011 was NOK (957.5) million compared to an outflow of NOK (3,025.4) million for the year ended 31 December 2010, a decrease of NOK 2,067.9 million, or 68.3%. The Group s key investment activities in 2011 were a NOK million investment in shares in relation to investment in Deep Sea Metro and a NOK million investment in tangible fixed assets in relation to Drilling Units upgrades and Well Services Rental Equipment. These were partially offset by the receipt of NOK million from the disposal of the well management and consultancy business area. In 2010, the Group had higher investments in tangible fixed assets, amounting to NOK 2,516.2 million, in connection with the delivery of Deepsea Stavanger. The Group s other significant investing activities in 2010 were a NOK million investment in Deep Sea Metro Cash flows from/(used in) financing activities Net cash inflow from financing activities for the year ended 31 December 2011 was NOK million compared to NOK 1,567.0 million for the year ended 31 December 2010, a decrease of NOK 1,091.1 million, or 69.6%. The change in the Group s net cash inflow from financing activities in 2011 and 2010 was primarily due to net changes in long-term liabilities of NOK million in 2011 and NOK 1,679.5 million in 2010, in each case due to refinancing of the Group s bank loans in the respective years Borrowings, loans receivable and contractual obligations Material borrowings Total Utilised Unutilised Interest Maturity Facility Facility Facility Facility Rate Date (In USD million) Odfjell Drilling Services Ltd. USD 300 million 9 November Senior Secured Credit Facility Agreement % Odfjell Invest Ltd. USD 950 million Senior 9 November Secured Credit Facility Agreement % Odfjell Rig II Ltd. USD 270 million Senior 31 August Secured Term Loan Facility Agreement % Odfjell Rig III Ltd. USD 530 million Senior Secured Term Loan Facility Agreement... Total ,050 1, % 6 May The facility is composed of a USD 200 million senior secured term loan credit facility and a USD 100 million revolving credit facility. 2 The facility amount will be available to Odfjell Rig III Ltd. for drawing in one single drawing on the date on which Deepsea Aberdeen is delivered (subject to delivery taking place no later than 15 November 2014 or such later date as all of the lenders may agree). 3 Interest rate is total including LIBOR, margin and swaps as at 30 June 2013 and includes interest rate hedging of 47% of the outstanding amount. Average hedging is 40% for the remainder of the tenor. 4 Interest rate is total including LIBOR, margin and swaps as at 30 June 2013 and includes interest rate hedging of 55% of the outstanding amount. Average hedging is 51% for the remainder of the tenor. 5 Interest rate is total including LIBOR, margin and swaps as at 30 June 2013 and includes interest rate hedging of 50% of the outstanding amount. Average hedging is 50% for the remainder of the tenor. 6 Interest rate is total (applying LIBOR as at 30 June 2013) and includes interest rate hedging of 50% of the outstanding amount (combination of swap and CIRR option). Average hedging is 47% for the remainder of the tenor. 7 The facility matures 60 days after the expiry of Deepsea Bergen s Statoil charter or any other charter the lenders may approve, however no later than 31 August The facility matures seven years from the utilisation date, however no later than 31 July 2021, and the export credit facilities mature 10 years from the utilisation date, however no later than 31 July

127 Odfjell Drilling Ltd - Prospectus Odfjell Drilling Services Ltd. USD 300 million facility Odfjell Drilling Services Ltd. is the borrower under a USD 300 million syndicated credit facility agreement dated 4 November The facility is composed of a USD 200 million senior secured term loan credit facility and a USD 100 million senior secured revolving credit facility. The term loan facility was fully drawn by Odfjell Drilling Services Ltd. in one drawing on 9 November Drawings under the revolving credit facility are available on a revolving basis up to one month prior to the final maturity date of 9 November As of 30 June 2013, the revolving credit facility was fully drawn. Repayment of the term loan facility is by six consecutive semi-annual instalments from 9 May 2013 with repayment in full of both facilities on the final maturity date of 9 November Interest is payable at a rate per annum of LIBOR plus 3.25%. The facility amount shall be repayable in full or in part if certain events occur, including: a change of control of the Company and/or Odfjell Offshore Ltd., or if any company or assets worth over certain significant thresholds of Odfjell Drilling Services Ltd. or its subsidiaries are sold (or insurance proceeds of a material amount are received) and the proceeds are not reinvested in similar activities/assets/companies in Odfjell Drilling Services Ltd. or its subsidiaries within the same calendar year. The Company, and certain of Odfjell Drilling Services Ltd. s subsidiaries, are guarantors under the facility agreement. Further, all of the shares in Odfjell Offshore Ltd., Odfjell Drilling Services Ltd., Odfjell Operations Ltd., Odfjell Partners Invest Ltd., Odfjell Drilling AS, Odfjell Drilling Technology Ltd., Odfjell Rental Services AS, Odfjell Casing Services AS, Odfjell Well Services Europe AS, Odfjell Well Services Ltd. and Odfjell Drilling Technology AS have been pledged in favour of the lenders. The loan is also secured by first priority assignment of all intra-group receivables owed to Odfjell Drilling Services Ltd. and its subsidiaries. The facility agreement contains financial covenants including a minimum liquidity requirement, minimum equity ratio, a maximum adjusted leverage ratio and further restrictions on, inter alia, financial indebtedness, capital expenditures and financial support. The facility agreement allows the Company to distribute dividends in an amount up to 50% of its net income (adjusted for any write downs of rigs and after taxes paid) in its previous financial year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in the Company. The facility agreement otherwise contains undertakings and covenants which Odfjell Drilling Services Ltd. considers to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information and certain restrictions on corporate actions and change of business. Further, the facility agreement also contains default and cross-default provisions, all applicable to the Group. However, the cross-default provision is only applicable to the default of any member of the Group (excluding Deep Sea Metro Ltd.) on indebtedness of more than USD 5 million. Odfjell Invest Ltd. USD 950 million facility Odfjell Invest Ltd. is the borrower under a USD 950 million syndicated credit facility agreement dated 4 November Principal is payable in quarterly instalments of USD 25 million over five years and in a balloon repayment of USD 475 million together with all other sums due and outstanding on the final maturity date of 9 November Interest is payable at the rate per annum of LIBOR plus 2.75%. The facility amount shall be repayable in full or in part if certain events occur, including, but not limited to, certain change of control situations in the Group, or if any of Deepsea Stavanger and Deepsea Atlantic are sold or totally lost. All of the shares and substantially all of the assets of Odfjell Invest Ltd. and its subsidiaries have been pledged in favour of the lenders, including mortgages over Deepsea Stavanger and Deepsea Atlantic. Also, the Company and certain of its subsidiaries have guaranteed the obligors obligations under the finance documents. The facility agreement contains financial covenants including a minimum liquidity requirement, a minimum equity ratio, a maximum leverage ratio and current ratio. The facility agreement allows the Company to distribute dividends in an amount up to 50% of its net income (adjusted for any write downs of rigs and after taxes paid) in 121

128 Odfjell Drilling Ltd - Prospectus its previous financial year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in the Company. The facility agreement also contains undertakings and covenants, and terms and conditions which Odfjell Invest Ltd. considers to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information, certain restrictions on corporate actions and change of business and covenants relating to the operation and maintenance of Deepsea Stavanger and Deepsea Atlantic. The facility agreement contains default and cross-default provisions, all applicable to Odfjell Invest Ltd and its subsidiaries, and in some cases the Group. The cross-default provision is, however, only applicable to the Group in relation to a default on indebtedness of more than USD 5 million. Odfjell Rig II Ltd. USD 270 million senior secured term loan facility Odfjell Rig II Ltd. is the borrower under a USD 270 million senior secured term loan facility dated 15 February The facility was made available to Odfjell Rig II Ltd. for the purposes of (i) financing the acquisition of Deepsea Bergen from another subsidiary of Odfjell Drilling and (ii) refinancing of existing credit facilities related to the ownership of Deepsea Bergen. The facility matures 60 days after the expiry of the Group s contract with Statoil or any other similar contract for the use of Deepsea Bergen acceptable to the lenders, but in any case no later than 31 August The rate of interest per annum is LIBOR plus 3.30%. The facility amount is repayable in full or in part if certain events occur, including, but not limited to, certain change of control situations in the Group or if Deepsea Bergen is sold or totally lost. All of the shares in and substantially all of the assets of Odfjell Rig II Ltd. have been pledged in favour of the lenders, including a mortgage over Deepsea Bergen. Also, the Company and Odfjell Offshore Ltd. have guaranteed the obligors' obligations under the finance documents. The facility agreement contains financial covenants including a minimum liquidity requirement, a minimum equity ratio, a current ratio and a maximum leverage ratio. Distribution of dividends by the Company are limited to a maximum of 50% of net income (adjusted for any write downs of Drilling Units and after taxes paid) for each calendar year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in the Company. The facility agreement otherwise contains undertakings and covenants, and terms and conditions which Odfjell Rig II Ltd. considers to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information, certain restrictions on corporate actions and change of business and covenants relating to the operation and maintenance of Deepsea Bergen. Further, the facility agreement also contains default and cross-default provisions, all applicable to the Group. However, the cross-default provision is only applicable to the default of any member of the Group (excluding Deep Sea Metro, unless any member of the Group contributes at least USD 5 million in response to such default) on indebtedness of more than USD 5 million. Odfjell Rig III Ltd. USD 530 million senior secured term loan facilities Odfjell Rig III Ltd. is the borrower under a USD 530 million senior secured term facility agreement with a syndicate of banks (including national export credit agencies) for the purpose of financing the acquisition of Deepsea Aberdeen, currently being constructed by DSME and scheduled to be delivered in May The facilities comprise a seven year commercial facility initially of USD 130 million, a 10 year export credit facility initially of USD 200 million and a 10 year export credit facility initially of USD 200 million. Each facility will be available to Odfjell Rig III Ltd. for drawing on the date on which Deepsea Aberdeen is delivered to Odfjell Rig III Ltd. (subject to delivery taking place no later than 15 November 2014 or such later date as all of the lenders may agree). The facilities must be drawn in US dollars, except for certain facilities which may be drawn in NOK or US dollars at the borrower s option. 122

129 Odfjell Drilling Ltd - Prospectus The interest rate per annum for the commercial facility and one of the export credit facilities is LIBOR plus a margin of 3.40%. The rate of interest for the other export credit facility is the percentage rate per annum which, at the option of Odfjell Rig III Ltd., is either: (i) a fixed rate of 2.43% (where USD has been selected) or 2.89% (where NOK has been selected); or (ii) a floating rate of LIBOR plus a margin from time to time as set out in one or more separate offer letters from the lender; in each case in addition to a guarantee commission payable to the export credit guarantee provider. The facilities shall be prepaid in full or in part if certain events occur, including, but not limited to, a change of control of the Company or if Deepsea Aberdeen is sold or totally lost. Additionally, if by the date falling 90 days prior to the commercial facility's maturity date, the commercial facility has not been extended or otherwise refinanced on terms acceptable to the export credit lenders, then the export credit lenders may terminate the export credit facilities on the same date as the commercial facility. As security for the facilities, and as a condition precedent to utilisation of the facilities upon delivery of Deepsea Aberdeen, substantially all of the shares in and assets of Odfjell Rig III Ltd. and Odfjell Drilling Shetland Limited will be pledged in favour of the lenders and hedging banks, including a mortgage of Deepsea Aberdeen. Also, the Company and Odfjell Offshore Ltd. have guaranteed the obligors' obligations under the finance documents, and one of the USD 200 million export credit facilities has been guaranteed by the Norwegian Garanti-Instituttet for Eksportkreditt (for a guarantee fee). The agreement contains financial covenants including a minimum liquidity requirement, a minimum equity ratio, current ratio and a maximum leverage ratio. Distribution of dividends by the Company is limited to a maximum of 50% of net income (adjusted for any write downs of Drilling Units and after taxes paid) for each calendar year. The facility agreement also provides for mandatory prepayment if Helene Odfjell (and her descendants) cease to own at least 50.1% of the shares in the Company. The facility agreement contains undertakings and covenants, and terms and conditions which Odfjell Rig III Ltd. considers to be customary for similar types of bank financings, including, but not limited to, undertakings related to reporting and information, certain restrictions on corporate actions and change of business and covenants relating to the operation and maintenance of Deepsea Aberdeen. Further, the Facility Agreement also contains default and cross-default provisions, all applicable to Odfjell Rig III Ltd., including the Group Deep Sea Metro material borrowings Golden Close Maritime Corp. Ltd. USD 460 million bond loan Golden Close, a wholly-owned subsidiary of Deep Sea Metro, issued a bond with Norsk Tillitsmann ASA as trustee for the bondholders in the maximum aggregate amount of USD 460 million. The agreement is dated 3 December The purpose of the bond was to finance the remaining instalments in connection with the construction and delivery of Deepsea Metro I. The bonds shall be repaid in full at 9 December 2015 (unless redeemed earlier). Golden Close may redeem the bonds, in whole but not in part, at a price depending on the date of redemption, currently being equivalent to 106% of the par value (plus accrued interest), reducing to 104% in December 2013 and further to 102% in December Bondholders have a put option which is exercisable if any person other than the joint venture partners or an international drilling operator with an investment grade rating becomes a 50% owner of Deep Sea Metro. The bonds must be redeemed before maturity if Deepsea Metro I is sold or lost or if Deep Sea Metro is no longer the 100% parent of Golden Close. The interest payable on the bonds is 11% per annum, payable as semi-annual coupons. The bonds are secured by a pledge over all the shares of Golden Close and security over substantially all of Golden Close s assets, including a mortgage over Deepsea Metro I, an assignment of the drillship management agreement and assignments of any insurances, drilling contracts and revenue deriving from the vessel. Further, Golden Close s subsidiaries which are relevant to Deepsea Metro I have guaranteed the issuer s obligations under the bond 123

130 Odfjell Drilling Ltd - Prospectus agreement, and the bonds have further been secured by pledges over substantially all the assets of Golden Close s subsidiaries relevant to Deepsea Metro I, including a pledge over the shares of relevant subsidiaries and their bank accounts, and assignments of revenue and any rights under the drilling unit management agreement for Deepsea Metro I. The main restrictive covenant is that Golden Close is obliged to accumulate its excess earnings, after providing for a working capital buffer. When the amount of accumulated excess earnings exceeds a certain threshold, Golden Close must redeem the bonds with such excess earnings, at 100% of par value (plus accrued interest on the redeemed amount); hence, Golden Close may not declare or make any dividend payments to Deep Sea Metro. As of 30 June 2013, Golden Close has fully funded the working capital buffer; any surplus cash that Golden Close generates will therefore be accumulated as excess earnings, to be used in the manner described above. Golden Close redeemed USD 33.3 million of the bonds in June The bonds also include terms and conditions which the Company considers to be customary for similar types of financings, including, but not limited to, events of default, cross-defaults, covenants relating to the ownership and condition of Deepsea Metro I, a prohibition on distributions or dividend payments and restrictions on financial indebtedness. Through a covenant agreement, any relevant subsidiary of Golden Close is bound by the same restrictions as Golden Close. Chloe Marine Corporation Ltd. USD 400 million term loan facility Chloe Marine entered into a USD 400 million senior term loan facility agreement with, amongst others, DVB Bank America N.V. as arranger and agent, and ABN AMRO Bank N.V. as arranger. The agreement is dated 15 November 2011, and the purpose of the loan was to fund part of the purchase price for Deepsea Metro II. The loan is divided into two tranches, USD 207 million (Tranche A) and USD 193 million (Tranche B). Tranche A is guaranteed by GIEK (the Norwegian Guarantee Institute for Export Credits). The loan ranks ahead in priority of the USD 150 million bond issued with Norsk Tillitsmann ASA as trustee, but is subject to an intercreditor agreement which regulates the relationship between the lenders under the loan and under the bond. The loan shall be repaid in (i) 10 consecutive semi-annual repayment instalments each in the minimum amount of USD 16,666,666, the first due and payable on 21 May 2012 (six months after drawdown was made), and (ii) a balloon payment in the amount of USD 233,333,333 (less any payments in excess of the minimum semi-annual instalments) falling due on 23 November The rate of interest on the loan is the aggregate of (i) mandatory costs (if any), (ii) LIBOR and (iii) the applicable margin, which for Tranche A is 3.50% per annum (including guarantee premium to GIEK), and for Tranche B is 3.25% per annum. Chloe Marine has a right to prepay the loan, in whole or in part, by a minimum amount of USD 5 million. Chloe Marine is obliged to prepay the loan if certain events occur, such as a total loss of Deepsea Metro II or if its market value falls below a certain percentage of the loan. As security for the loan, all of the shares of Chloe Marine have been pledged in favour of the lenders. Further, Chloe Marine has pledged substantially all its assets, including a mortgage over Deepsea Metro II, assignments of its earnings and insurances and its shares (or equivalent ownership rights) in relevant subsidiaries. Relevant subsidiaries of Chloe Marine have also guaranteed its obligations under the loan, and have further pledged substantially all of their assets, including any shares in relevant subsidiaries, as well as rights to revenue, insurance proceeds and bank accounts. All security granted and guarantees given rank first in priority ahead of the USD 150 million bond loan entered into with Norsk Tillitsmann ASA, as trustee for the bondholders, described below. Chloe Marine is subject to a number of financial covenants under the loan, including a minimum liquidity requirement of USD 20 million. In addition, Chloe Marine has covenanted to maintain liquidity amounting to six months interest payment under the USD 150 million bond at all times. Further, Chloe Marine has covenanted to maintain a leverage ratio, an interest coverage ratio, a debt service coverage ratio and meet a minimum working capital requirement. There are further restrictions on the payment of dividends to Deep Sea Metro and on the incurrence of further financial indebtedness by Chloe Marine and its subsidiaries. 124

131 Odfjell Drilling Ltd - Prospectus The loan agreement also contains covenants which the Company considers customary for similar types of bank financings, relating to reporting and information, covenants relating to the operation and maintenance of Deepsea Metro II and restrictions on certain corporate dispositions. Further, the loan agreement contains provisions relating to events of default, including a cross-default with the USD 150 million bond loan (described below), which the Company deems to be customary for similar types of bank financings. Chloe Marine Corporation Ltd. USD 150 million bond loan Chloe Marine has issued a bond loan amounting to USD 150 million under a bond agreement entered into with Norsk Tillitsmann ASA, as trustee for the bondholders, dated 16 November The net proceeds from the issuance of the bonds were paid out in one tranche and used to pay the delivery instalment of Deepsea Metro II, as well as preparation and mobilisation costs, and for general corporate purposes. The bonds rank second in priority after the obligations under the USD 400 million senior credit facility entered into with DVB Bank America N.V., but otherwise pari passu with other unsecured obligations of Chloe Marine. An intercreditor agreement has been entered into to coordinate the relations between the lenders under the two finance arrangements and the borrowers and guarantors. The interest payable on the bonds is a fixed rate of 12% per annum. The interest is payable semi-annually in arrears on 17 May and 17 November. The maturity date of the bonds is 28 December The bond agreement contains call options, wherein Chloe Marine may repay all or part of the bonds earlier than the maturity date at a value falling from 108% to 103% of par value (plus accrued interest) depending on the date of repayment. There is also a put option if any person other than the joint venture partners or an investment grade company operating in the oil and gas industry becomes an owner of 50% or more of Deep Sea Metro and a mandatory redemption in the event Deepsea Metro II is sold, lost or otherwise disposed of. As security for the bonds, all of the shares in Chloe Marine have been pledged in favour of the bondholders. Further, substantially all of the assets of Chloe Marine have been pledged, including a mortgage over Deepsea Metro II, a pledge over rights under charters and its shares (or equivalent ownership rights) in relevant subsidiaries. Relevant subsidiaries of Chloe Marine have guaranteed the obligations of the obligors, and have further pledged substantially all of their assets, including any shares in relevant subsidiaries, as well as rights to revenue, insurance proceeds and accounts. All security granted and guarantees given rank second in priority after the USD 400 million senior credit facility entered into with DVB Bank America N.V., described above. The bond agreement contains covenants which the Company considers to be customary for similar types of financings, including covenants prohibiting Chloe Marine from paying dividends to its shareholders (other than certain exceptional distributions) or providing financial support, covenants relating to reporting and information, continuation of business, financial indebtedness restrictions and covenants relating to the operation of Deepsea Metro II. It also includes provisions which the Company considers to be customary relating to events of default and change of control Contractual obligations The following table presents the maturity profile of the Group s loan facilities as at 30 June Please see note 12 to the Financial Statements for the year ended 31 December 2012 for further information on the repayment schedule for the Group s loan facilities, including interest payments. The Group expects to finance the repayment of its loan facilities from cash generated from the Group s operations and additional refinancing: 125

132 Odfjell Drilling Ltd - Prospectus Instalments due Outstanding as at 30 June Thereafter Odfjell Drilling Services Ltd. USD 300 million Senior Secured Credit Facility Agreement Odfjell Invest Ltd. USD 950 million Senior Secured Credit Facility Agreement Odfjell Rig II Ltd. USD 270 million Senior Secured Term Loan Facility Agreement Odfjell Rig III Ltd. USD 530 million Senior Secured Term Loan Facility Agreement This is available to Odfjell Rig III Ltd. on the date of delivery of Deepsea Aberdeen, subject to delivery no later than November The maturity profile shown above for this borrowing facility is based on delivery of Deepsea Aberdeen in May Major historical capital expenditures and investments The Group s main capital expenditures and investments are new build Drilling Units, modification and upgrades of existing drilling units and investments in well services equipment. The following table sets out the Group s major capital expenditures for the six months ended 30 June 2013 and the years ended 31 December 2012, 2011 and The Group s major capital expenditures and investments are set out in USD million for all periods except the year ended 31 December 2010 in which they are set out in NOK million. Six months ended Year ended 30 June 31 December (USD million) (USD million) (USD million) (NOK million) Drilling Units ,279 Well Services Rental Equipment Other Total ,516 1 The rig mooring business contributed approximately USD 11 million, USD 13 million and NOK 37 million in the years ended 31 December 2012, 2011 and 2010, respectively, to Well Services capital expenditure. The average age of the Rental Equipment is between four and five years. In the six months ended 30 June 2013, capital expenditure on the Drilling Units included construction in progress of USD 9 million for Deepsea Aberdeen and USD 8 million in investments on the other Drilling Units. In the same period, capital expenditure on Rental Equipment was USD 22 million and included replacement of Rental Equipment in addition to new investments, of which USD 3 million was attributable to Deep Sea Mooring. In the year ended 31 December 2012, capital expenditures on Drilling Units included USD 109 million paid in instalments for Deepsea Aberdeen. The Group s other capital expenditures related to Drilling Units in 2012 were related to upgrades and modifications on existing Drilling Units. Capital expenditures related to Drilling Units in the year ended 31 December 2011 were primarily related to modifications and upgrades of existing Drilling Units. In the year ended 31 December 2010, capital expenditures on Drilling Units amounted to NOK 2,279 million, and were related to the delivery of Deepsea Stavanger and the purchase of a new BOP for Deepsea Atlantic. 126

133 Odfjell Drilling Ltd - Prospectus Capital expenditures for well services equipment amounted to USD 68 million in the year ended 31 December 2012, USD 52 million in the year ended 31 December 2011 and NOK 212 million in the year ended 31 December 2010, of which USD 11 million, USD 13 million and NOK 37 million, respectively, were attributable to Deep Sea Mooring. Capital expenditures in well services equipment included replacement of scrapped equipment, in addition to new investments following the increased growth in the well services business. The Group estimates that approximately USD million in 2012 (or 10 12% of revenues of the Well Services segment) was related to maintenance capital expenditures. Other capital expenditure in the periods under review was mainly related to office equipment, software, machinery and workshop facilities. For a discussion of investments in joint ventures, please see Section Investments in joint ventures and disposals. There have been no other material investments since 30 June Future investments Future capital commitments As of 30 June 2013, the Group had total committed capital expenditures of USD million, composed of USD million of new building commitments and USD 10.8 million of commitments in respect of rental, casing and mooring commitments. For a discussion of capital commitments to joint ventures, please see Section Investments in joint ventures and disposals. The USD million of new building commitments relate to the contract the Group has signed with DSME to build a new semi-submersible drilling unit Deepsea Aberdeen for use in the UK s West of Shetland region under a contract with BP. This commitment will be financed by the USD 530 million loan facility with the remainder funded from cash from the Group. For further discussion of this commitment, please see Section Key contracts. This is an ongoing investment and the Drilling Unit is scheduled for delivery in May 2014 and is scheduled to commence operations for BP during the fourth quarter of The commitments related to the new building programme are summarised in the table below and are not deducted with the mobilisation fee of USD 35 million to be paid by BP: In USD million As of 30 June 2013 Due in year Due in year Due in year Value of new building commitments Capital expenditure other than new buildings contracted for at the end of the reporting period but not yet incurred is as follows: In USD million Rental, casing and mooring equipment, due in year 1... Total... As of 30 June Future operating lease commitments - Group company as lessee The Group leases various offices under non-cancellable operating lease arrangements. The lease terms are between one and 10 years, and the majority of the lease arrangements are renewable at the end of the lease period at market rates. The lease agreements for the Group s offices in Bergen and Stavanger, which are the largest offices of the Group in terms of space and number of employees, consist of: Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices and a workshop at Hammaren 29 in Tananger, Norway. The annual lease is NOK 1.0 million (exclusive of VAT). The lease 127

134 Odfjell Drilling Ltd - Prospectus agreement replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS and is on the same terms and conditions as that agreement. Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices at Hammaren 21 in Tananger, Norway. The annual lease is NOK 5.3 million (exclusive of VAT). The lease agreement replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS and is on the same terms and conditions as that agreement. Lease agreement between Kokstad Invest Holding AS (controlled by Helene Odfjell and related parties) and Odfjell Drilling AS dated 15 October 2012 regarding lease of offices, a workshop and a building site at Hammaren 19 in Tananger, Norway. The annual lease is NOK 4.6 million (exclusive of VAT). The lease agreement replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS and is on the same terms and conditions as that agreement. Lease agreement between Kokstad Invest AS and Odfjell Drilling AS dated 15 November 2012 regarding lease of offices at Sandslimarka 61/63 in Bergen, Norway. The annual lease is NOK 10,354,002 (exclusive of VAT). The lease agreement replaced a former lease agreement between Kokstad Invest AS and Odfjell Drilling AS. Lease agreement between Sandslimarka 185 AS and Odfjell Drilling AS regarding lease of offices at Sandslimarka 185 in Bergen, Norway. The annual lease is NOK 6.1 million (exclusive of VAT). The future aggregate minimum lease payments under non-cancellable operating leases are as follows: In USD million As of 31 December 2012 No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total Off-balance sheet arrangements The Group does not have any off-balance sheet arrangements Quantitative and qualitative disclosures about market risk Risk management is carried out on a Group level. The Group identifies, evaluates and hedges financial risks in close co operation with the Group s operational units. The interim Board of Directors of the Company has established written principles for risk management of foreign exchange risk, interest rate risk and use of derivative financial instruments Market risk Market risk is the risk of change in market prices and demand, hereunder changes in currency exchange rates and interest levels Foreign exchange risk The consolidated subsidiaries reporting and functional currency are USD, NOK and EUR. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD and NOK. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The Group is exposed to risks due to fluctuations in exchange rates, especially as charter contracts are normally in USD while most of the operating expenses are in local currency. 128

135 Odfjell Drilling Ltd - Prospectus If the USD is weakened by 10% against other relevant currencies, on the balance sheet date, we can expect the following effect on profit before tax in USD million: In USD million Current receivables... (27.2) 11.2 Cash... (20.0) 6.5 Current liabilities (1.8) Net effect on profit before tax... (25.9) Interest rate risk The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long-term debt obligations at floating interest rates. The Group evaluates the share of interest rate hedging based on assessment of the Group s total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure. The Group had 11 interest rate swap agreements at 31 December 2012 and 13 interest rate swap agreements at 30 June Market inputs have been used to determine the fair value of the swap agreements at the end of the year. The fair value of the interest swap agreements is confirmed by the financial institution with which the company has entered into the agreements. During the year ended 31 December 2012, a gain on interest rate swaps was recognised at USD 1.6 million in the income statement, as compared to a loss on interest rate swaps of USD 26.2 million in In addition, a loss of USD 1.7 million related to interest rate swaps designated as cash flow hedges was recognised in the statement of other comprehensive income in 2012, compared to a loss of USD 0.1 million on interest rate swaps under cash flow hedges in In 2012, the loss of USD (1.7) million was classified as a component of the equity as of 31 December 2012 relating to interest rate swaps qualified for hedge accounting. The Group monitors its interest rate exposure on a dynamic basis. The Group calculates the impact on profit and loss of a defined interest rate shift. The result of the calculation on sensitivities returns the following expected values: If interest rates were increased by one percentage point (e.g. from 4.0% to 5.0%), the effect would be an increase in borrowing costs of approx. USD 8.5 million for 2012, compared to USD 8.4 million in 2011, including interest rate swaps Critical accounting policies and estimates Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecasted profitability over time, and expectations about external factors such as interest rates, foreign exchange rates and other factors which are outside the Group s control. The resulting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below Revenue The Group s revenues are derived from day rate based drilling contracts, management drilling contracts and other service contracts. Day rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both day rate based and lump sum fee revenues are recognised rateably over the contract period when services are rendered. 129

136 Odfjell Drilling Ltd - Prospectus Income tax The Group is subject to income tax in many jurisdictions. Various tax systems have required some use of judgement for certain countries in determining income tax for all countries taken together in the IFRS and NGAAP Financial Statements. The final tax liability for some transactions and calculations will be uncertain. The Group recognises tax liabilities associated with future decisions in tax cases/disputes, based on estimates of the likelihood that additional income tax will fall due. Should the final outcome of these cases vary from the amount of the original provision, this variance will affect the stated tax expense and provision for deferred tax in the period when the final outcome is determined. The parent company recognises tax liabilities when these are incurred. In other words, the tax expense is related to the accounting profit/loss before tax. The tax expense comprises tax payable and the change in net deferred tax. Reference is made to note 21 relating to disclosed information related to a dispute with Norwegian Tax Authorities, and hence the classification of paid tax as long-term receivable. Withholding tax is the tax withheld on border crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement. There is no withholding tax in Brazil Impairment of non-financial assets Assets that have an indefinite useful life, i.e. goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation, i.e. mobile offshore drilling units, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. If available, estimated fair value of an asset is obtained externally. In addition, the Group has financial models which calculate and determine the value in use through a combination of actual and expected cash-flow generation discounted to present value. The expected future cash-flow generation and models are based on assumptions and estimates. The discount factor applied in the cash flow budgets is a pre-tax weighted average cost of capital. Beyond the period covered by the business plan, a growth factor which varies between 0% and 5% is applied, with an expectation that gross margins will not weaken substantially over time Significant changes There have been no significant changes in the financial or trading position of the Group since the date of the Interim Financial Statements, which have been included in this Prospectus. 130

137 Odfjell Drilling Ltd - Prospectus 12 BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE 12.1 Board of Directors Overview of the Board of Directors The Board of Directors is responsible for the overall management of the Company and may exercise all of the powers of the Company not reserved to the Company s shareholders by its bye-laws (the Bye-Laws ) or Bermuda law. The Bye-Laws provide that the Company s Board of Directors shall consist of not less than five Directors or such number in excess thereof as the shareholders of the Company may determine. The Directors are elected by the shareholders at the annual general meeting or any special general meeting called for that purpose, unless there is a casual vacancy, and the shareholders of the Company may authorise the Board of Directors to fill any vacancy in their number left unfilled at a general meeting of the shareholders. If there is a vacancy of the Board of Directors occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board of Directors, the Board of Directors has the power to appoint a Director to fill the vacancy. As of the date of this Prospectus, the Company has an interim Board of Directors composed of five Directors, who will serve as Directors only up to the first day of Listing (the Interim Directors ). The names and positions of the Interim Directors are set out in the table below. Carl-Erik Haavaldsen, Helene Odfjell, Kirk L. Davis and Bengt Lie Hansen will continue to serve as Directors and, will together with Henry H. Hamilton III as a new Director, form the new Board of Directors from the first day of Listing (the New Board of Directors ). The New Board of Directors will thus consist of five Directors. The five Directors have been elected for a term which will expire at the annual general meeting in The New Board of Directors will, as of the first day of Listing, be in compliance with the independence requirements of the Norwegian Code of Practice for Corporate Governance dated 23 October 2012 (the Corporate Governance Code ), meaning that (i) the majority of the shareholder-elected members of the Board of Directors should be independent of the Company s executive management and material business contacts, (ii) at least two of the shareholder-elected members of the Board of Directors should be independent of the Company s main shareholder, and (iii) no members of the Company s executive management should serve on the Board of Directors. All Directors, as at the first day of Listing, will be independent of the Company s significant business relations and large shareholders (shareholders holding more than 10% of the Shares in the Company), except for Helene Odfjell. All of the Directors are independent of the Management. Management is not represented on the interim Board of Directors or on the New Board of Directors. The Company s registered office address at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, serves as the business address for the members of the Board of Directors in relation to their directorships of the Company. To the extent the Stabilisation Manager, on behalf of the Managers, redelivers any of the Shares borrowed pursuant to the Lending Option to the Selling Shareholder at the end of the stabilisation period, Odfjell Partners Ltd. has a right to require the Selling Shareholder to sell 50% of any redelivered Shares. Other than this, none of the Interim Directors or the members of the New Board of Directors hold any options or other rights to acquire Shares as of the date of this Prospectus The interim Board of Directors The names, positions, current term of office and shareholding in the Company of the Interim Directors as of the date of this Prospectus are set out in the table below. Odfjell Partners Ltd., controlled by Helene Odfjell, controls 140,000,000 Shares. BCB Paragon Trust Limited, as trustee of the Larine Trust, of which Marianne Odfjell is a beneficiary, controls 60,000,000 Shares. 131

138 Odfjell Drilling Ltd - Prospectus Name Position Served since Term expires Shares Helene Odfjell 1... Chairman January 2010 AGM ,000,000 Marianne Odfjell 1... Director November 2010 Day before Listing 60,000,000 Kirk L. Davis... Director December 2007 AGM Carl-Erik Haavaldsen... Director December 2005 AGM Bengt Lie Hansen... Director November 2010 AGM Helene Odfjell and Marianne Odfjell are sisters Brief biographies of the Interim Directors Set out below are brief biographies of the Interim Directors, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Company and names of companies and partnerships of which a member of the Board of Directors is or has been a member of the administrative, management or supervisory bodies or partner in the previous five years (not including directorships and management positions in subsidiaries of the Company). Helene Odfjell, Chairman Helene Odfjell is Chairman of the interim Board of Directors. She has a Master of Business Administration from the Norwegian School of Economics (NHH), a Master of Business Administration from London Business School and is a Chartered Financial Analyst. Mrs. Odfjell has many years of experience in business and management and holds many board and management positions in the affiliates of the Company. Current directorships and management positions:... ODFJELL PARTNERS LTD. (DIRECTOR), GRØNCO AS (DIRECTOR), KOKSTAD INVEST HOLDING AS (CHAIRMAN), KOKSTAD EIENDOM AS (CHAIRMAN), KOKSTAD NÆRINGSPARK AS (CHAIRMAN), KNAUS1 AS (CHAIRMAN), PÅLSSTOVA AS (CHAIRMAN). Previous directorships and management positions in the last five years:... ODFJELL DRILLING HOLDING LTD. (DIRECTOR) Marianne Odfjell, Director Marianne Odfjell has a Master of Business Administration from Imperial College Business School and has served on the Board of Directors of the Company since Current directorships and management positions:... ODFJELL CAPITAL LTD (DIRECTOR), ASK INVEST AS (CHAIRMAN) Previous directorships and management positions in the last five years:... ODFJELL CAPITAL (BERMUDA) LTD (DIRECTOR). Kirk L. Davis, Director Kirk L. Davis has a degree in accounting from Mt. Allison University, and is a Chartered Accountant of Bermuda and a Chartered Professional Accountant of Ontario. He is currently the President and a Director of Pin High Limited, a company providing private client financial services. Mr. Davis has extensive experience from previous and current board positions. Current directorships and management positions:... OPUS FUND SERVICES (BERMUDA) LIMITED (DIRECTOR), OPUS FUND SERVICES (CAYMAN) LIMITED (DIRECTOR), OPUS FUND SERVICES LIMITED (DIRECTOR), MID ATLANTIC GLOBAL OPPORTUNITIES MANAGEMENT LTD. (DIRECTOR), CCFD OFFSHORE HOLDINGS LTD. (DIRECTOR), CGE ALPHA LTD. (DIRECTOR), CGE ALPHA OFFSHORE HOLDINGS LTD. (DIRECTOR), CGEF OFFSHORE HOLDINGS LTD. (DIRECTOR), CITADEL GLOBAL COMMODITIES FUND LTD. (DIRECTOR), CITADEL GLOBAL EQUITIES ALPHA SELECT FUND LTD. (DIRECTOR), CITADEL GLOBAL EQUITIES FUND LTD. (DIRECTOR), CITADEL GLOBAL EQUITIES MASTER FUND 132

139 Odfjell Drilling Ltd - Prospectus LTD. (DIRECTOR), CITADEL GLOBAL FIXED INCOME FUND LTD. (DIRECTOR), CITADEL GLOBAL FIXED INCOME MASTER FUND LTD. (DIRECTOR), CITADEL KENSINGTON GLOBAL STRATEGIES FUND LTD. (DIRECTOR), EQUINOX INTERNATIONAL FUND, LTD. (DIRECTOR), GEAD OFFSHORE HOLDINGS LTD. (DIRECTOR), GFID OFFSHORE HOLDINGS LTD. (DIRECTOR), MID ATLANTIC FUNDS SPC (DIRECTOR), KGSF OFFSHORE HOLDINGS LTD (DIRECTOR), KNIGHTHEAD OFFSHORE FUND, LTD. (DIRECTOR), KUROTO FUND INTERNATIONAL, LTD. (DIRECTOR), CASTLE HARBOUR HOLDINGS LTD. (DIRECTOR) CASTLE HARBOUR SECURITIES LIMITED (DIRECTOR), CARRASON HOLDINGS LIMITED (DIRECTOR), ODFJELL CAPITAL (BERMUDA) LIMITED (DIRECTOR), ODFJELL PARTNERS LTD. (DIRECTOR), SILGEST HOLDINGS LIMITED (DIRECTOR), PIN HIGH LIMITED (DIRECTOR), ASEO INTERNATIONAL LTD. (DIRECTOR), JO TANKERS (BERMUDA) LIMITED (DIRECTOR), PALMARES HOLDINGS LIMITED (DIRECTOR), SEABIRD PRIVATE TRUSTEE LIMITED (DIRECTOR), HIBISCUS PRIVATE TRUSTEE LIMITED (DIRECTOR), OSG PRIVATE TRUSTEE LIMITED (DIRECTOR). Previous directorships and management positions in the last five years:... CAPITAL G TRUST LIMITED (DIRECTOR), OFFSHORE RIG INVEST LTD. (DIRECTOR), CCF OFFSHORE HOLDINGS LTD. (DIRECTOR), CITADEL CREDIT FUND I LTD. (DIRECTOR), CITADEL CREDIT MASTER FUND LTD. (DIRECTOR), TACTICAL TRADING HK HOLDINGS LTD. (DIRECTOR), KENSINGTON FINANCIAL INVESTMENTS LTD. (DIRECTOR), LIQUID GROUP OF COMPANIES (THE) (DIRECTOR), SARGASSO SUPPLIES LTD. (DIRECTOR), MACHINA TRADING LTD. (DIRECTOR), ANCHOR SECONDARY 2 LTD (DIRECTOR), DATA HOLDINGS LIMITED (DIRECTOR), GATSBY CAPITAL MANAGEMENT LIMITED (DIRECTOR), GILS INVESTMENTS LIMITED (DIRECTOR), GLICS INVESTMENTS LIMITED (DIRECTOR), HUNTLY PRIVATE TRUSTEE LIMITED (DIRECTOR), MARAN PRIVATE TRUSTEE LIMITED (DIRECTOR), CITADEL CONVERTIBLE MASTER FUND LTD. (DIRECTOR), PHILOSMITH OFFSHORE PARTNERS LTD. (DIRECTOR), ODFJELL DRILLING HOLDING LTD (DIRECTOR). Carl-Erik Haavaldsen, Director Carl-Erik Haavaldsen has a Master of Business Administration from the Norwegian School of Economics (NHH) and a Master of Business Administration from UCLA (University of California, Los Angeles). Mr. Haavaldsen has held executive positions in companies within the commercial banking, investment banking and shipping industries. He has served as CEO for an Oslo securities firm as well as for a tanker shipping company previously listed on the Oslo Stock Exchange. Mr. Haavaldsen has further extensive experience from previous and current board positions and is an experienced business advisor. He also currently serves as investment advisor for Benor Tanker Ltd and Cenor Ltd, two investment companies. Current directorships and management positions:... TRANSPETROL HOLDING LTD. (CO-CHAIRMAN), TRANSPETROL TM AS (CHAIRMAN), IMS INSTRUMENTAL MARINE SERVICES (CHAIRMAN), INSTRUMENTAL MARINE SERVICES NORWAY AS (DIRECTOR), NEDRE BAKKLANDET NÆRING AS (CHAIRMAN). Previous directorships and management positions in the last five years:... ODFJELL DRILLING HOLDING LTD. (DIRECTOR), TROLL FISH AS (DIRECTOR). 133

140 Odfjell Drilling Ltd - Prospectus Bengt Lie Hansen, Director Bengt Lie Hansen has a Master of Business Administration from the Norwegian School of Economics (NHH) and a Master of Law from the University in Oslo (UiO). Mr. Lie Hansen has 38 years of experience in the oil, gas and offshore industry. He has been head of division in the Ministry of Petroleum and Energy, Vice President of Deminex Norway, Senior Vice President of Norsk Hydro, in charge of Finance, Commercial, Natural Gas and the Ormen Lange project. He has also served as President of Statoil Russia. He is currently a non-equity partner in the Norwegian law firm Selmer. Current directorships and management positions:... TGS NOPEC GEOPHYSICAL COMPANY ASA (DIRECTOR), RN NORDIC OIL AS (CHAIRMAN), VERIPOS, INC (DIRECTOR), CAPRICORN NORGE AS (DIRECTOR). Previous directorships and management positions in the last five years:... STATOIL RUSSIA (PRESIDENT) Remuneration of the interim Board of Directors The remuneration to the Interim Directors for 2012 was a total of USD 228, The table below sets out the total remuneration paid to the Interim Directors for Name and position Remuneration in Helene Odfjell (Chairman)... USD 56,691 Marianne Odfjell (Director)... USD 42,948 Kirk L. Davis (Director)... USD 42,948 Carl-Erik Haavaldsen (Director)... USD 42,948 Bengt Lie Hansen (Director)... USD 42,948 1 Based on a currency exchange rate of USD/NOK The New Board of Directors Other than as stated, none of the members of the New Board of Directors hold any Shares. Set out below are brief biographies of the members of the New Board of Directors, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Company and names of companies and partnerships of which a member of the Board of Directors is or has been a member of the administrative, management or supervisory bodies or partner in the previous five years (not including directorships and management positions in subsidiaries of the Company). Carl-Erik Haavaldsen, Chairman See information in Section Brief biographies of the Interim Directors, above. Helene Odfjell, Director See information in Section Brief biographies of the Interim Directors, above. Kirk L. Davis, Director See information in Section Brief biographies of the Interim Directors, above. Bengt Lie Hansen, Director See information in Section Brief biographies of the Interim Directors, above. Henry H. Hamilton III, Director Henry H. Hamilton III is currently Chairman of TGS-NOPEC Geophysical Company ASA (TGS). He served as CEO of TGS from 1995 to June Mr. Hamilton began his career as a geophysicist with Shell Offshore ( ) before he moved to Schlumberger ( ), where he ultimately held the position of Vice President and 10 Based on a currency exchange rate of USD/NOK

141 Odfjell Drilling Ltd - Prospectus General Manager for all seismic product lines in North and South America. He joined TGS as its CEO in 1995 and remained in the position following the 1998 merger with NOPEC International that led to the initial public listing for TGS. Mr. Hamilton served on the board of directors for the International Association of Geophysical Contractors (IAGC) from 1993 to 2011 and joined the board of the Society of Exploration Geophysics (SEG) Foundation at the end of He currently serves as chairman of the board of Defy Ventures (a non-profit organisation) and as a director for the University of North Carolina Arts & Sciences Foundation (non-profit organisation). He was first elected as a Director of TGS in 1998 and its Chairman in He served as a director of Odfjell Offshore Ltd., a subsidiary of the Company, from April 2011 to September Current directorships and management positions:... TGS-NOPEC GEOPHYSICAL COMPANY ASA (TGS) (CHAIRMAN), SOCIETY OF EXPLORATION GEOPHYSICS (SEG) FOUNDATION (DIRECTOR), DEFY VENTURES (NON- PROFIT ORGANISATION, CHAIRMAN), UNC ARTS & SCIENCES FOUNDATION (NON-PROFIT ORGANISATION, DIRECTOR). Previous directorships and management positions in the last five years:... INTERNATIONAL ASSOCIATION OF GEOPHYSICAL CONTRACTORS (IAGC) (DIRECTOR), TGS-NOPEC GEOPHYSICAL COMPANY ASA (CEO) Management Overview The Company s senior management team consists of 10 individuals. As of the date of this Prospectus, no member of the Management holds any Shares 11 or options or other rights to acquire Shares. All members of Management are eligible to and may participate in the Retail Offering. The management team is employed by Odfjell Drilling AS which is performing management services for the Group pursuant to an agreement with the Company. On 31 December 2010, Simen Lieungh (the President and CEO of Odfjell Drilling) acquired 6,478,527 shares in Odfjell Drilling Holding Ltd., the previous holding company of the Group, for a total purchase price of NOK 40,000,000. In accordance with a resolution of the Board of Directors of Odfjell Drilling Holding Ltd. dated 9 June 2013, Odfjell Drilling Holding Ltd. resolved to acquire all the shares of Simen Lieungh in Odfjell Drilling Holding Ltd. for a total purchase price of NOK 46,334,498. The total number of shares in Odfjell Drilling Holding Ltd. at the time of the acquisition was 1,383,165,605. The acquisition completed on 14 June The purpose of the acquisition was to facilitate a restructuring of the shareholding structure of the Company, whereby Odfjell Drilling Holding Ltd. was placed into a members voluntary liquidation, as a result of which all of the shares in the Company were transferred to the shareholders of Odfjell Drilling Holding Ltd. Simen Lieungh intends to apply for, and will be allocated, Shares in the Institutional Offering at the Offer Price for a total amount of NOK 40,000,000, which is expected to be financed through a loan from Odfjell Partners Ltd., the controlling shareholder of the Group. The loan agreement between Simen Lieungh and Odfjell Partners Ltd. will set out certain provisions including: (i) a restriction on the creation of security interests over the Shares purchased by Simen Lieungh; (ii) until 31 March 2018, Simen Lieungh have the right to sell the Shares to Odfjell Partners Ltd. at market value provided that both parties shall mutually agree to such sale and purchase; (iii) after 31 March 2018, Simen Lieungh shall have the right to sell the Shares to Odfjell Partners Ltd. at market value; (iv) if Simen Lieungh leaves or has to leave Odfjell Drilling before 31 March 2018, Odfjell Partners Ltd. shall have the right to purchase all the Shares at cost (i.e., Simen Lieungh s purchase price for the Shares); and (v) Odfjell Partners Ltd. shall have the right of first refusal to buy the Shares from Simen Lieungh. Please see Section Simen Lieungh for the lock-up undertaking applicable to Simen Lieungh. 11 Kurt Meinert Fjell and Simen Lieungh each hold one (1) share, out of 89,995 shares, in Odfjell Drilling Philippines Ltd due to local legal requirements. The shares do not carry any right to dividends/distributions or other benefits. 135

142 Odfjell Drilling Ltd - Prospectus The names of the members of Management as of the date of this Prospectus, and their respective positions, are presented in the table below: Name Current position within the Group Employed with the Group since Simen Lieungh... President and Chief Executive Officer October 2010 Atle Sæbø... Executive Vice President and Chief Financial Officer September 1993 Tommy Johnsen... Executive Vice President Mobile Offshore Drilling Units May Per Lund... Executive Vice President Well Services April 2013 Ole Fredrik Maier... Executive Vice President Platform Drilling March 2002 Kurt Meinert Fjell... Executive Vice President Drilling Technology July 2002 Jone Torstensen... Executive Vice President and Chief of Staff January 2012 Janike A. Myre... Senior Vice President QHSE February 2002 Bengt Alvar Olsen... Senior Vice President HR and Organisation November 1979 Gisle Johanson... Senior Vice President Communications March 2012 Odfjell Drilling AS registered office address at Sandslimarka 63, N-5254 Sandsli, Norway serves as the business address for the members of the management team. The following chart sets out the Management s organisational structure: Simen Lieungh President & CEO CORPORATE FINANCE Atle Sæbø Exec. Vice President & CFO CHIEF of STAFF Jone Torstensen Exec. Vice President HUMAN RESOURCES & ORGANISATION Bengt A. Olsen Sr. Vice President COMMUNICATIONS Gisle Johanson Sr. Vice President QHSE Janike A. Myre Sr. Vice President ODFJELL WELL SERVICES MOBILE OFFSHORE DRILLING UNITS ODFJELL DRILLING TECHNOLOGY PLATFORM DRILLING Per Lund Exec. Vice President Tommy Johnsen Exec. Vice President Kurt Meinert Fjell Exec. Vice President Ole Fredrik Maier Exec. Vice President Brief biographies of the members of Management Set out below are brief biographies of the members of Management, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Company and names of companies and partnerships of which a member of the Management is or has been a member of the administrative, management or supervisory bodies or partner in the previous five years (not including directorships and management positions in subsidiaries of the Company). Simen Lieungh President and Chief Executive Officer Simen Lieungh joined Odfjell Drilling as President and Chief Executive Officer in Mr Lieungh has extensive experience in the oil and gas services industry, having joined Aker Solutions in 1988 and served as its President & CEO from January 2008 until June He has more than 20 years of experience in working with large field development projects in all phases of development, from conceptual studies to completion and delivery of complete installations. Prior to joining Aker Solutions, Mr. Lieungh was a research scientist with the Norwegian Defence Research Establishment. Mr. Lieungh is a graduate of the Norwegian University of Science and Technology and holds a Master of Science in Mechanical Engineering. 136

143 Odfjell Drilling Ltd - Prospectus Current directorships and management positions:... DEEP SEA METRO LTD. (DIRECTOR), CHLOE MARINE CORPORATION LTD. (DIRECTOR), GOLDEN CLOSE MARITIME CORP. LTD. (DIRECTOR), DEEP SEA METRO HOLLAND B.V. (DIRECTOR), DEEP SEA METRO HOLLAND IV B.V. (DIRECTOR), GOLDEN CLOSE II LTD. (DIRECTOR), DEEP SEA METRO COOPERATIEF (DIRECTOR), ODFJELL GALVÃO B.V. (DIRECTOR), NEMIS INVEST AS (CHAIRMAN AND CEO), METIER AS (DIRECTOR). Previous directorships and management positions in the last five years:... LEONHARD NILSEN & SØNNER AS (DIRECTOR), AKER SOLUTIONS ASA (CEO), LNS AS (DIRECTOR), METIER O&G AS (CHAIRMAN). Atle Sæbø Executive Vice President and Chief Financial Officer Atle Sæbø holds the position of Executive Vice President and Chief Financial Officer and has been employed by the Group since Mr. Sæbø has a Master of Business Administration from the Norwegian School of Economics (NHH) and has also taken the first level of the Norwegian Law Study. He has previously held leading positions with Fred. Olsen Offshore, Geco and Nevi Corporate and holds many board and management positions in the affiliates of Odfjell Drilling. Current directorships and management positions:... DEEP SEA METRO HOLLAND III BV (DIRECTOR), ODFJELL GALVÃO II B.V. (DIRECTOR), DEEP SEA METRO I COOPERATIEF (DIRECTOR). Previous directorships and management positions in the last five years:... DEEP SEA METRO LTD. (DIRECTOR), CHLOE MARINE CORPORATION LTD. (DIRECTOR), GOLDEN CLOSE MARITIME CORP. LTD. (DIRECTOR), ODFJELL GALVÃO B.V. (DIRECTOR). Tommy Johnsen Executive Vice President Mobile Offshore Drilling Units Tommy Johnsen holds the position of Executive Vice President and heads the Mobile Offshore Drilling Units segment. He has 16 years experience in drilling and oilfield services. Mr. Johnsen was regional manager for Odfjell Drilling in the Middle East for the period 2006 to 2011, Executive Vice President Odfjell Well Services from 2011 to 2013 and the CEO for Malm Orstad between 2004 and Mr. Johnsen holds many board and management positions in the affiliates of Odfjell Drilling. Current directorships and management positions:... EMNO AS (CHAIRMAN, CEO), ROSS OFFSHORE AS (DIRECTOR), ROSS HOLDING AS (DIRECTOR), PSW GROUP AS (DIRECTOR), PSW PROPERTY AS (DIRECTOR), PSW CONSULTANT AS (DIRECTOR). Previous directorships and management positions in the last five years:... NONE. Per Lund Executive Vice President Well Services Per Lund holds the position of Executive Vice President and heads the Well Services segment. He has a Master of Marine Technology from the Norwegian University of Science and Technology. Mr. Lund has 16 years of experience in the oil and gas industry and has held various managerial positions in several oilfield companies before joining Odfjell Drilling in April 2013, including the CEO of Oceaneering NCA AS from 2011 to Current directorships and management positions:... WELLCEM AS (DIRECTOR). PLUND INVEST AS (CHAIRMAN). Previous directorships and management positions in the last five years:... OCEANEERING NCA AS (CEO), SUBSEA P&A AS (CEO). Ole Fredrik Maier Executive Vice President Platform Drilling Ole Fredrik Maier holds the position of Executive Vice President and heads the Platform Drilling business area. He has a Bachelor in engineering and finance/administration from Vestfold University. He held various positions in the 137

144 Odfjell Drilling Ltd - Prospectus drilling offshore industry before he joined Odfjell Drilling in He has been regional manager for the UK since 2012 and holds many board and management positions in the affiliates of Odfjell Drilling. Current directorships and management positions:... G7 GRUPPEN AS (DIRECTOR) Previous directorships and management positions in the last five years:... NONE. Kurt Meinert Fjell Executive Vice President Drilling Technology Kurt Meinert Fjell holds the position of Executive Vice President and heads the Technology business area. He has a Bachelor in mechanical engineering from Bergen University College, and is a Project Management Professional from Oslo University College. Mr. Fjell has more than 15 years of experience in the offshore drilling industry, and has been with Odfjell Drilling since Current directorships and management positions:... NONE. Previous directorships and management positions in the last five years:... NONE. Jone Torstensen Executive Vice President and Chief of Staff Jone Torstensen holds the position of Executive Vice President Chief of Staff and has degrees in business economics/administration from the University of Stavanger and the University of Bergen. He held various management positions in finance, project management and business development over 18 years at Aker Kværner and Aker Solutions before he joined Odfjell Drilling in Current directorships and management positions:... IMS INTERNATIONAL LTD. (DIRECTOR). Previous directorships and management positions in the last five years:... NONE. Janike A. Myre Senior Vice President QHSE Janike Amundsen Myre holds the position of Senior Vice President QHSE and is a business graduate of the Norwegian Business School (BI), with a Master of Business Administration from the same institution. Mrs. Myre has more than 23 years of experience and has held leading positions in Gulf, Chevron, Sonat Offshore and Transocean. Mrs. Myre has been with Odfjell Drilling since 2002 and holds other board and management positions in the affiliates of Odfjell Drilling. Current directorships and management positions:... PSW GROUP AS (DIRECTOR), PSW PROPERTY AS (DIRECTOR), PSW CONSULTANTS AS (DIRECTOR). Previous directorships and management positions in the last five years:... NONE. Bengt Alvar Olsen Senior Vice President HR & Organisation Bengt Alvar Olsen holds the position as Senior Vice President HR & Organisation and has a degree in personnel administration and marketing management from the Norwegian School of Economics (NHH). He has more than 35 years of experience from the Norwegian Navy and in the offshore market. Mr. Olsen has been with Odfjell Drilling since 1979 and holds many board and management positions in the affiliates of Odfjell Drilling. Current directorships and management positions:... KOKSTAD INVEST HOLDING AS (DIRECTOR), KOKSTAD EIENDOM AS (DIRECTOR), KOKSTAD NÆRINGSPARK AS (DIRECTOR), PÅLSSTOVA AS (DIRECTOR), KNAUS1 AS (DIRECTOR). Previous directorships and management positions in the last five years:... KOKSTAD INVEST HOLDING AS (CEO), SANDSLIMARKA AS (DIRECTOR AND CEO), SANDSLIMARKA 185 AS (DIRECTOR AND CEO). 138

145 Odfjell Drilling Ltd - Prospectus Gisle Johanson Senior Vice President Communications Gisle Johanson holds the position as Senior Vice President Communications and has a Master in business economics from the Norwegian School of Economics (NHH). Mr. Johanson has previously been working in the Ministry of Petroleum and Energy and in financial media. He has held various communication positions in Saga Petroleum, Hydro and Statoil before he joined Odfjell Drilling in Current directorships and management positions:... NONE. Previous directorships and management positions in the last five years:... NONE Remuneration and benefits The remuneration paid to the members of the current Management in 2012 was USD 3,736,000. The table below sets out the remuneration of the Management in Name Salary Other remuneration Pensions costs President and CEO... USD 1,075,000 USD 34,000 USD 11,000 Executive Vice President and CFO... USD 519,000 USD 21,000 USD 18,000 Other members of management... USD 2,141,000 USD 135,000 USD 176, Bonus programme Executive variable pay corporate management The incentive payment awarded to the corporate management depends on their achievement of individual targets and are subject to discretionary review by the Executive Vice Presidents or the CEO. Score achievement is linked to Odfjell Drilling's general objectives and performance, such as: EBIT and EBITDA performance relative to budget; QHSE performance and improvement over the previous year; Compliance with Odfjell Drilling's core values, including safeguarding the environment; Risk management and system implementation; and Active development and optimisation of resources within own area of responsibility. Each incentive agreement has a duration of one calendar year, but are by the end of December each year considered for extension of one year at a time by the CEO. The determination of the total incentive pay is based on the approved financial statements for the preceding financial year. 50% of the incentive pay is paid together with the first monthly salary payment following the approval of the financial statements, while the remaining 50% is paid in connection with the payroll in April in the following year. With effect from the financial year 2014, Odfjell Drilling will match an additional bonus equal to the 50% deferred amount, of which 50% of such amount is payable in accordance with the principles determined for payment of the deferred amount and 50% of such amount is linked to the development of the Share price. Incentive pay is capped at the fixed annual salary of the relevant employee, excluding any other benefits. Incentive pay is not included in the calculation of pension savings, insurance or other benefits from Odfjell Drilling to the employees. Incentive pay includes holiday pay and is thus not included in the basis for holiday pay the following year Performance bonus scheme Odfjell Drilling has established a performance bonus scheme for management and personnel holding key positions in Odfjell Drilling. For managers with an operating responsibility, the bonus payment has three separate components, based on the following criteria: HSE-bonus related to measured parameters. 139

146 Odfjell Drilling Ltd - Prospectus The unit s or department s results relative to budget, corrected for extraordinary purchases, allocations or depreciations. Odfjell Drilling s total results relative to budget, corrected for extraordinary purchases, allocations or depreciations. For other management and key personnel as defined by the CEO, the bonus will depend on Odfjell Drilling s total results relative to budget, corrected for extraordinary purchases, allocations or depreciations. The bonus is limited to a maximum of three times the gross monthly salary of the relevant employee. The bonuses are paid within four weeks after the approval of the financial statements of Odfjell Drilling. Bonus payments are not included in the calculation for pension savings, insurance or other benefits from Odfjell Drilling to the employees. Bonus payments include holiday pay and are thus not included in the basis for holiday pay the following year Benefits upon termination No employee, including any member of Management, has entered into employment agreements which provide for any special benefits upon termination of employment, except for Simen Lieungh, who is entitled to 12 months base salary as severance pay if his employment is terminated by Odfjell Drilling. No member of the interim Board of Directors or the New Board of Directors has or will have service contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment Pension and retirement benefits For the year ended 31 December 2012, the costs of pensions for members of Management were USD 205,000. The Company has no pension or retirement benefits for its Directors (neither the Interim Directors or the new Directors). In 2010, the Board of Directors approved a pension agreement between Odfjell Drilling AS and Abraham Odfjell, former owner, chairman and board member, whereby Abraham Odfjell is entitled to lifelong pension payments of NOK 3 million per year (to be adjusted for the Norwegian Consumer Price Index annually). The pension obligation also includes Mr. Odfjell s spouse, which means that the obligation to pay pension will continue to exist throughout the lifetime of the surviving spouse. For more information regarding pension and retirement benefits, see note 13 to the Financial Statements for the year ended 31 December 2012, included in Appendix B hereto Loans and guarantees In 2008, Odfjell Drilling loaned NOK 1,400,000 to Tommy Johnsen for the purchase of a house in Dubai in connection with Tommy Johnsen serving as regional manager for Odfjell Drilling in the Middle East. As of 30 June 2013, the outstanding balance of the loan is NOK 1,334,000. Other than this, the Company has not granted any loans, guarantees or other commitments to any of its Directors or to any member of Management Audit committee The Board of Directors has elected an audit committee amongst the members of the Board of Directors. The audit committee comprises Bengt Lie Hansen (chairman) and Helene Odfjell. The primary purposes of the audit committee are to: assist the Board of Directors in discharging its duties relating to the safeguarding of assets; the operation of adequate system and internal controls; control processes and the preparation of accurate financial reporting and statements in compliance with all applicable legal requirements, corporate governance and accounting standards; and 140

147 Odfjell Drilling Ltd - Prospectus provide support to the Board of Directors on the risk profile and risk management of the Company. The audit committee reports and makes recommendations to the Board of Directors, but the Board of Directors retains responsibility for implementing such recommendations Conflicts of interests etc. Carl-Erik Haavaldsen (Director) was a director of Troll Fish AS, a cod fish farming company, from 2007 to 2011, a company which was declared bankrupt in Other than this, none of the Interim Directors or member of the New Board of Directors or Management has during the last five years preceding the date of this Prospectus: any convictions in relation to indictable offences or convictions in relation to fraudulent offences; received any official public incrimination and/or sanctions by any statutory or regulatory authorities (including designated professional bodies) or ever been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company; or been declared bankrupt or been associated with any bankruptcy, receivership or liquidation in his/her capacity as a founder, director or senior manager of a company or partner of a limited partnership. Helene Odfjell indirectly controls Odfjell Partners Ltd., and Marianne Odfjell is a beneficiary of the Larine Trust. Further, Helene Odfjell and Marianne Odfjell are sisters. To the Company s knowledge, there are currently no other actual or potential conflicts of interest between the private interests or other duties of any of the members of the Management, the Interim Directors and the New Board of Directors and their duties towards the Company, including any family relationships between such persons Corporate governance The Company has adopted and implemented a corporate governance regime which complies with the Corporate Governance Code, with the following exceptions: Deviation from section 2 Business : In accordance with common practice for Bermuda incorporated companies, the Company s objects as set out in the memorandum of association are wider and more extensive than recommended in the Corporate Governance Code. Deviation from section 3 Equity and dividends : Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board of Directors has wide powers to issue any authorised but unissued shares on such terms and conditions as it may decide, and any shares or class of shares may be issued with preferred, deferred or other special rights or such restrictions, whether with regard to dividend, voting, return on capital, or otherwise as the Company may, by resolution of the shareholders, prescribe. However, such issuance of shares by the Company from the authorised, but unissued, share capital is subject to prior approval given by resolution of the general meeting of shareholders. On 19 August 2013, the Company s shareholders resolved that the Board of Directors may issue any authorised but unissued shares of the Company in connection with financing of ongoing and new newbuild projects, refinancing of the Company s credit facilities and/or working capital purposes on terms and conditions as the Board of Directors may in its sole determination approve. The authorisation is not limited to a specified period as recommended in the Corporate Governance Code. Deviation from section 5 Freely negotiable shares : The Shares are freely negotiable and the Company's constitutional documents do not impose any transfer restrictions on the Shares other than as set out below. The Bye-Laws include a right for the Board of Directors to decline to register the transfer of any interest in any Share in the register of members, or decline to direct any registrar, appointed by the Company, to register the transfer where such transfer would result in 50% or more of the Shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or connected to a Norwegian business activity. The purpose of this provision is to avoid that the Company is deemed a Controlled Foreign Company as such term is defined under the Norwegian tax rules. The fact that Odfjell Partners Ltd., which is a Bermuda incorporated company, will own more than 50% of the Shares at the time of Listing should mean that this provision not will impact on the free trading of the Shares. 141

148 Odfjell Drilling Ltd - Prospectus Deviation from section 6 General Meetings : The Chairman of the Board of Directors will, in principle, chair the Company s general meetings. This is mainly due to the fact that the Bye-Laws of the Company provide, as is common under Bermuda law, that the Chairman of the Board of Directors shall, as a general rule, chair the general meetings. Deviation from section 7 Nomination committee : The members of the Company s nomination committee will be elected, and the code of conduct for the nomination committee will be approved, at the first annual general meeting following the Listing. At least one member of the nomination committee will be independent of the Company s largest shareholder. The nomination committee will be elected at the first annual general meeting following the Listing as it may be more appropriate to do so when the shareholder structure of the Company has been changed following the Offering. 142

149 Odfjell Drilling Ltd - Prospectus 13 THE SELLING SHAREHOLDER The Selling Shareholder is BCB Paragon Trust Limited, as trustee of the Larine Trust. Marianne Odfjell, who is an Interim Director, is a beneficiary of the trust. The registered address of the Selling Shareholder is 19 Par-La-Ville Road, Hamilton, HM 11, Bermuda. As of the date of this Prospectus, the Selling Shareholder holds 60,000,000 Shares in the Company, corresponding to 30% of the issued and outstanding Shares. Following completion of the Offering, the Selling Shareholder will not hold any Shares, assuming (i) the Offering is fully subscribed (ii) the Additional Shares are allotted and (iii) the Over-Allotment Option is exercised in full. To the extent the Stabilisation Manager, on behalf of the Managers, redelivers any of the Shares borrowed pursuant to the Lending Option to the Selling Shareholder at the end of the stabilisation period, the Selling Shareholder has the right to require Odfjell Partners Ltd. to purchase 50% of such redelivered Shares from the Selling Shareholder and Odfjell Partners Ltd. has a corresponding right to require the Selling Shareholder to sell 50% of any redelivered Shares. See Section "Redelivered Shares. Based on the above assumptions, the Selling Shareholder will not hold any Shares following the Offering. However, the Selling Shareholder and its Affiliates (as defined in the Purchase Agreement) have pursuant to the Purchase Agreement undertaken not to (i) sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, whether any such transaction is to be settled by delivery of Shares or such other securities, in cash or otherwise, or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii), for a period of nine months after the date of the Purchase Agreement (expected to be 27 September 2013), without the prior written consent of the Joint Bookrunners, except for sales to the Managers pursuant to the Purchase Agreement and sales to Odfjell Partners Ltd. pursuant to a put and call option agreement between the Selling Shareholder and Odfjell Partners Ltd. and the exercise of the put option and/or call option thereunder in connection with any redelivery of Shares pursuant to the Purchase Agreement. 143

150 Odfjell Drilling Ltd - Prospectus 14 RELATED PARTY TRANSACTIONS 14.1 Introduction In the period covered by the Financial Statements herein, the Company has been owned 100% by Odfjell Drilling Holding Ltd. Odfjell Drilling Holding Ltd. was controlled by Odfjell Partners Ltd., which owned 69.67% of the Shares in this company. The remaining shares have been controlled by the Larine Trust, Elin Odfjell and Simen Lieungh. On 11 July 2013, the Shares were distributed from Odfjell Drilling Holding Ltd. on a pro rata basis to the shareholders of Odfjell Drilling Holding Ltd. so that the shareholders of Odfjell Drilling Holding Ltd. became the direct shareholders of the Company from such date and Odfjell Drilling Holding Ltd. went into a members voluntary winding up. Below is a summary of the Group s related party transaction for the periods covered by the historical financial information included in this Prospectus as Appendix B and C and up to the date of this Prospectus. For further information on related party transactions for the Group for the years ended 31 December 2012 and 2011 please refer to note 24 of the Financial Statements for the year ended 31 December 2012 included in Appendix B to this Prospectus. All related party transactions have been concluded at arm s length principles Transactions carried out with related parties in the years ended 31 December 2012, 2011 and 2010 The below table gives an overview of the related party transactions carried out with related parties in the years ended 31 December 2012, 2011 and Year ended 31 December In USD thousands 2012 (IFRS) (audited) 2011 (IFRS) (audited) 2010 (NGAAP) (unaudited) Sales of services Entities controlled by Odfjell Partners Ltd. (management services) Associates... Total... 93,191 24,400 48,576 93,217 24,689 48,844 Operating expenses Associates... Total... 14,068 7,567 2,007 14,068 7,567 2,007 Leases Entities controlled by Odfjell Partners Ltd. (office rent)... Total... 1,909 4,696 3,755 1,909 4,696 3,755 Interest expenses Odfjell Partners Ltd Interest income Deep Sea Metro... 5,198-1,126 Year-end balances arising from purchase of services Current receivables from related parties... Total... 14,285 58,098 2,841 14,285 58,098 2,841 Current liabilities to related parties Current liabilities to parent company... 6, Total... 6,

151 Odfjell Drilling Ltd - Prospectus In USD thousands (IFRS) (audited) Non-current liability under related party agreement... Total... Year ended 31 December (IFRS) (audited) (NGAAP) (unaudited) - 7,255 5,246-7,255 5,246 Non-current receivable under related party agreement... 52, Non-current receivable Odfjell Capital (Bermuda) Ltd... 15,902 15,464 14,008 Total... 67,970 15,464 14,008 Commitments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than 1 year... 1,911 4,432 4,708 Later than 1 year and no later than 5 years... 7,543 17,630 18,832 Later than 5 years... 4,715 15,040 20,695 Total... 14,169 37,103 44, Transactions carried out with related parties in the six month periods ended 30 June 2013 and 2012 The below table gives an overview of the related party transactions carried out with related parties in the six month periods ended 30 June 2013 and Six months ended 30 June In USD thousands Sales of services 2013 (IFRS) (unaudited) 2012 (IFRS) (unaudited) Entities controlled by Odfjell Partners Ltd. (management services) Associates... Total... 42,713 36,780 42,713 36,780 Leases Entities controlled by Odfjell Partners Ltd. (office rent)... Total... Interest income Associates... Total... 1,081 1,903 1,081 1,903 3,234 1,040 3,234 1, Transactions carried out with related parties in the period following 30 June 2013 In the period following 30 June 2013, the Group has not entered into any new related party agreements. The related party agreements the Group was a party to during the six months ended 30 June 2013 have continued to be in effect in the period following 30 June As a result, related party transactions have been carried out under these related party agreements in the same manner as in the six months ended 30 June

152 Odfjell Drilling Ltd - Prospectus 15 CORPORATE INFORMATION AND DESCRIPTION OF SHARE CAPITAL The following is a summary of certain corporate information and material information relating to the Shares and share capital of the Company and certain other shareholder matters, including summaries of certain provisions of the Company s memorandum of association, Bye-Laws and applicable Norwegian and Bermuda law in effect as of the date of this Prospectus, including the Bermuda Companies Act. The summary does not purport to be complete and is qualified in its entirety by the Company s memorandum of association, Bye-Laws and applicable law Corporate information Odfjell Drilling Ltd was incorporated on 16 November 2005 as an exempted company limited by shares under the laws of Bermuda and in accordance with the Bermuda Companies Act. The Company s registration number is The Company s registered office is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. Telephone: + 1 (441) The Company s website is Legal structure Odfjell Drilling Ltd, the parent company of the Group, is a holding company. The operations of the Group are carried out by the Group s operating subsidiaries. Odfjell Drilling Ltd has two directly wholly-owned subsidiaries, Odfjell Offshore Ltd. (holding company for the Drilling Units) and Odfjell Drilling Services Ltd. (holding company for the Group s MODU Management business area and the Drilling & Technology and Well Services segments), both incorporated in Bermuda. Odfjell Offshore Ltd. has the following four directly wholly-owned subsidiaries: Odfjell Rig Ltd (parent company of various subsidiaries), incorporated in Bermuda; Odfjell Invest Ltd. (parent company of the rig owning companies of Deepsea Atlantic and Deepsea Stavanger), incorporated in Bermuda; Odfjell Rig II Ltd. (rig owning company of Deepsea Bergen), incorporated in Bermuda; and Odfjell Rig III Ltd. (party to the Construction Contract with DSME), incorporated in Bermuda. In addition, Odfjell Offshore Ltd. holds a 40% ownership interest in Deep Sea Metro (parent company of the rig owning companies for Deepsea Metro I and Deepsea Metro II). Odfjell Drilling Services Ltd. has the following five directly wholly-owned subsidiaries: Odfjell Drilling AS (employer of the majority of the land-based Norwegian employees and manager for the Drilling Units), incorporated in Norway; Odfjell Operations Ltd. (parent company of various subsidiaries), incorporated in Bermuda; Odfjell Partners Invest Ltd. (owner of service and rental equipment and parent company of the Group s main subsidiaries owning equipment and providing well services), incorporated in Bermuda; Odfjell Drilling Technology Ltd. (parent company of the main engineering companies in the Group), incorporated in Bermuda; and Odfjell Drilling Cooperatief U.A. (parent company of subsidiaries providing well services and related activities), incorporated in the Netherlands. In addition, Odfjell Drilling Services Ltd. holds a 50% ownership interest in Ross Offshore Holding AS and a 50% ownership interest in PSW Group AS, both through Odfjell Drilling Technology Ltd. Odfjell Drilling Services Ltd. further holds a 50% ownership interest in Odfjell Galvão B.V., through a subsidiary of Odfjell Drilling Cooperatief U.A. 146

153 Odfjell Drilling Ltd - Prospectus The following chart shows the subsidiaries of the Company and the condensed legal structure of Odfjell Drilling: Odfjell Drilling Ltd. Odfjell Offshore Ltd. Odfjell Drilling Services Ltd. Odfjell Invest Ltd. Odfjell Drilling AS Odfjell Rig Ltd. Odfjell Operations Ltd Odfjell Rig II Ltd. Odfjell Partners Invest Ltd 40% Odfjell Rig III Ltd. Deep Sea Metro Ltd. Odfjell Drilling Technology Ltd. 1% 99% Odfjell Drilling Cooperatief U.A Share = 100% when not specified 15.3 Authorised and issued share capital At the date of this Prospectus, the Company s authorised share capital is USD 2,300,000 consisting of 230,000,000 shares with a par value of USD 0.01 each, of which 200,000,000 Shares have been issued. The Board of Directors, subject to prior approval given by resolution of the Company s shareholders in accordance with the Bye-Laws, may issue any authorised but unissued shares of the Company. On 19 August 2013, the Company s shareholders resolved that the Board of Directors may issue any authorised but unissued shares of the Company in connection with financing of ongoing and new newbuild projects, refinancing of the Company s credit facilities and/or working capital purposes on terms and conditions as the Board of Directors may in its sole determination approve. The Shares have been created under the Bermuda Companies Act and are registered in the VPS under ISIN BMG Share capital history The table below shows the development in the Company s authorised share capital for the period from incorporation to the date hereof: Change in Date Type of change authorised share capital (USD) New authorised share capital (USD) No. of authorised shares Par value per share (USD) 16 November Authorised on 12,000 12,000 12, incorporation 14 July 2010 Subdivision of shares - 12,000 1,200,000, July 2010 Increase of authorised 6,000 18,000 1,800,000, share capital 5 July 2013 Consolidation and increase of authorised share capital 2,282,000 2,300, ,000,

154 Odfjell Drilling Ltd - Prospectus The table below shows the development in the Company s issued share capital for the period from incorporation to the date hereof: Change in Date Type of change issued share capital (USD) New issued share capital (USD) No. of issued shares Par value per share (USD) 16 November Incorporation 12,000 12,000 12, July 2010 Subdivision of shares - 12,000 1,200,000, July 2010 Share issue 1, , ,376,687, July 2013 Consolidation and bonus issue 1,986, ,000, ,000, Admission to trading On 12 September 2013, the Company applied for admission to trading of its Shares on the Oslo Stock Exchange. It is expected that the board of directors of the Oslo Stock Exchange approves the Listing application of the Company on 25 September 2013, subject to certain conditions being met. See Section Conditions for completion of the Offering Listing and trading of the Offer Shares. The Company currently expects commencement of trading in the Shares on the Oslo Stock Exchange on an if sold basis, on or around 30 September 2013, and on an unconditional basis on or around 3 October The Company has not applied for admission to trading of the Shares on any other stock exchange or regulated market VPS registration of the Shares The VPS maintains a branch register in addition to the principal share register of the Company maintained at the registered office of the Company in Bermuda pursuant to the provisions of the Bermuda Companies Act. Bermuda law permits the transfer of shares listed or admitted to trading on the Oslo Stock Exchange to be effected in accordance with the rules of the Oslo Stock Exchange (provided that it remains an Appointed Stock Exchange). Accordingly, the title to the Shares, including the Offer Shares, will be evidenced and transferred without a written instrument by the VPS in accordance with the Bye-Laws, provided that they are listed or admitted to trading on the Oslo Stock Exchange. The Shares (and not only the beneficial interests in the Shares) are registered in the VPS Ownership structure As of the date of this Prospectus, the Company has the following two shareholders, holding in aggregate 100% of the issued and outstanding Shares: Shareholders Number of Shares Percent Odfjell Partners Ltd ,000, BCB Paragon Trust Limited, as trustee of the Larine Trust... 60,000, Total ,000, There are no differences in voting rights between the shareholders. Shareholders owning 5% or more of the Shares have an interest in the Company s share capital which is notifiable pursuant to the Norwegian Securities Trading Act. See Section 16.7 Disclosure obligations for a description of the disclosure obligations under the Norwegian Securities Trading Act. The table above shows the ownership percentage held by such notifiable shareholders. Following the completion of the Offering, Odfjell Partners Ltd. will control a majority of the Shares, while BCB Paragon Trust Limited, as trustee of the Larine Trust (the Selling Shareholder) will not hold any shares, assuming (i) the Offering is fully subscribed (ii) the Additional Shares are allotted and (iii) the Over-Allotment Option is exercised in full. See Section 13 The Selling Shareholder. The Bye-Laws include certain provisions intended to ensure that such control is not abused. For example, section 47.2 in the Bye-Laws provides that the affairs of the Company shall not be conducted in a manner oppressive or prejudicial to the interests of some part of the shareholders. In the event the affairs of the Company are conducted in such a manner, any shareholder may make an application to the Supreme Court of Bermuda pursuant to the Bermuda Companies Act. 148

155 Odfjell Drilling Ltd - Prospectus The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company Share repurchase and treasury shares Pursuant to the Bye-Laws, the Company may purchase its own shares for cancellation or acquire them as treasury shares on such terms and in such manner as may be authorised by the Board of Directors, subject to the Bermuda Companies Act. The Board of Directors may exercise all the powers of the Company to purchase its own Shares. Neither the Company nor any of its subsidiaries holds any Shares at the date of this Prospectus Other financial instruments Neither the Company nor any of its subsidiaries has issued any options, warrants, convertible loans or other instruments that would entitle a holder of any such instrument to subscribe for any shares in the Company or its subsidiaries Shareholder rights The Company has one class of shares in issue, and all shares in that class have equal rights to all such other shares in that class as set out in the Bye-Laws The memorandum of association, Bye-Laws and Bermuda Law The Bye-Laws are set out in Appendix A to this Prospectus. Below is a summary of provisions of the Bye-Laws and certain aspects of applicable Bermuda law. The Bye-Laws do not place more stringent conditions for the change of rights of holders than those required by the Bermuda Companies Act, see Section Voting rights Objective of the Company The objects of the Company s business, as set out in paragraph 6 of its memorandum of association, are wide, and include carrying on any trade or business which can, in the opinion of the Board of Directors, be advantageously carried on by the Company. The Company can therefore, subject to the Board of Directors opinion, undertake activities without restriction on its capacity Board of Directors The Bye-Laws provide that the Company shall be managed by the Board of Directors subject to the Bermuda Companies Act and the Bye-Laws. Generally, the Board of Directors may exercise the powers of the Company, except to the extent the Bermuda Companies Act or the Bye-Laws reserve such power to the shareholders. The Board of Directors shall consist of not less than five Directors or such number in excess thereof as the shareholders may determine. Directors are elected by the shareholders, except in the case of a casual vacancy, at the annual general meeting or at any special general meeting called for that purpose, for such term of office as the shareholders determine, or, in the absence of such determination, until the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated. If there is a vacancy of the Board of Directors occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board of Directors, the Board of Directors has the power to appoint a Director to fill the vacancy. A Director may resign by providing notice in writing to the Company of such resignation. A Director may be removed at any general meeting convened and held in accordance with the Bye-Laws, provided that the notice of any such meeting convened for the purpose of removing a Director contains a statement of the intention to remove the Director and must be served on the Director not less than 14 days before the meeting. The Director shall be entitled to attend the meeting and be heard on the motion for such Director's removal. The office of a Director of the Company shall be vacated if he or she (i) is removed from office pursuant to the Bye-Laws or is prohibited from being a Director by law; (ii) is or becomes bankrupt, or makes any arrangement or composition with his creditors generally; (iii) is or becomes of unsound mind or dies, or (iv) resigns his office by notice to the Company. A Director may hold any office or act for the Company in any capacity (except as auditor). Provided a Director discloses a direct or indirect interest in any contract or arrangement with the Company as required by Bermuda 149

156 Odfjell Drilling Ltd - Prospectus law, such Director is entitled to vote in respect of any such contract or arrangement in which he or she is interested unless he or she is disqualified from voting by the chairman of the relevant Board meeting Share rights The holders of Shares have no pre-emptive, redemption, conversion or sinking fund rights. The holders of Shares are entitled to one vote per Share on all matters submitted to a vote of the holders of Shares. Unless a different majority is required by law or by the Bye-Laws, resolutions to be approved by the holders of Shares require approval by a simple majority of votes cast at a meeting at which a quorum is present. In the event of the liquidation, dissolution or winding up of the Company, the holders of Shares are entitled to share equally and rateably in its assets, if any, remaining after the payment of all of the Company s debts and liabilities, subject to any liquidation preference on any issued and outstanding preference shares Variation of share rights Subject to the Bermuda Companies Act, all or any of the special rights for the time being attached to any class of Shares for the time being issued may from time to time (whether or not the Company is being wound up) be altered or abrogated with the consent in writing of the holders of not less than 75% of the issued Shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of such Shares voting in person or by proxy. To any such separate general meeting, all the provisions of the Bye-Laws as to general meetings of the Company shall apply, but so that the necessary quorum is two or more persons holding or representing by proxy at least one third of the issued Shares of the relevant class, that every holder of Shares of the relevant class shall be entitled on a poll to one vote for every such Share held by him and that any holder of Shares of the relevant class present in person or by proxy may demand a poll; provided, however, that if the Company or a class of shareholders shall have only one shareholder, one shareholder present in person or by proxy shall constitute the necessary quorum. The Bye-Laws specify that the creation or issue of Shares ranking equally with existing Shares will not, unless expressly provided by the terms of issue of existing Shares, vary the rights attached to existing Shares Voting rights At any general meeting, every holder of Shares present in person and every person holding a valid proxy shall have one vote on a show of hands. On a poll, every such holder of Shares present in person or by proxy shall have one vote for every Share held. Except where a greater majority is required by the Bermuda Companies Act or the Bye-Laws, any question proposed for the consideration of the shareholders at a general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with the provisions of the Bye-Laws and in case of an equality of votes the chairman of such meeting shall not be entitled to a second or deciding vote and the resolution shall fail Amendment of the memorandum of association and the Bye-Laws The Bye-Laws provide that the memorandum of association of the Company may not be altered or amended, unless it shall have been approved by a resolution by the Board of Directors and by a resolution passed with simple majority at a general meeting of shareholders. The Bye-Laws further provide that no bye-law shall be rescinded, altered or amended, and no new bye-law shall be made, unless it shall have been approved by a resolution of the Board of Directors and by a resolution of the affirmative vote of not less than two-thirds of the Shares and votes represented at a general meeting of shareholders. Under Bermuda law, the holders of an aggregate of not less than 20% in par value of the Company s issued share capital or any class thereof have the right to apply to the Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment which alters or reduces a company s share capital as provided in the Bermuda Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Supreme Court of Bermuda. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the Company s memorandum of association is passed and may be made on behalf of persons entitled to make the application or by one or more of their number as they may appoint in writing for the purpose. No application may be made by shareholders voting in favour of the amendment. 150

157 Odfjell Drilling Ltd - Prospectus General Meetings of shareholders The annual general meeting of the Company shall be held once in every year at such time and place as the Chairman (if any) or any two Directors or any Director and the Secretary of the Company or the Board of Directors shall appoint. The Chairman (if any) or any two Directors or any Director and the Secretary of the Company or the Board of Directors may whenever they think fit convene special general meetings of the Company. The Board of Directors shall also convene a special general meeting of the Company at the request of shareholders holding not less than one-twentieth of such of the paid-up share capital of the Company which carries the right to vote at a general meeting of the Company at the date of the request. At least 21 days notice of an annual general meeting shall be given to each shareholder entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held, that the election of directors will take place thereat and, as far as practicable, the other business to be conducted at the meeting. At least 21 days notice of a special general meeting shall be given to each shareholder entitled to attend and vote thereat, stating the date, place and time and the general nature of the business to be considered at the meeting. This notice requirement is subject to the ability to hold such meetings on shorter notice if such notice is agreed: (i) in the case of an annual general meeting by all of the shareholders entitled to attend and vote at such meeting; or (ii) in the case of a special general meeting by a majority in number of the shareholders entitled to attend and vote at the meeting holding not less than 95% in nominal value of the shares entitled to attend and vote at such meeting. The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting. Shareholders may participate in any general meeting by means of such telephonic, electronic or other communication facilities or means as permits all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such meeting shall constitute presence in person at such meeting. The Board may fix any date as the record date for determining the shareholders entitled to receive notice of and to vote at any general meeting. The date for determining the shareholders entitled to vote at any general meeting may not be more than five days before the date fixed for the meeting. Except as otherwise provided in the Bye-Laws, the quorum at any general meeting of the Company shall be constituted by two or more persons, present in person and representing in person or by proxy, in excess of one-third of the total issued voting shares throughout the meeting Dividend rights Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that: (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) that the realisable value of its assets would thereby be less than its liabilities. Under the Company s Bye-Laws, each of the Shares are entitled to dividends, as and when dividends are declared by the Board of Directors, subject to any preferred dividend right of the holders of any preference shares. Any dividend payable in respect of a share which has remained unclaimed for 7 years from the date when it became due for payment, shall if the Board of Directors so resolves, be forfeited and cease to remain owing by the Company Transfer of Shares The Bye-Laws provide that the Board of Directors may decline to register the transfer of any interest in any Share in the register of members or decline to direct any registrar, appointed by the Company, to register the transfer where such transfer would result in 50% or more of the shares or votes in the Company being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or connected to a Norwegian business activity, in order to avoid the Company being deemed a Controlled Foreign Company as such term is defined under the Norwegian tax rules. Subject to the above, but notwithstanding anything else to the contrary in the Bye-Laws, shares that are listed or admitted to trading on an Appointed Stock Exchange may be transferred in accordance with the rules and regulations of such exchange. All transfers of uncertificated shares shall be made in accordance with and be subject to the facilities and requirements of the transfer of title to shares in that class by means of the VPS or any other relevant system concerned and, subject thereto, in accordance with any arrangements made by the Board of Directors in accordance with the Bye-Laws. The Board of Directors shall refuse any transfer unless the registration of such transfer satisfies all applicable consents, authorisations and permissions of any governmental body or agency in Bermuda. The Board of Directors may also refuse to recognise an instrument of transfer of a share 151

158 Odfjell Drilling Ltd - Prospectus unless it is accompanied by the relevant share certificate (if one has been issued) and such other evidence of the transferor's right to make the transfer as the Board of Directors shall reasonably require. Subject to these restrictions, a holder of Shares may transfer the title to all or any of his Shares by completing an instrument of transfer in the common form or in any other form as the Board of Directors may approve. The instrument of transfer must be signed by the transferor and transferee, although in the case of a fully paid share the Board of Directors may accept the instrument signed only by the transferor. Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Bermuda Companies Act. In accordance with Bermuda law, share certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a special capacity (for example as a trustee), certificates may, at the request of the shareholder, record the capacity in which the shareholder is acting. Notwithstanding such recording of any special capacity, the Company is not bound to investigate or see to the execution of any such trust. The Company will take no notice of any trust applicable to any of the Shares, whether or not the Company has been notified of such trust. See Section 2.8 Risks related to the Company s incorporation in Bermuda for a summary of the provisions in the Bye-Laws that contain provisions that could make it more difficult for a third party to acquire the Company without the consent of the Board of Directors Amalgamations and mergers The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation or merger agreement to be approved by the company s board of directors and by its shareholders. Unless the bye-laws provide otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation or merger agreement, and the quorum for such meeting must be two persons holding or representing more than one-third of the issued shares of the company. On the date hereof the Company s Bye-Laws does not deviate from these requirements Appraisal rights and other shareholder suits Under Bermuda law, in the event of an amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who is not satisfied that fair value has been offered for such shareholder s shares may, within one month of notice of the general meeting, apply to the Bermuda Supreme Court to appraise the fair value of those shares. Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result in the violation of the Company s memorandum of association or Bye-Laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company s shareholders than that which actually approved it. When the affairs of a company are being conducted in a manner which is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company Capitalisation of profits and reserves Pursuant to the Bye-Laws, the Board of Directors may (i) capitalise any part of the amount of the Company s share premium or other reserve accounts or any amount credited to the Company s profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro-rata (except in connection with the conversion of shares) to the shareholders; or (ii) capitalise any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by paying up in full, partly paid or nil paid shares of those shareholders who would have been entitled to such sums if they were distributed by way of dividend or distribution. 152

159 Odfjell Drilling Ltd - Prospectus Untraced shareholders The Bye-Laws provide that the Board of Directors may forfeit any dividend or other monies payable in respect of any shares which remain unclaimed for seven years from the date when such monies became due for payment. In addition, the Company shall be entitled to cease sending dividend warrants and checks by post or otherwise to a shareholder if such instruments have been returned undelivered to, or left uncashed by, such shareholder on at least two consecutive occasions or, following one such occasion, reasonable enquires have failed to establish the shareholder's new address. This entitlement ceases if the shareholder claims a dividend or cashes a dividend check or a warrant Access to books and records and dissemination of information Members of the general public have the right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include the Company s memorandum of association (including its objects and powers) and certain alterations to the company s memorandum of association. The members of the Company have the additional right to inspect the Bye-Laws of the Company, and the Company s audited financial statements, which must be presented to the annual general meeting. Minutes of general meetings of the Company are also open for inspection by the members of the Company and directors of the Company without charge for not less than two hours during business hours each day subject to such reasonable restrictions as the Company may impose. Except when the register of members is closed under the provisions of the Bermuda Companies Act, the register of members of a company shall during business hours (subject to such reasonable restrictions as the company may impose so that not less than two hours in each day be allowed for inspection) be open for inspection by members of the general public without charge. A company may on giving notice by advertisement in an appointed newspaper close the register of members for any time or times not exceeding in the whole thirty days in a year. A company is required to maintain its register of members in Bermuda, however, a company the shares of which are listed on an Appointed Stock Exchange or have been offered to the public pursuant to a prospectus filed in accordance with the Bermuda Companies Act, or which is subject to the rules or regulations of a competent regulatory authority, may keep in any place outside Bermuda, one or more branch registers after giving written notice to the Bermuda Registrar of Companies of the place where each such register is to be kept. Any branch register of members established by the aforementioned is subject to the same rights of inspection as the register of members of the company in Bermuda. Any member of the public may require a copy of the register of members or any part thereof which must be provided within 14 days of a request on payment of the appropriate fee prescribed in the Bermuda Companies Act. A company is required to keep a register of directors and officers at its registered office and such register must during business hours (subject to such reasonable restrictions as the company may impose, so that not less than two hours in each day be allowed for inspection) be open for inspection by members of the public without charge. Any member of the public may require a copy of the register of directors and officers, or any part of it, on payment of the appropriate fee prescribed in the Bermuda Companies Act. Where a company, the shares of which are listed on an Appointed Stock Exchange, sends its summarised financial statements to its members pursuant to section 87A of the Bermuda Companies Act, a copy of the full financial statements (as well as the summarised financial statements) must be made available for inspection by the public at the company s registered office. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records Winding-up A company may be wound up by the Bermuda court on application presented by the company itself, its creditors (including contingent or prospective creditors) or its contributories. The Bermuda court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Bermuda court, just and equitable to do so. A company may be wound up voluntarily when the members so resolve in general meeting, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, the company shall, from the commencement of the winding up, cease to carry on its business, except so far as may be required for the beneficial winding up thereof. 153

160 Odfjell Drilling Ltd - Prospectus Where, on a voluntary winding up, a majority of directors make a statutory declaration of solvency, the winding up will be deemed a members' voluntary winding up. In any case where such declaration has not been made, the winding up will be deemed a creditors' voluntary winding up. In the case of a members voluntary winding up of a company, the company in general meeting must appoint one or more liquidators within the period prescribed by the Bermuda Companies Act for the purpose of winding up the affairs of the company and distributing its assets. If the liquidator is at any time of the opinion that the company will not be able to pay its debts in full in the period stated in the directors declaration of solvency, he is obliged to summon a meeting of creditors and lay before the meeting a statement of the assets and liabilities of the company. As soon as the affairs of the company are fully wound up via a members' voluntary winding up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account, and giving any explanation thereof. This final general meeting shall be called by advertisement in an appointed newspaper, published at least one month before the meeting. Within one week after the meeting the liquidator shall notify the Registrar of Companies in Bermuda that the company has been dissolved and the Registrar shall record that fact in accordance with the Bermuda Companies Act. In the case of a creditors voluntary winding up of a company, the company must call a meeting of the creditors of the company to be summoned for the day, or the next day following the day, on which the meeting of the members at which the resolution for voluntary winding up is to be proposed is held. Notice of such meeting of creditors must be sent at the same time as notice is sent to members. In addition, the company must cause a notice to appear in an appointed newspaper on at least two occasions. The creditors and the members at their respective meetings may nominate a person to be liquidator for the purposes of winding up the affairs of the company and distributing the assets of the company, provided that if the creditors and the members nominate different persons, the person nominated by the creditors shall be the liquidator. If no person is nominated by the creditors, the person (if any) nominated by the members shall be liquidator. The creditors at the creditors meeting may also appoint a committee of inspection consisting of not more than five persons. If a creditors' voluntary winding up continues for more than one year, the liquidator is required to summon a general meeting of the company and a meeting of the creditors at the end of each year and must lay before such meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year. As soon as the affairs of the company are fully wound up via a creditors' voluntary winding up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company and a meeting of the creditors for the purposes of laying the account before the meetings, and giving any explanation thereof. Each such meeting shall be called by advertisement in an appointed newspaper, published at least one month before the meeting. Within one week after the date of the meetings, or if the meetings are not held on the same date, after the date of the later meeting, the liquidator is required to send to the Registrar of Companies in Bermuda a copy of the account and make a return to him in accordance with the Bermuda Companies Act. The company will be deemed to be dissolved on the expiration of three months from the registration by the Registrar of Companies in Bermuda of the account and the return. However, a Bermuda court may, on the application of the liquidator or of some other person who appears to the court to be interested, make an order deferring the date at which the dissolution of the company is to take effect for such time as the court thinks fit Indemnification of Directors and officers Section 98 of the Bermuda Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favour or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to section 281 of the Bermuda Companies Act. 154

161 Odfjell Drilling Ltd - Prospectus The Company has adopted provisions in the Bye-Laws that provide that the Company shall indemnify its officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty. Section 98A of the Bermuda Companies Act permits the Company to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not the Company may otherwise indemnify such officer or director. The Company is expected to purchase and maintain a directors and officers liability policy for such a purpose Compulsory purchase of shares Pursuant to the Bye-Laws, if a member holds more than 90% of the Shares and an equivalent of the votes which may be cast at a general meeting of the Company (a Majority Shareholder ), each of the other members may require that the Majority Shareholder purchases all of its, his or her respective Shares by written notice to the Company and the Majority Shareholder. In the absence of an amicable agreement on the price payable by the Majority Shareholder for the relevant shares, the price shall be fixed at fair market value by a reputable and independent financial institution, auditor or accountancy firm (the Appraiser ). In the event the parties are unable to agree on the identity of the Appraiser, the price shall be fixed at fair market value by arbitration conducted under the Bermuda International Conciliation and Arbitration Act In the absence of an amicable agreement on the selection of the arbitrator, the Supreme Court of Bermuda shall select the arbitrator. 155

162 Odfjell Drilling Ltd - Prospectus 16 SECURITIES TRADING IN NORWAY 16.1 Introduction The Oslo Stock Exchange was established in 1819 and is the principal market in which shares, bonds and other financial instruments are traded in Norway. As of 31 December 2012, the total capitalisation of companies listed on the Oslo Stock Exchange amounted to approximately NOK 1,567 billion. Shareholdings of non-norwegian investors as a percentage of total market capitalisation on 31 December 2012 amounted to approximately 44.9%. The Oslo Stock Exchange has entered into a strategic cooperation with the London Stock Exchange group with regards to, inter alia, trading systems for equities, fixed income and derivatives Trading and settlement Official trading on the Oslo Stock Exchange takes place between 09:00 hours (CET) and hours (CET) each trading day, with pre-trade period between 08:15 hours (CET) and 09:00 hours (CET), closing auction from 16:20 hours (CET) to 16:25 hours (CET) and a post-trade period from 16:25 hours (CET) to 17:30 hours (CET). Reporting of after exchange trades can be done until 17:30 hours (CET). The settlement period for trading on the Oslo Stock Exchange is three trading days (T+3). Oslo Clearing ASA, a wholly-owned subsidiary of Oslo Børs VPS Holding ASA, has a license from the Norwegian FSA to act as a central clearing service, and has from 18 June 2010 offered clearing and counterparty services for equity trading on the Oslo Stock Exchange. Oslo Børs VPS Holding ASA has agreed to sell Oslo Clearing ASA to Swiss SIX group, and such sale is expected to complete in the second quarter of Investment services in Norway may only be provided by Norwegian investment firms holding a license under the Norwegian Securities Trading Act, branches of investment firms from an EEA member state or investment firms from outside the EEA that have been licensed to operate in Norway. Investment firms in an EEA member state may also provide cross-border investment services into Norway. It is possible for investment firms to undertake market-making activities in shares listed in Norway if they have a license to this effect under the Norwegian Securities Trading Act, or in the case of investment firms in an EEA member state, a license to carry out market-making activities in their home jurisdiction. Such market-making activities will be governed by the regulations of the Norwegian Securities Trading Act relating to brokers trading for their own account. However, market-making activities do not as such require notification to the Norwegian FSA or the Oslo Stock Exchange except for the general obligation of investment firms being members of the Oslo Stock Exchange to report all trades in stock exchange listed securities Information, control and surveillance Under Norwegian law, the Oslo Stock Exchange is required to perform a number of surveillance and control functions. The Surveillance and Corporate Control unit of the Oslo Stock Exchange monitors all market activity on a continuous basis. Market surveillance systems are largely automated, promptly warning department personnel of abnormal market developments. The Norwegian FSA controls the issuance of securities in both the equity and bond markets in Norway and evaluates whether the issuance documentation contains the required information and whether it would otherwise be unlawful to carry out the issuance. Under Norwegian law, a company that is listed on a Norwegian regulated market, or has applied for listing on such market, must promptly release any inside information directly concerning the company (i.e. precise information about financial instruments, the issuer thereof or other matters which are likely to have a significant effect on the price of the relevant financial instruments or related financial instruments, and which are not publicly available or commonly known in the market). A company may, however, delay the release of such information in order not to prejudice its legitimate interests, provided that it is able to ensure the confidentiality of the information and that the delayed release would not be likely to mislead the public. The Oslo Stock Exchange may levy fines on companies violating these requirements. 156

163 Odfjell Drilling Ltd - Prospectus 16.4 The VPS and transfer of Shares The VPS maintains a branch register in addition to the principal share register of the Company maintained at the registered office of the Company in Bermuda pursuant to the provisions of the Bermuda Companies Act. Bermuda law permits the transfer of shares listed or admitted to trading on the Oslo Stock Exchange to be effected in accordance with the rules of the Oslo Stock Exchange (provided that it remains an Appointed Stock Exchange). Accordingly, the title to the Shares will be evidenced and transferred without a written instrument by the VPS in accordance with the Bye-Laws, provided that they are listed or admitted to trading on the Oslo Stock Exchange. The VPS is the Norwegian paperless centralised securities register. It is a computerised bookkeeping system in which the ownership of, and all transactions relating to, shares traded on the Oslo Stock Exchange must be recorded. The VPS is wholly-owned by Oslo Børs VPS Holding ASA. All transactions relating to securities registered with the VPS are made through computerised book entries. No physical share certificates are, or may be, issued. The VPS confirms each entry by sending a transcript to the registered owner irrespective of any beneficial ownership. To give effect to such entries, the individual shareholder must establish a share account with an account agent. Norwegian banks, Norges Bank (that is, Norway s central bank), authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account agents. The entry of a transaction in the VPS is prima facie evidence under Norwegian law in determining the legal rights of parties as against the issuing company or any third party claiming an interest in the given security. A transferee or assignee of shares may not exercise the rights of a shareholder with respect to such shares unless such transferee or assignee has registered such shareholding or has reported and shown evidence of such share acquisition, and the acquisition is not prevented by law, the relevant company s bye-laws or otherwise. The VPS is liable for any loss suffered as a result of faulty registration or an amendment to, or deletion of, rights in respect of registered securities unless the error is caused by matters outside the VPS control which the VPS could not reasonably be expected to avoid or overcome the consequences of. Damages payable by the VPS may, however, be reduced in the event of contributory negligence by the aggrieved party. The VPS must provide information to the Norwegian FSA on an ongoing basis, as well as any information that the Norwegian FSA requests. Further, Norwegian tax authorities may require certain information from the VPS regarding any individual s holdings of securities, including information about dividends and interest payments Shareholder register The Shares are registered in the VPS. Shareholders may register their Shares in the VPS in the name of a nominee (bank or other nominee) approved by the Norwegian FSA. An approved and registered nominee has a duty to provide information on demand about beneficial shareholders to the company and to the Norwegian authorities. In case of registration by nominees, the registration in the VPS must show that the registered owner is a nominee. A registered nominee has the right to receive dividends and other distributions, but may not vote in general meetings on behalf of the beneficial shareholders Foreign investment in shares listed in Norway Foreign investors may trade shares listed on the Oslo Stock Exchange through any broker that is a member of the Oslo Stock Exchange, whether Norwegian or foreign Disclosure obligations If a person s, entity s or consolidated group s proportion of the total issued shares and/or rights to shares in a company listed on a regulated market in Norway (with Norway as its home state, which will be the case for the Company) reaches, exceeds or falls below the respective thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 or 90% of the share capital or the voting rights of that company, the person, entity or group in question has an obligation under the Norwegian Securities Trading Act to notify the Oslo Stock Exchange and the issuer immediately. The same applies if the disclosure thresholds are passed due to other circumstances, such as a change in the company s share capital. 157

164 Odfjell Drilling Ltd - Prospectus 16.8 Insider trading According to Norwegian law, subscription for, purchase, sale or exchange of financial instruments that are listed, or subject to the application for listing, on a Norwegian regulated market, or incitement to such dispositions, must not be undertaken by anyone who has inside information, as defined in Section 3-2 of the Norwegian Securities Trading Act. The same applies to the entry into, purchase, sale or exchange of options or futures/forward contracts or equivalent rights whose value is connected to such financial instruments or incitement to such dispositions Mandatory offer requirement The Norwegian Securities Trading Act requires any person, entity or consolidated group that becomes the owner of shares representing more than one-third of the voting rights of a company listed on a Norwegian regulated market (with the exception of certain foreign companies not including the Company) to, within four weeks, make an unconditional general offer for the purchase of the remaining shares in that company. A mandatory offer obligation may also be triggered where a party acquires the right to become the owner of shares that, together with the party s own shareholding, represent more than one-third of the voting rights in the company and the Oslo Stock Exchange decides that this is regarded as an effective acquisition of the shares in question. The mandatory offer obligation ceases to apply if the person, entity or consolidated group sells the portion of the shares that exceeds the relevant threshold within four weeks of the date on which the mandatory offer obligation was triggered. When a mandatory offer obligation is triggered, the person subject to the obligation is required to immediately notify the Oslo Stock Exchange and the company in question accordingly. The notification is required to state whether an offer will be made to acquire the remaining shares in the company or whether a sale will take place. As a rule, a notification to the effect that an offer will be made cannot be retracted. The offer and the offer document required are subject to approval by the Oslo Stock Exchange before the offer is submitted to the shareholders or made public. The offer price per share must be at least as high as the highest price paid or agreed by the offeror for the shares in the six-month period prior to the date the threshold was exceeded. If the acquirer acquires or agrees to acquire additional shares at a higher price prior to the expiration of the mandatory offer period, the acquirer is obliged to restate its offer at such higher price. A mandatory offer must be in cash or contain a cash alternative at least equivalent to any other consideration offered. In case of failure to make a mandatory offer or to sell the portion of the shares that exceeds the relevant threshold within four weeks, the Oslo Stock Exchange may force the acquirer to sell the shares exceeding the threshold by public auction. Moreover, a shareholder who fails to make an offer may not, as long as the mandatory offer obligation remains in force, exercise rights in the company, such as voting in a general meeting, without the consent of a majority of the remaining shareholders. The shareholder may, however, exercise his/her/its rights to dividends and pre-emption rights in the event of a share capital increase. If the shareholder neglects his/her/its duty to make a mandatory offer, the Oslo Stock Exchange may impose a cumulative daily fine that runs until the circumstance has been rectified. Any person, entity or consolidated group that owns shares representing more than one-third of the votes in a company listed on a Norwegian regulated market (with the exception of certain foreign companies not including the Company) is obliged to make an offer to purchase the remaining shares of the company (repeated offer obligation) if the person, entity or consolidated group through acquisition becomes the owner of shares representing 40%, or more of the votes in the company. The same applies correspondingly if the person, entity or consolidated group through acquisition becomes the owner of shares representing 50% or more of the votes in the company. The mandatory offer obligation ceases to apply if the person, entity or consolidated group sells the portion of the shares which exceeds the relevant threshold within four weeks of the date on which the mandatory offer obligation was triggered. Any person, entity or consolidated group that has passed any of the above mentioned thresholds in such a way as not to trigger the mandatory bid obligation, and has therefore not previously made an offer for the remaining shares in the company in accordance with the mandatory offer rules is, as a main rule, obliged to make a mandatory offer in the event of a subsequent acquisition of shares in the company. 158

165 Odfjell Drilling Ltd - Prospectus Odfjell Partners Ltd. will be exempted from the requirement to make a mandatory offer for the remaining shares in the Company upon further purchases of Shares as Odfjell Partners Ltd. will, upon consummation of the Offering, hold a percentage of the shares and votes in the Company in excess of all mandatory offer thresholds, as long as it at any time does not reduce its holding to below any such threshold Compulsory acquisition An acquiring party is under Bermuda law generally able to compulsorily acquire the common shares of minority holders in the following ways: By a procedure under the Bermuda Companies Act known as a scheme of arrangement. A scheme of arrangement can be effected by obtaining the agreement of the company and of holders of common shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders present and voting at a court ordered meeting held to consider the scheme of arrangement. The Bermuda Supreme Court must then sanction the scheme of arrangement. If a scheme of arrangement receives all necessary agreements and sanctions, then upon the filing of the court order with the Bermuda Registrar of Companies, all holders of common shares will be obligated to sell their shares under the terms of the scheme of arrangement. If the acquiring party is a company acquiring pursuant to a tender offer 90% of the shares or class of shares that are not already owned by, or held by a nominee for or on behalf of that acquiring party, or any of its subsidiaries (the offeror). If within four months after the making of an offer for all the shares or class of shares not owned by, or by a nominee for, the offeror, or any of its subsidiaries, an offeror receives the approval of the holders of 90% or more of all the shares to which the offer relates, the offeror may, at any time within two months beginning with the date on which the approval was obtained, require by notice any non-tendering shareholder to transfer its shares to the offeror on the same terms as the original offer. In those circumstances, non-tendering shareholders will be compelled to sell their shares unless the Bermuda Supreme Court (on application made within a one-month period from the date of the offeror s notice of its intention to acquire such shares) orders otherwise. Where the acquiring party or parties hold not less than 95% of the shares or a class of shares of the company, the acquiring party may, pursuant to a notice given to the remaining shareholders or class of shareholders, acquire the shares of such remaining shareholders or class of shareholders. When such notice is given, the acquiring party is entitled and bound to acquire the shares of the remaining shareholders on the terms set out in the notice, unless a remaining shareholder, within one month of receiving such notice, applies to the Bermuda Supreme Court for an appraisal of the value of their shares. This provision only applies where the acquiring party offers the same terms to all holders of shares whose shares are being acquired Foreign exchange controls There are currently no foreign exchange control restrictions in Norway that would potentially restrict the payment of dividends to a shareholder outside Norway, and there are currently no restrictions that would affect the right of shareholders of a company that has its shares registered with the VPS who are not residents in Norway to dispose of their shares and receive the proceeds from a disposal outside Norway. There is no maximum transferable amount either to or from Norway, although transferring banks are required to submit reports on foreign currency exchange transactions into and out of Norway into a central data register maintained by the Norwegian customs and excise authorities. The Norwegian police, tax authorities, customs and excise authorities, the National Insurance Administration and the Norwegian FSA have electronic access to the data in this register. The Bermuda Monetary Authority has given its consent for the issue and free transferability of the Shares to and between residents and non-residents of Bermuda for exchange control purposes provided that the Shares are listed on the Oslo Stock Exchange. Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to the Company s performance or its creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary Authority shall not be liable for the financial soundness, performance or default of the Company s business or for the correctness of any opinions or statements expressed in this Prospectus. Certain issues and transfers of Shares involving persons deemed resident in Bermuda for exchange control purposes require the specific consent of the Bermuda Monetary Authority. 159

166 Odfjell Drilling Ltd - Prospectus The Company has been designated by the Bermuda Monetary Authority as a non-resident for Bermuda exchange control purposes. This designation allows the Company to engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on the Company s ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to non-residents who are holders of Shares. 160

167 Odfjell Drilling Ltd - Prospectus 17 TAXATION Set out below is a summary of certain Bermuda, Norwegian and United States tax matters related to an investment in the Company. The summary regarding Bermuda, Norwegian and United States taxation are based on the laws in force in Bermuda, Norway and the United States as of the date of this Prospectus, which may be subject to any changes in law occurring after such date. Such changes could possibly be made on a retroactive basis. The following summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the shares. Shareholders who wish to clarify their own tax situation should consult and rely upon their own tax advisors. Shareholders resident in jurisdictions other than Norway and shareholders who cease to be resident in Norway for tax purposes (due to domestic tax law or tax treaty) should consult with and rely upon their own tax advisors with respect to the tax position in their country of residence and the tax consequences related to ceasing to be resident in Norway for tax purposes. Please note that for the purpose of the summary below, a reference to a Norwegian or Non-Norwegian shareholder refers to the tax residency rather than the nationality of the shareholder Bermuda taxation At the present time, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by the Company or by its shareholders in respect of the Shares. The Company has obtained an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 that, in the event that any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, such tax shall not, until 31 March 2035, be applicable to the Company or to any of the Company s operations or to its shares, debentures or other obligations except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by the Company in respect of real property owned or leased by the Company in Bermuda Norwegian taxation Taxation of dividends Norwegian Personal Shareholders Dividends received by shareholders who are individuals resident in Norway for tax purposes ( Norwegian Personal Shareholders ) are taxable as ordinary income in Norway for such shareholders at a flat rate of 28% to the extent the dividend exceeds a tax-free allowance. The allowance is calculated on a share-by-share basis. The allowance for each share is equal to the cost price of the share multiplied by a risk free interest rate based on the effective rate after tax of interest on treasury bills (Norwegian: statskasseveksler ) with three months maturity. The allowance is calculated for each calendar year, and is allocated solely to Norwegian Personal Shareholders holding shares at the expiration of the relevant calendar year. Norwegian Personal Shareholders who transfer shares will thus not be entitled to deduct any calculated allowance related to the year of transfer. Any part of the calculated allowance one year exceeding the dividend distributed on the share ( excess allowance ) may be carried forward and set off against future dividends received on, or gains upon realisation, of the same share. Any excess allowance will also be included in the basis for calculating the allowance the following years. Norwegian Corporate Shareholders Dividends distributed by companies resident in Bermuda for tax purposes, including dividends from the Company, received by Norwegian shareholders who are limited liability companies (and certain similar entities) resident in Norway for tax purposes ( Norwegian Corporate Shareholders ), are taxable as ordinary income in Norway for such shareholders at a flat rate of 28%. Non-Norwegian Shareholders As a general rule, dividends received by Non-Norwegian shareholders from shares in Non-Norwegian companies are not subject to Norwegian taxation unless the Non-Norwegian shareholder holds the shares in connection with the conduct of a trade or business in Norway. 161

168 Odfjell Drilling Ltd - Prospectus Taxation of capital gains on realisation of shares Norwegian personal shareholders Sale, redemption or other disposal of shares is considered a realisation for Norwegian tax purposes. A capital gain or loss generated by a Norwegian Personal Shareholder through a disposal of shares is taxable or tax deductible in Norway. Such capital gain or loss is included in or deducted from the Norwegian Personal Shareholder s ordinary income in the year of disposal. Ordinary income is taxable at a rate of 28%. The gain is subject to tax and the loss is tax deductible irrespective of the duration of the ownership and the number of shares disposed of. The taxable gain/deductible loss is calculated per share as the difference between the consideration for the share and the Norwegian Personal Shareholder s cost price of the share, including costs incurred in relation to the acquisition or realisation of the share. From this capital gain, Norwegian Personal Shareholders are entitled to deduct a calculated allowance provided that such allowance has not already been used to reduce taxable dividend income. Please refer to Section Taxation of dividends Norwegian Personal Shareholders above for a description of the calculation of the allowance. The allowance may only be deducted in order to reduce a taxable gain, and cannot increase or produce a deductible loss, i.e. any unused allowance exceeding the capital gain upon the realisation of a share will be annulled. If the Norwegian Personal Shareholder owns shares acquired at different points in time, the shares that were acquired first will be regarded as the first to be disposed of, on a first-in first-out basis. Norwegian Corporate Shareholders A capital gain or loss derived by a Norwegian Corporate Shareholder from a disposal of shares in the Company is taxable or tax deductible in Norway. Such capital gain or loss is included in or deducted from the basis for computation of ordinary income in the year of disposal. Ordinary income is taxable at a rate of 28%. The gain is subject to tax and the loss is tax deductible irrespective of the duration of the ownership and the number of shares disposed of. If the Norwegian Corporate Shareholder owns shares acquired at different points in time, the shares that were acquired first will be regarded as the first to be disposed of, on a first-in first-out basis. Non-Norwegian Shareholders As a general rule, capital gains generated by Non-Norwegian Shareholders are not taxable in Norway unless the Non-Norwegian Shareholder holds the shares in connection with the conduct of a trade or business in Norway Controlled Foreign Corporation (CFC) taxation Norwegian shareholders in the Company will be subject to Norwegian taxation according to the Norwegian Controlled Foreign Corporations regulations (Norwegian CFC-regulations) if Norwegian shareholders directly or indirectly own or control (hereinafter together referred to as Control ) the shares of the Company. Norwegian shareholders will be considered to Control the Company if: Norwegian shareholders Control 50% or more of the shares in the Company at the beginning of and at the end of a tax year; or If Norwegian shareholders Controlled the Company the previous tax year, the Company will also be considered Controlled by Norwegian shareholders in the following tax year unless Norwegian resident shareholders Control less than 50% of the shares at both the beginning and the end of the following tax year; or Norwegian shareholders Control more than 60% of the shares in the Company at the end of a tax year. If less than 40% of the shares are Controlled by Norwegian shareholders at the end of a tax year, the Company will not be considered Controlled by Norwegian shareholders for Norwegian tax purposes. 162

169 Odfjell Drilling Ltd - Prospectus Under the Norwegian CFC-regulations Norwegian shareholders are subject to Norwegian taxation on their proportionate part of the taxable net income generated by the Company, calculated according to Norwegian tax regulations, regardless of whether or not any dividends are distributed from the Company Net wealth tax The value of shares is included in the basis for the computation of net wealth tax imposed on Norwegian Personal Shareholders. Currently, the marginal net wealth tax rate is 1.1% of the value assessed. The value for assessment purposes for listed shares is equal to the listed value as of 1 January in the year of assessment. Norwegian Corporate Shareholders are not subject to net wealth tax. Non-Norwegian Shareholders are generally not subject to Norwegian net wealth tax. Non-Norwegian personal shareholders can, however, be taxable if the shareholding is effectively connected to the conduct of trade or business in Norway VAT and transfer taxes No VAT, stamp or similar duties are currently imposed in Norway on the transfer or issuance of shares Inheritance tax When shares are transferred either through inheritance or as a gift, such transfer may give rise to inheritance or gift tax in Norway if the decedent, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway, or if the shares are effectively connected with a business carried out through a permanent establishment in Norway. However, in the case of inheritance tax, if the decedent was a citizen but not a resident of Norway, Norwegian inheritance tax will not be levied if inheritance tax or a similar tax is levied by the decedent s country of residence. Inheritance tax will be applicable to gifts if the donor is a citizen of Norway at the time the gift was given. However, for taxes paid in the donor s country of residence a credit will be given in the Norwegian gift taxes. The basis for the computation of inheritance or gift tax is the market value of the shares at the time the transfer takes place. The rate is progressive from 0% to 15%. For inheritance and gifts from parents to children, the maximum rate is 10% Certain U.S. federal income tax considerations TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES IN THIS PROSPECTUS IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED UPON, BY HOLDERS FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE INTERNAL REVENUE CODE; (B) SUCH DISCUSSION IS INCLUDED HEREIN BY THE COMPANY IN CONNECTION WITH THE PROMOTION OR MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE COMPANY OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISER. The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of Offer Shares by a U.S. Holder (as defined below). This summary deals only with initial purchasers of Offer Shares that are U.S. Holders that will hold the Offer Shares as capital assets. The discussion does not cover all aspects of U.S. federal income taxation that may be relevant to, or the actual tax effect that any of the matters described herein will have on, the acquisition, ownership or disposition of Offer Shares by particular investors, and does not address state, local, foreign or other tax laws. This summary also does not address tax considerations applicable to investors that own (directly or indirectly) 10 per cent or more of the voting shares of the Company, nor does this summary discuss all of the tax considerations that may be relevant to certain types of investors subject to special treatment under the U.S. federal income tax laws (such as financial institutions, insurance companies, investors liable for the alternative minimum tax, individual retirement accounts and other tax-deferred accounts, tax-exempt organisations, dealers in securities or currencies, investors subject to tax on net investment income, investors that will hold the Offer Shares as part of straddles, hedging transactions or conversion transactions for U.S. federal income tax purposes or investors whose functional currency is not the U.S. dollar). 163

170 Odfjell Drilling Ltd - Prospectus As used herein, the term U.S. Holder means a beneficial owner of Offer Shares that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation created or organised under the laws of the United States or any State thereof, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has validly elected to be treated as a domestic trust for U.S. federal income tax purposes. The U.S. federal income tax treatment of a partner in an entity treated as a partnership for U.S. federal income tax purposes that holds Offer Shares will depend on the status of the partner and the activities of the partnership. Prospective purchasers that are entities treated as partnerships for U.S. federal income tax purposes should consult their tax advisers concerning the U.S. federal income tax consequences to their partners of the acquisition, ownership and disposition of Offer Shares by the partnership. The summary assumes that the Company is not a passive foreign investment company (a PFIC ) for U.S. federal income tax purposes, which the Company believes to be the case. The Company s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be a PFIC in any year, materially adverse consequences could result for U.S. Holders. This summary is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as of the date hereof and all subject to change at any time, possibly with retroactive effect. THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE OFFER SHARES, INCLUDING THEIR ELIGIBILITY FOR THE BENEFITS OF THE TREATY, THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW. Dividends General. Distributions paid by the Company out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) will generally be taxable to a U.S. Holder as foreign source dividend income, and will not be eligible for the dividends received deduction allowed to corporations. Distributions in excess of current and accumulated earnings and profits will be treated as a non-taxable return of capital to the extent of the U.S. Holder s basis in the Offer Shares and thereafter as capital gain. However, the Company does not maintain calculations of its earnings and profits in accordance with U.S. federal income tax accounting principles. U.S. Holders should therefore assume that any distribution by the Company with respect to Offer Shares will constitute ordinary dividend income. U.S. Holders should consult their own tax advisers with respect to the appropriate U.S. federal income tax treatment of any distribution received from the Company. Prospective purchasers should consult their tax advisers concerning the applicability of the foreign tax credit and source of income rules to dividends on the Offer Shares. Foreign Currency Dividends. Dividends paid in Norwegian Kroners will be included in income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the U.S. Holder, regardless of whether the Norwegian Kroners are converted into U.S. dollars at that time. If dividends received in Norwegian Kroners are converted into U.S. dollars on the day they are received, the U.S. Holder generally will not be required to recognise foreign currency gain or loss in respect of the dividend income. Sale or other Disposition Upon a sale or other disposition of Offer Shares, a U.S. Holder generally will recognise capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount realised on the sale or other disposition and the U.S. Holder s adjusted tax basis in the Offer Shares. This capital gain or loss will be long-term capital gain or loss if the U.S. Holder s holding period in the Offer Shares exceeds one year. Any gain or loss will generally be U.S. source. 164

171 Odfjell Drilling Ltd - Prospectus A U.S. Holder s tax basis in an Offer Share will generally be its U.S. dollar cost. The U.S. dollar cost of an Offer Share purchased with foreign currency will generally be the U.S. dollar value of the purchase price on the date of purchase, or the settlement date for the purchase, in the case of Offer Shares traded on an established securities market, within the meaning of the applicable Treasury Regulations, that are purchased by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects). Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the consent of the IRS. The amount realised on a sale or other disposition of Offer Shares for an amount in foreign currency will be the U.S. dollar value of this amount on the date of sale or disposition. On the settlement date, the U.S. Holder will recognise U.S. source foreign currency gain or loss (taxable as ordinary income or loss) equal to the difference (if any) between the U.S. dollar value of the amount received based on the exchange rates in effect on the date of sale or other disposition and the settlement date. However, in the case of Offer Shares traded on an established securities market that are sold by a cash basis U.S. Holder (or an accrual basis U.S. Holder that so elects), the amount realised will be based on the exchange rate in effect on the settlement date for the sale, and no exchange gain or loss will be recognised at that time. Disposition of Foreign Currency Foreign currency received on the sale or other disposition of an Offer Share will have a tax basis equal to its U.S. dollar value on the settlement date. Foreign currency that is purchased will generally have a tax basis equal to the U.S. dollar value of the foreign currency on the date of purchase. Any gain or loss recognised on a sale or other disposition of a foreign currency (including its use to purchase Offer Shares or upon exchange for U.S. dollars) will be U.S. source ordinary income or loss. Passive Foreign Investment Company Considerations A foreign corporation will be a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to applicable look-through rules, either (i) at least 75 per cent of its gross income is passive income or (ii) at least 50 per cent of the average value of its assets is attributable to assets which produce passive income or are held for the production of passive income. Based on the Company s assets and income as reflected on the Company s audited financial statements, the Company does not believe that it will be a PFIC for its current taxable year, and the Company does not anticipate becoming a PFIC in the foreseeable future; however the Company s possible status as a PFIC must be determined annually and therefore may be subject to change. If the Company were to be treated as a PFIC, U.S. Holders of Offer Shares would be required (i) to pay a special U.S. addition to tax on certain distributions and gains on sale and (ii) to pay tax on any gain from the sale of Offer Shares at ordinary income (rather than capital gains) rates in addition to paying the special addition to tax on this gain. Prospective purchasers should consult their tax advisers regarding the potential application of the PFIC regime. Backup Withholding and Information Reporting Payments of dividends and other proceeds with respect to Offer Shares, by a U.S. paying agent or other U.S. intermediary will be reported to the IRS and to the U.S. Holder as may be required under applicable regulations. Backup withholding may apply to these payments if the U.S. Holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to report all interest and dividends required to be shown on its U.S. federal income tax returns. Certain U.S. Holders are not subject to backup withholding. U.S. Holders should consult their tax advisers as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Foreign Financial Asset Reporting Legislation enacted in 2010 imposes reporting requirements on the holding of certain foreign financial assets, including equity of foreign entities, if the aggregate value of all of these assets exceeds $50,000 at the end of the taxable year or $75,000 at any time during the taxable year. The thresholds are higher for individuals living outside of the United States and married couples filing jointly. The Offer Shares are expected to constitute foreign financial assets subject to these requirements unless the Offer Shares are held in an account at a financial institution (in which case the account may be reportable if maintained by a foreign financial institution). U.S. Holders should consult their tax advisors regarding the application of this legislation. 165

172 Odfjell Drilling Ltd - Prospectus 18 TERMS OF THE OFFERING 18.1 Overview of the Offering The Offering consists of up to 56,000,000 Sale Shares, all of which are existing, validly issued and fully paid-up registered Shares with a par value of USD 0.01, offered by the Selling Shareholder. The Sale Shares represent, and will upon completion of the Offering represent, up to 28% of the Shares in issue in the Company. In addition, the Joint Bookrunners may elect to over-allot up to 4,000,000 Additional Shares, equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company). The Selling Shareholder has granted DNB Markets, on behalf of the Managers, an Over-Allotment Option to purchase a corresponding number of Additional Shares to cover any such over-allotments. Assuming the Over-Allotment Option is exercised in full, the Offering will amount to up to 60,000,000 Shares, representing up to 30% of the Shares. The Offering consists of: An Institutional Offering, in which Offer Shares are being offered (a) to investors in Norway, (b) investors outside Norway and the United States, subject to applicable exemptions from the prospectus requirements, and (c) in the United States to QIBs, as defined in, and in reliance on Rule 144A of the U.S. Securities Act. The Institutional Offering is subject to a lower limit per application of NOK 2,500,000. A Retail Offering, in which Offer Shares are being offered to the public in Norway subject to a lower limit per application of an amount of NOK 10,500 and an upper limit per application of NOK 2,499,999 for each investor. Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors. Investors who intend to place an order in excess of NOK 2,499,999 must do so in the Institutional Offering. Multiple applications by one applicant in the Retail Offering will be treated as one application with respect to the maximum application limit and the discount. All offers and sales outside the United States will be made in compliance with Regulation S. This Prospectus does not constitute an offer of, or an invitation to purchase, the Offer Shares in any jurisdiction in which such offer or sale would be unlawful. For further details, see Important information and Section 19 Selling and transfer restrictions. The Bookbuilding Period for the Institutional Offering is expected to take place from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 15:00 hours (CET). The Application Period for the Retail Offering will take place from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 12:00 hours (CET). The Company, in consultation with the Selling Shareholder and the Joint Bookrunners, reserves the right to shorten or extend the Bookbuilding Period and Application Period at any time. Any shortening of the Bookbuilding Period and/or the Application Period will be announced through the Oslo Stock Exchange s information system on or before 09:00 hours (CET) on the prevailing expiration date of the Bookbuilding Period, provided however that in no event will the Bookbuilding Period and/or Application period be shortened to expire prior to 12:00 hours (CET) on 23 September Any extension of the Bookbuilding Period and/or the Application Period will be announced through the Oslo Stock Exchange s information system on or before 09:00 hours (CET) on the first business day following the then prevailing expiration date of the Bookbuilding Period. An extension of the Bookbuilding Period and/or the Application Period can be made one or several times provided, however that in no event will the Bookbuilding Period and/or Application Period be extended beyond 15:00 hours (CET) on 11 October In the event of a shortening or an extension of the Bookbuilding Period and/or the Application Period, the allocation date, the payment due dates and the dates of delivery of Offer Shares will be changed accordingly, but the date of Listing and commencement of trading on the Oslo Stock Exchange may not necessarily be changed. The Selling Shareholder has, together with the Company and the Joint Bookrunners, set an Indicative Price Range for the Offering from NOK 37 to NOK 48 per Offer Share. Assuming that the Offer Price is set at the mid-point of this range and all Offer Shares are sold in the Offering, the aggregate gross amount of the Offering will be approximately NOK 2,550 million. The Selling Shareholder will, in consultation with the Company and the Joint Bookrunners, determine the number of Offer Shares and the Offer Price on the basis of the bookbuilding process in the Institutional Offering and the number of applications received in the Retail Offering. The bookbuilding process, 166

173 Odfjell Drilling Ltd - Prospectus which will form the basis for the final determination of the number of Offer Shares and the Offer Price, will be conducted only in connection with the Institutional Offering. The Indicative Price Range may be amended during the Bookbuilding Period. Any such amendments to the Indicative Price Range will be announced through the information system of the Oslo Stock Exchange. The Company expects that it will, on or about 27 September 2013, together with the Selling Shareholder, enter into a purchase agreement (the Purchase Agreement ) with the Joint Bookrunners (as representatives of the Managers) with respect to the Offering of the Offer Shares. On the terms and subject to the conditions set forth in the Purchase Agreement and provided that the Offering has not been terminated prior thereto, the Selling Shareholder is expected to agree to sell and the Managers are expected to agree severally and not jointly, to procure purchasers for, or failing which, to purchase the Sale Shares being sold by the Selling Shareholder in the Offering. The purchase commitments of each of the Managers will be determined in conjunction with determination of the final Offer Price and number of Offer Shares to be sold in the Offering, which is expected to take place on 27 September In addition, the Selling Shareholder has granted the Stabilisation Manager (DNB Markets), on behalf of the Managers, the Over-Allotment Option to purchase up to 4,000,000 Additional Shares, equalling up to approximately 7% of the final number of Sale Shares (representing up to 2% of the Shares in issue in the Company) at the Offer Price, exercisable, in whole or in part, within a 30-day period commencing at the time at which if sold trading in the Shares commences on the Oslo Stock Exchange, expected to be on 30 September The Over-Allotment Option is granted to cover over-allotments, if any, made in connection with the Offering on the terms and subject to the conditions described in this Prospectus. In order to permit delivery in respect of over-allotments made, if any, the Selling Shareholder will, pursuant to the Purchase Agreement, grant to the Stabilisation Manager an option (the Lending Option ) to require the Selling Shareholder to lend to the Stabilisation Manager, on behalf of the Managers, up to a number of Shares equal to the number of Additional Shares. See Section 18.8 Over-allotment and stabilisation activities below for further details. The Selling Shareholder and the Company will make certain representations and warranties, and will agree to certain undertakings, in the Purchase Agreement. The Company and the Selling Shareholder will undertake, subject to certain conditions and limitations, to indemnify the Managers against certain liabilities in connection with the Offering, including liabilities under applicable securities laws. Subject to certain exceptions, the Selling Shareholder s aggregate payments pursuant to the indemnity in respect of any breach of the representations, warranties and other statements of the Selling Shareholder in the Purchase Agreement shall not exceed the product of the Offer Price (less the discount offered to investors in the Retail Offering) and the number of Shares sold by the Selling Shareholder. In connection with the Purchase Agreement, Odfjell Partners Ltd., the Selling Shareholder, the Company and Simen Lieungh (the President and CEO of Odfjell Drilling) will give an undertaking that will restrict their ability to issue, sell or transfer Shares for nine months after the date of the Purchase Agreement. For more information about these restrictions, please see Section Lock-up below. The Purchase Agreement is expected to provide that the Managers may terminate the Purchase Agreement (and thus the Managers obligation to purchase the Offer Shares) if prior to 07:30 hours (CET) on first day of trading on an if sold basis (expected to take place on or about 30 September 2013 as described below) (i) there has been any material adverse change or any development involving a prospective material adverse change in the business, properties, management, financial condition, results of operations or prospects of the Group, which would, in the judgment of the Joint Bookrunners acting in good faith, make it impracticable or inadvisable to proceed with the Offering on the terms and in the manner contemplated in the Prospectus; (ii) there has been any breach of, or any event rendering untrue, inaccurate or misleading in any respect, any of the representations and warranties by the Company or the Selling Shareholder contained in the Purchase Agreement or any failure to perform any of the Company s or the Selling Shareholder s undertakings or agreements in the Purchase Agreement; (iii) any of the conditions precedent to the Managers obligations under the Purchase Agreement has not been satisfied or waived by the Joint Bookrunners; or (iv) it shall come to the notice of the Joint Bookrunners that any statement of fact contained in the Prospectus is or has become untrue, incorrect or misleading in any respect and which is considered by the Joint Bookrunners acting in good faith to be material in the context of the Offering, or any matter has arisen, which would, if the Offering were made at that time, constitute a material omission from the Prospectus. 167

174 Odfjell Drilling Ltd - Prospectus In addition, the Purchase Agreement is expected to provide that the Managers may terminate the Purchase Agreement (and thus the Managers obligation to purchase the Offer Shares) if prior to 18:00 hours (CET) on 2 October 2013 one of the following events (each a force majeure event) occurs: (i) a suspension or material limitation of trading in securities generally on the Oslo Stock Exchange, the New York Stock Exchange or the London Stock Exchange; (ii) a general moratorium on commercial banking activities declared by the federal, state or local regulatory authorities of Norway, the United States, the United Kingdom or any other member state of the European Union or a material disruption in commercial banking or securities settlement or clearance services in Bermuda, Norway, the United States, the United Kingdom or any other member state of the European Union; (iii) an outbreak or escalation of hostilities or acts of terrorism involving Bermuda, Norway, the United States, the United Kingdom or any other member state of the European Union or a declaration by Bermuda, Norway, the United States, the United Kingdom or any other member state of the European Union of a national emergency or war; or (iv) any other calamity or crisis or any material adverse change in financial, political or economic conditions in Bermuda, Norway, the United States, the United Kingdom or any other member state of the European Union, if the effect of any such event specified in clauses (i) through (iv) makes it impossible or inadvisable, in the judgment of the Joint Bookrunners acting in good faith, taking into account general market conditions as a result of such events and the interests of investors in the Shares, to proceed with the Offering or the delivery of the Offer Shares on the terms and in the manner contemplated in this Prospectus. Further, the Purchase Agreement may terminate if prior to 18:00 hours (CET) on 2 October 2013, a Manager (or Managers) defaults in its obligation to purchase the number of Sale Shares it has agreed to purchase under the Purchase Agreement, and the aggregate number of such Sale Shares exceeds 10% of the total number of Sale Shares which all Managers are obligated to purchase under the Purchase Agreement and neither the non-defaulting Managers nor the Selling Shareholder have made arrangements for the purchase or subscription by another party or other parties of such Sale Shares. Unless the Purchase Agreement has been terminated, delivery of the Offer Shares to investors being allocated Offer Shares in the Offering is expected to take place on or about 2 October 2013 for the Retail Offering subject to due payment for allocated Offer Shares having been received from investors, and 3 October 2013 for the Institutional Offering (on a delivery versus payment basis). The Offer Shares allocated in the Offering are expected to be traded on the Oslo Stock Exchange on a conditional if sold basis from and including 30 September 2013 to and including 2 October Trades during this period will, in accordance with the ordinary settlement cycle for trades over the Oslo Stock Exchange, be settled on T+3 (T being the trade date). Accordingly, any trade made on 30 September 2013 will be settled on 3 October Should any of the termination events described above occur in the period from commencement of conditional trading (expected to take place on 30 September 2013) to commencement of unconditional trading in the Shares (expected to take place on 3 October 2013 as described below), or such earlier time when it has become impossible to stop the transfer of Offer Shares through VPS, and the Purchase Agreement is terminated, no trades that have occurred in the Shares will be settled, and investors will have no right to compensation for any loss suffered as a result of such cancellation. Depending on the policy of their respective bank or investment firm, investors wanting to trade their allocated Offer Shares through an internet account prior to commencement of unconditional trading in the Shares, expected to take place on 3 October 2013, may be prevented from such trading. Investors wanting to trade their allocated Offer Shares through an internet account prior to commencement of unconditional trading are therefore urged to confirm the possibility of such trading with their own account operator. Completion of the Offering is conditional upon, among other conditions, the Company satisfying the listing conditions and being listed on the Oslo Stock Exchange, see Section Conditions for completion of the Offering Listing and trading of the Offer Shares below. 168

175 Odfjell Drilling Ltd - Prospectus 18.2 Timetable The timetable set out below provides certain indicative key dates for the Offering (subject to shortening or extension): Bookbuilding Period commences September 2013 at 09:00 hours (CET) Bookbuilding Period ends September 2013 at 15:00 hours (CET) Application Period commences September 2013 at 09:00 hours (CET) Application Period ends September 2013 at 12:00 hours (CET) Allocation of the Offer Shares... On or about 27 September 2013 Publication of the results of the Offering... On or about 30 September 2013 Issuance of allocation notes... On or about 30 September 2013 Listing and commencement of conditional trading in the Shares... On or about 30 September 2013 Accounts from which payment will be debited in the Retail Offering to be sufficiently funded... On or about 1 October 2013 Payment date in the Retail Offering... On or about 2 October 2013 Delivery of the Offer Shares in the Retail Offering... On or about 2 October 2013 Payment date in the Institutional Offering... On or about 3 October 2013 Delivery of the Offer Shares in the Institutional Offering... On or about 3 October 2013 Commencement of unconditional trading in the Shares... On or about 3 October 2013 Please note that the Company, together with the Selling Shareholder and the Joint Bookrunners, reserves the right to shorten or extend the Bookbuilding Period and the Application Period. In such event, the dates presented above are expected to change accordingly The Institutional Offering Determination of the number of Offer Shares and the Offer Price The Selling Shareholder has, together with the Company and the Joint Bookrunners, set an Indicative Price Range for the Offering from NOK 37 to NOK 48 per Offer Share. The Selling Shareholder will, in consultation with the Company and the Joint Bookrunners, determine the number of Offer Shares and the Offer Price on the basis of the applications received and not withdrawn in the Institutional Offering during the Bookbuilding Period and the number of applications received in the Retail Offering. The Offer Price will be determined on or about 27 September The Offer Price may be set within, below or above the Indicative Price Range. Investors applications for Offer Shares in the Institutional Offering will, after the end of the Bookbuilding Period, be irrevocable and binding regardless of whether the Offer Price is set within, above or below the Indicative Price Range. The final Offer Price is expected to be announced by the Company through the Oslo Stock Exchange s information system on or about 30 September 2013 under the ticker code ODL Bookbuilding Period The Bookbuilding Period for the Institutional Offering will last from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 15:00 hours (CET), unless shortened or extended. The Company, in consultation with the Selling Shareholder and the Joint Bookrunners, may shorten or extend the Bookbuilding Period at any time, and extension may be made on one or several occasions. The Bookbuilding Period may in no event be shortened to expire prior to 12:00 hours (CET) on 23 September 2013 or extended beyond 15:00 hours (CET) on 11 October In the event of a shortening or an extension of the Bookbuilding Period, the allocation date, the payment due date and the date of delivery of Offer Shares will be changed accordingly Minimum application The Institutional Offering is subject to a minimum application of NOK 2,500,000 per application. Investors in Norway who intend to place an application for less than NOK 2,500,000 must do so in the Retail Offering Application procedure Applications for Offer Shares in the Institutional Offering must be made during the Bookbuilding Period by informing one of the Managers shown below of the number of Offer Shares that the investor wishes to order, and the price per share that the investor is offering to pay for such Offer Shares. 169

176 Odfjell Drilling Ltd - Prospectus ABG Sundal Collier DNB Markets Goldman Sachs International Munkedamsveien 45 D Dronning Eufemias gate 30 Peterborough Court, 133 Fleet Street P.O. Box 1444 Vika P.O. Box 1600 Sentrum London EC4A 2BB N-0115 OSLO N-0021 OSLO United Kingdom Norway Norway Arctic Securities Danske Bank Markets Swedbank First Securities Haakon VII s gate 5 Stortingsgaten 6 Filipstad Brygge 1 P.O. Box 1833 Vika P.O. Box 1170 Sentrum P.O. Box 1441 Vika N-0123 OSLO N-0161 OSLO N-0115 OSLO Norway Norway Norway All applications in the Institutional Offering will be treated in the same manner regardless of which Manager the applicant chooses to place the application with. Any orally placed application in the Institutional Offering will be binding upon the investor and subject to the same terms and conditions as a written application. The Managers may, at any time and in their sole discretion, require the investor to confirm any orally placed application in writing. Applications made may be withdrawn or amended by the investor at any time up to the end of the Bookbuilding Period. At the close of the Bookbuilding Period, all applications in the Institutional Offering that have not been withdrawn or amended are irrevocable and binding upon the investor Allocation, payment for and delivery of Offer Shares The Managers expect to issue notifications of allocation of Offer Shares in the Institutional Offering on or about 30 September 2013, by issuing contract notes to the applicants by mail or otherwise. Payment by applicants in the Institutional Offering will take place against delivery of Offer Shares. Delivery and payment for Offer Shares is expected to take place on or about 3 October 2013 (the Institutional Closing Date ). For late payment, interest will accrue on the amount due at a rate equal to the prevailing interest rate under the Norwegian Act on Overdue Payment of 17 December 1976, no. 100, which, at the date of this Prospectus, is 9.50% per annum. Should payment not be made when due, the Offer Shares allocated will not be delivered to the applicants, and the Managers reserve the right, at the risk and cost of the applicant, to cancel the application and to re-allot or otherwise dispose of the allocated Offer Shares on such terms and in such manner as the Managers may decide (and the applicant will not be entitled to any profit therefrom). The original applicant remains liable for payment for the Offer Shares allocated to the applicant, together with any interest, cost, charges and expenses accrued, or the Managers may enforce payment of any such amount outstanding The Retail Offering Offer Price The price for the Offer Shares offered in the Retail Offering will be the same as in the Institutional Offering, see Section Determination of the number of Offer Shares and the Offer Price. However, investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors. Multiple applications by one applicant in the Retail Offering will be treated as one application with respect to the discount. Each applicant in the Retail Offering will be permitted, but not required, to indicate when ordering through the VPS online application system or on the application form to be used to apply for Offer Shares in the Retail Offering, attached to this Prospectus as Appendix D and Appendix E (the Retail Application Form ), that the applicant does not wish to be allocated Offer Shares should the Offer Price be set higher than the highest price in the Indicative Price Range. If the applicant does so, the applicant will not be allocated any Offer Shares in the event that the Offer Price is set higher than the highest price in the Indicative Price Range. If the applicant does not expressly stipulate such reservation when ordering through the VPS online application system or on the Retail Application Form, the application will be binding regardless of whether the Offer Price is set within or above (or below) the Indicative Price Range, as long as the Offer Price has been determined on the basis of orders placed during the bookbuilding process described above. 170

177 Odfjell Drilling Ltd - Prospectus Application Period The Application Period during which applications for Offer Shares in the Retail Offering will be accepted will last from 16 September 2013 at 09:00 hours (CET) to 27 September 2013 at 12:00 hours (CET), unless shortened or extended. The Company, in consultation with the Selling Shareholder and the Joint Bookrunners, may shorten or extend the Application Period at any time, and extension may be made on one or several occasions. The Application Period may in no event be shortened to expire prior to 12:00 hours (CET) on 23 September 2013 or extended beyond 15:00 hours (CET) on 11 October In the event of a shortening or an extension of the Application Period, the allocation date, the payment due date and the date of delivery of Offer Shares will be changed accordingly Minimum and maximum application The Retail Offering is subject to a minimum application amount of NOK 10,500 and a maximum application amount of NOK 2,499,999 for each applicant. Multiple applications are allowed. One or multiple applications from the same applicant in the Retail Offering with a total application amount in excess of NOK 2,499,999 will be adjusted downwards to an application amount of NOK 2,499,999. If two or more identical application forms are received from the same investor in the same offering, the application form will only be counted once unless otherwise explicitly stated on one of the application forms. In the case of multiple applications through the online application system or applications made both on a physical application form and through the online application system, all applications will be counted. Investors who intend to place an order in excess of NOK 2,499,999 must do so in the Institutional Offering Application procedures and application offices Norwegian applicants in the Retail Offering who are residents of Norway with a Norwegian personal identification number are recommended to apply for Offer Shares through the VPS online application system by following the link to such online application system on the following web pages: or Applicants in the Retail Offering not having access to the VPS online application system must apply using the Retail Application Form attached to this Prospectus as Appendix D Application Form for the Retail Offering in English or as Appendix E Application Form for the Retail Offering in Norwegian. Retail Application Forms, together with this Prospectus, can be obtained from the Company, the Company s web page the Managers web pages listed above, or the application offices set out below. Applications made through the VPS online application system must be duly registered during the Application Period. The application offices for physical applications in the Retail Offering are: ABG Sundal Collier DNB Markets Munkedamsveien 45 E, Vika Atrium Dronning Eufemias gate 30 P.O. Box 1444 Vika P.O. Box 1600 Sentrum N-0115 OSLO N-0021 OSLO Norway Norway Tel: Tel: Fax: Fax: Web: Web: Arctic Securities Danske Bank Markets Swedbank First Securities Haakon VII s gate 5 Stortingsgaten 6 Filipstad Brygge 1 P.O. Box 1833 Vika P.O. Box 1170 Sentrum P.O. Box 1441 Vika N-0123 OSLO N-0161 OSLO N-0115 OSLO Norway Norway Norway Tel: Tel: Tel: Fax: Fax Fax: Web: Web: Web: All applications in the Retail Offering will be treated in the same manner regardless of which of the above Managers the applications are placed with. Further, all applications in the Retail Offering will be treated in the same manner regardless of whether they are submitted by delivery of a Retail Application Form or through the VPS online application system. 171

178 Odfjell Drilling Ltd - Prospectus Retail Application Forms that are incomplete or incorrectly completed, electronically or physically, or that are received after the expiry of the Application Period, may be disregarded without further notice to the applicant. Properly completed Retail Application Forms must be received by one of the application offices listed above or registered electronically through the VPS application system by 12:00 hours (CET) on 27 September 2013, unless the Application Period is being shortened or extended. None of the Company, the Selling Shareholder or any of the Managers may be held responsible for postal delays, unavailable fax lines, internet lines or servers or other logistical or technical matters that may result in applications not being received in time or at all by any application office. Subject to Section Offer Price above, all applications made in the Retail Offering will be irrevocable and binding upon receipt of a duly completed Retail Application Form, or in the case of applications through the VPS online application system, upon registration of the application, irrespective of any extension of the Application Period, and cannot be withdrawn, cancelled or modified by the applicant after having been received by the application office, or in the case of applications through the VPS online application system, upon registration of the application Allocation, payment and delivery of Offer Shares DNB Markets, acting as settlement agent for the Retail Offering, expects to issue notifications of allocation of Offer Shares in the Retail Offering on or about 30 September 2013, by issuing allocation notes to the applicants by mail or otherwise. Any applicant wishing to know the precise number of Offer Shares allocated to it, may contact one of the application offices listed above on or about 30 September 2013 during business hours. Applicants who have access to investor services through an institution that operates the applicant s account with the VPS for the registration of holdings of securities ( VPS account ) should be able to see how many Offer Shares they have been allocated from on or about 30 September In registering an application through the VPS online application system or completing a Retail Application Form, each applicant in the Retail Offering will authorise DNB Markets (on behalf of the Managers) to debit the applicant s Norwegian bank account for the total amount due for the Offer Shares allocated to the applicant. The applicant s bank account number must be stipulated on the VPS online application or on the Retail Application Form. Accounts will be debited on or about 2 October 2013 (the Payment Date ), and there must be sufficient funds in the stated bank account from and including 1 October Applicants who do not have a Norwegian bank account must ensure that payment for the allocated Offer Shares is made on or before the Payment Date (2 October 2013). Further details and instructions will be set out in the allocation notes to the applicant to be issued on or about 30 September 2013, or can be obtained by contacting DNB Markets at Should any applicant have insufficient funds on his or her account, or should payment be delayed for any reason, or if it is not possible to debit the account, interest will accrue on the amount due at a rate equal to the prevailing interest rate under the Norwegian Act on Interest on Overdue Payments of 17 December 1976, No. 100, which at the date of this Prospectus is 9.50% per annum. DNB Markets (on behalf of the Managers) reserves the right (but has no obligation) to make up to three debit attempts through 8 October 2013 if there are insufficient funds on the account on the Payment Date. Should payment not be made when due, the Offer Shares allocated will not be delivered to the applicant, and the Managers reserve the right, at the risk and cost of the applicant, to cancel at any time thereafter the application and to re-allot or otherwise dispose of the allocated Offer Shares, on such terms and in such manner as the Managers may decide (and that the applicant will not be entitled to any profit therefrom). The original applicant will remain liable for payment of the Offer Price for the Offer Shares allocated to the applicant, together with any interest, costs, charges and expenses accrued, and the Selling Shareholder and/or the Managers may enforce payment of any such amount outstanding. Subject to timely payment by the applicant, delivery of the Offer Shares allocated in the Retail Offering is expected to take place on or about 2 October Mechanism of allocation It has been provisionally assumed that approximately 90% of the Offering will be allocated in the Institutional Offering and that approximately 10% of the Offering will be allocated in the Retail Offering. The final determination of the number of Offer Shares allocated to the Institutional Offering and the Retail Offering will only be decided, however, by the Company and the Joint Bookrunners following the completion of the bookbuilding process for the 172

179 Odfjell Drilling Ltd - Prospectus Institutional Offering, based on the level of orders or applications received from each of the categories of investors. The Company and the Joint Bookrunners reserve the right to deviate from the provisionally assumed allocation between tranches without further notice and at their sole discretion. No Offer Shares have been reserved for any specific national market. In the Institutional Offering, the Company together with the Joint Bookrunners will determine the allocation of Offer Shares. An important aspect of the allocation principles is the desire to create an appropriate long-term shareholder structure for the Company. The allocation principles will, in accordance with normal practice for institutional placements, include factors such as premarketing and management road-show participation and feedback, timeliness of the order, price level, relative order size, sector knowledge, investment history, perceived investor quality and investment horizon. The Company and the Joint Bookrunners further reserve the right, at their sole discretion, to take into account the creditworthiness of any applicant. The Company and the Joint Bookrunners may also set a maximum allocation, or decide to make no allocation to any applicant. In the Retail Offering, no allocations will be made for a number of Offer Shares representing an aggregate value of less than NOK 10,500 per applicant, however, all allocations will be rounded down to the nearest number of whole Offer Shares and the payable amount will hence be adjusted accordingly. One or multiple orders from the same applicant in the Retail Offering with a total application amount in excess of NOK 2,499,999 will be adjusted downwards to an application amount of NOK 2,499,999. In the Retail Offering, allocation will be made solely on a pro rata basis using the VPS automated simulation procedures. The Company and the Joint Bookrunners reserve the right to limit the total number of applicants to whom Offer Shares are allocated if the Company and the Joint Bookrunners deem this to be necessary in order to keep the number of shareholders in the Company at an appropriate level and such limitation does not have the effect that any conditions for the Listing regarding the number of shareholders will not be satisfied. If the Company and the Joint Bookrunners should decide to limit the total number of applicants to whom Offer Shares are allocated, the applicants to whom Offer Shares are allocated will be determined on a random basis by using the VPS automated simulation procedures and/or other random allocation mechanism VPS account To participate in the Offering, each applicant must have a VPS account. The VPS account number must be stated when registering an application through the VPS online application system or on the Retail Application Form for the Retail Offering. VPS accounts can be established with authorised VPS registrars, which can be Norwegian banks, authorised investment firms in Norway and Norwegian branches of credit institutions established within the EEA. However, investors may use nominee VPS accounts registered in the name of a nominee. The nominee must be authorised by the Norwegian Ministry of Finance. Establishment of VPS accounts requires verification of identification by the relevant VPS registrar in accordance with the Norwegian anti-money laundering legislation (see Section 18.7 Mandatory anti-money laundering procedures below) Mandatory anti-money laundering procedures The Offering is subject to applicable anti-money laundering legislation, including the Norwegian Money Laundering Act of 6 March 2009 No. 11 and the Norwegian Money Laundering Regulations of 13 March 2009 No. 302 (collectively, the Anti-Money Laundering Legislation ). Applicants who are not registered as existing customers of any of the Managers must verify their identity to the Manager in which the order is placed in accordance with the requirements of the Anti-Money Laundering Legislation, unless an exemption is available. Applicants who have designated an existing Norwegian bank account and an existing VPS account on the Retail Application Form are exempted, unless verification of identity is requested by any of the Managers. Applicants who have not completed the required verification of identity prior to the expiry of the Application Period may not be allocated Offer Shares Over-allotment and stabilisation activities Over-allotment of Additional Shares In connection with the Offering, the Joint Bookrunners may elect to over-allot up to 4,000,000 Additional Shares, equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company) and, in order to permit the delivery in respect of over-allotments made, the Stabilisation Manager 173

180 Odfjell Drilling Ltd - Prospectus may, pursuant to the Lending Option, require the Selling Shareholder to lend to the Stabilisation Manager, on behalf of the Managers, up to a number of Shares equal to the number of Additional Shares. Further, pursuant to the Over-Allotment Option, the Selling Shareholder has granted the Stabilisation Manager, on behalf of the Managers, an option to purchase up to 4,000,000 Additional Shares, equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company) at a price equal to the final Offer Price in the Offering, as may be necessary to cover over-allotments, if any, made in connection with the Offering. To the extent that the Managers have over-allotted Shares in the Offering, the Managers have created a short position in the Shares. The Stabilisation Manager may close out this short position by buying Shares in the open market through stabilisation activities and/or by exercising the Over-Allotment Option. A stock exchange notice will be made on 30 September 2013 announcing whether the Managers have over-allotted Shares in connection with the Offering. Any exercise of the Over-Allotment Option will be promptly announced by the Stabilisation Manager through the information system of the Oslo Stock Exchange Price stabilisation The Stabilisation Manager (DNB Markets) may, upon exercise of the Lending Option, effect transactions with a view to supporting the market price of the Shares at a level higher than what might otherwise prevail, through buying Shares in the open market at prices equal to or lower than the Offering Price. There is no obligation on the Stabilisation Manager to conduct stabilisation activities and there is no assurance that stabilisation activities will be undertaken. Such stabilising activities, if commenced, may be discontinued at any time, and will be brought to an end at the latest 30 calendar days after first day of Listing. It should be noted that stabilisation activities might result in market prices that are higher than would otherwise prevail. Any stabilisation activities will be conducted in accordance with Section 3-12 of the Norwegian Securities Trading Act and the EC Commission Regulation 2273/2003 regarding buy-back programmes and stabilisation of financial instruments. The Selling Shareholder and the Joint Bookrunners have agreed that 100% of the net profit, if any, resulting from stabilisation activities conducted by the Stabilisation Manager, on behalf of the Managers, will be for the account of the Selling Shareholder. Within one week after the expiry of the 30 calendar day period of price stabilisation, the Stabilisation Manager will publish information as to whether or not price stabilisation activities were undertaken. If stabilisation activities were undertaken, the statement will also include information about: (i) the total amount of Shares sold and purchased; (ii) the dates on which the stabilisation period began and ended; (iii) the price range between which stabilisation was carried out, as well as the highest, lowest and average price paid during the stabilisation period; and (iv) the date at which stabilisation activities last occurred Redelivered Shares To the extent the Stabilisation Manager, on behalf of the Managers, redelivers any of the Shares borrowed pursuant to the Lending Option to the Selling Shareholder at the end of the stabilisation period, the Selling Shareholder has the right to require Odfjell Partners Ltd. to purchase 50% of such redelivered Shares from the Selling Shareholder at a price equal to the average price paid by the Stabilisation Manager for such redelivered shares. The put option may be exercised by the Selling Shareholder within 18:00 hours (CET) at the fifth trading day at the Oslo Stock Exchange after expiry of the stabilisation period. Odfjell Partners Ltd. has a corresponding right to require the Selling Shareholder to sell 50% of any redelivered Shares, exercisable by Odfjell Partners Ltd. within the same time period, and at the same price, as for the Selling Shareholder s put option Publication of information in respect of the Offering In addition to press releases which will be posted on the Company s website, the Company will use the Oslo Stock Exchange s information system to publish information relating to the Offering, such as amendments to the Bookbuilding Period and Application Period (if any), final Offer Price, number of Offer Shares and total amount of the Offering, allotment percentages, and first day of trading. The final determination of the Offer Price, the number of Offer Shares and the total amount of the Offering is expected to be published on or about 30 September

181 Odfjell Drilling Ltd - Prospectus The rights conferred by the Offer Shares The Offer Shares are issued in accordance with Bermuda law. The Offer Shares will in all respects rank pari passu with all other Shares in issue, and will be eligible for any dividend that the Company may declare on the Shares after the delivery of the Offer Shares through registration in the VPS (expected on or around 3 October 2013). For a description of rights attached to the Shares, see Section 15 Corporate information and description of share capital VPS Registration The VPS maintains a branch register in addition to the principal share register of the Company maintained at the registered office of the Company in Bermuda pursuant to the provisions of the Bermuda Companies Act. Bermuda law permits the transfer of shares listed or admitted to trading on the Oslo Stock Exchange to be effected in accordance with the rules of the Oslo Stock Exchange (provided that it remains an Appointed Stock Exchange). Accordingly, the title to the Shares will be evidenced and transferred without a written instrument by the VPS in accordance with the Bye-Laws, provided that they are listed or admitted to trading on the Oslo Stock Exchange. The Offer Shares are registered in book-entry form with the VPS and have ISIN BMG The Company s registrar with the VPS is DNB Bank ASA, Registrar Department, 0021 Oslo, Norway Conditions for completion of the Offering Listing and trading of the Offer Shares On 12 September 2013, the Company applied for Listing of its Shares on the Oslo Stock Exchange. It is expected that the board of directors of the Oslo Stock Exchange will approve the Listing application of the Company on 25 September 2013, conditional upon the Company obtaining a minimum of 500 shareholders, each holding Shares with a value of more than NOK 10,000, and there being a minimum free float of the Shares of 25%. The Company expects that these conditions will be fulfilled through the Offering. Completion of the Offering on the terms set forth in this Prospectus is expressly conditioned upon the board of directors of the Oslo Stock Exchange approving the application for Listing of the Shares in its meeting to be held on 25 September 2013, on conditions acceptable to the Company and that any such conditions are satisfied by the Company. The Offering will be cancelled in the event that the conditions are not satisfied. There can be no assurance that the board of directors of the Oslo Stock Exchange will give such approval or that the Company will satisfy these conditions. Completion of the Offering on the terms set forth in this Prospectus is otherwise only conditional on (i) the Selling Shareholder, in consultation with the Company and the Joint Bookrunners, having approved the Offer Price and the allocation of the Offer Shares to eligible investors following the bookbuilding process, (ii) the Company, the Selling Shareholder and the Joint Bookrunners (as representatives of the Managers) having entered into the Purchase Agreement and satisfaction of the conditions for the closing of the Purchase Agreement, and (iii) the Purchase Agreement not having been terminated (see Section 18.1 Overview of the Offering ). There can be no assurance that these conditions will be satisfied. Assuming that the conditions are satisfied, the first day of trading on an if sold basis of the Shares, including the Offer Shares, on the Oslo Stock Exchange is expected to be on or about 30 September The Shares are expected to trade under the ticker code ODL. Applicants in the Retail Offering selling Offer Shares prior to delivery must ensure that payment for such Offer Shares is made on or prior to the Payment Date, by ensuring that the stated bank account is sufficiently funded on 1 October Applicants in the Institutional Offering selling Offer Shares prior to delivery must ensure that payment for such Offer Shares is made on or prior to Institutional Closing Date. Accordingly, an applicant who wishes to sell his Offer Shares, following confirmed allocation of Offer Shares, but before delivery must ensure that payment is made in order for such Offer Shares to be delivered in time to the applicant. Prior to the Listing and the Offering, the Shares are not listed on any stock exchange or authorised market place, and no application has been filed for listing on any other stock exchanges or regulated market places other than the Oslo Stock Exchange. 175

182 Odfjell Drilling Ltd - Prospectus Expenses of the Offering and the Listing The Company will pay to the Managers a combined subscription and management fee of 2% of the Offer Price (less discounts in the Retail Offering) mulitiplied by the aggregate number of Offer Shares allocated in the Offering. In addition, the Company may, at its sole discretion, pay to the Managers an additional discretionary fee of up to 0.50% of the total proceeds of the Offering, which will be determined no later than 30 days following the allocation of the Offer Shares, although in no event prior to the Oslo banking day following payment of the gross proceeds to the Selling Shareholder from the sale of the Offer Shares. The total costs and expenses of, and incidental to, the Listing and the Offering are estimated to amount to NOK 89 million (excluding VAT) if all Offer Shares are sold by the Selling Shareholder and the Company decides to pay the discretionary fee in full (based on a price of NOK per Share which is the mid-point of the Indicative Price Range) Lock-up The Company Pursuant to the Purchase Agreement, neither the Company, its subsidiaries nor their respective Affiliates (as defined in the Purchase Agreement) will (i) issue, sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, whether any such transaction is to be settled by delivery of Shares or such other securities, in cash or otherwise, or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii), for a period of nine months after the date of the Purchase Agreement (expected to be 27 September 2013), without the prior written consent of the Joint Bookrunners, except for grants of Shares and employee share options for Shares and issuances of Shares upon such grants of Shares or upon exercise of such options pursuant to any Company employee incentive programme Odfjell Partners Ltd. Pursuant to the Purchase Agreement, Odfjell Partners Ltd. will undertake that, without the prior written consent of the Joint Bookrunners, they will not, during a period ending nine months after the first time of sale relating to the Offering: (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly any Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, whether any such transaction is to be settled by delivery of Shares or such other securities, in cash or otherwise, or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii) The Selling Shareholder Please see Section 13 The Selling Shareholder for the lock-up undertaking applicable to the Selling Shareholder Simen Lieungh Simen Lieungh (the President and CEO of Odfjell Drilling) will also sign a lock-up undertaking in connection with the Purchase Agreement and will undertake that, without the prior written consent of the Joint Bookrunners, he will not, during a period ending nine months after the first time of sale relating to the Offering: (i) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase or otherwise dispose of or agree to dispose of, directly or indirectly any Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of Shares or any securities convertible into or exercisable or exchangeable for Shares, or warrants or other rights to purchase Shares, whether any such transaction is to be settled by delivery of Shares or such other securities, in cash or otherwise, or (iii) publicly announce an intention to effect any transaction specified in clause (i) or (ii). The lock-up undertaking shall apply to any Shares that he owns (directly or indirectly) as of the date of the lock-up undertaking or that he may subsequently acquire or own (directly or indirectly) after the date of the lock-up agreement. 176

183 Odfjell Drilling Ltd - Prospectus Interest of natural and legal persons involved in the Offering The Managers or their affiliates have provided from time to time, and may provide in the future, investment and commercial banking services to the Company and its affiliates in the ordinary course of business, for which they may have received and may continue to receive customary fees and commissions. The Managers do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any legal or regulatory obligation to do so. The Selling Shareholder will receive the proceeds of the Offering. Beyond the abovementioned, the Company is not aware of any interest of any natural or legal persons involved in the Offering Participation of major existing shareholders and members of the Company s Management, supervisory and administrative bodies in the Offering The Company is not aware of whether any major shareholders of the Company or members of the Company s Management, supervisory or administrative bodies intend to apply for Offer Shares in the Offering, or whether any person intends to apply for more than 5% of the Offer Shares. Simen Lieungh intends to apply for, and will be allocated, Shares in the Institutional Offering at the Offer Price for a total amount of NOK 40,000,000, which is expected to be financed through a loan from Odfjell Partners Ltd., the controlling shareholder of the Group. For further description regarding the loan, please see Section Overview Governing law and jurisdiction This Prospectus, the Retail Application Form and the terms and conditions of the Offering shall be governed by and construed in accordance with Norwegian law. Any dispute arising out of, or in connection with, this Prospectus, the Retail Application Form or the Offering shall be subject to the exclusive jurisdiction of the courts of Norway, with the Oslo District Court as the legal venue. 177

184 Odfjell Drilling Ltd - Prospectus 19 SELLING AND TRANSFER RESTRICTIONS 19.1 General As a consequence of the following restrictions, prospective investors are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Shares offered hereby. Other than in Norway, the Company is not taking any action to permit a public offering of the Shares in any jurisdiction. Receipt of this Prospectus will not constitute an offer in those jurisdictions in which it would be illegal to make an offer and, in those circumstances, this Prospectus is for information only and should not be copied or redistributed. Except as otherwise disclosed in this Prospectus, if an investor receives a copy of this Prospectus in any jurisdiction other than Norway, the investor may not treat this Prospectus as constituting an invitation or offer to it, nor should the investor in any event deal in the Shares, unless, in the relevant jurisdiction, such an invitation or offer could lawfully be made to that investor, or the Shares could lawfully be dealt in without contravention of any unfulfilled registration or other legal requirements. Accordingly, if an investor receives a copy of this Prospectus, the investor should not distribute or send the same, or transfer Shares, to any person or in or into any jurisdiction where to do so would or might contravene local securities laws or regulations Selling restrictions United States The Offer Shares have not been and will not be registered under the U.S. Securities Act, and may not be offered or sold except: (i) within the United States to QIBs in reliance on Rule 144A; or (ii) to certain persons in offshore transactions compliance with Regulation S under the U.S. Securities Act, and in accordance with any applicable securities laws of any state or territory of the United States or any other jurisdiction. Accordingly, each Manager has represented and agreed that it has not offered or sold, and will not offer or sell, any of the Offer Shares as part of its allocation at any time other than to QIBs in the United States in accordance with Rule 144A or outside of the United States in compliance with Rule 903 of Regulation S. Transfer of the Offer Shares will be restricted and each purchaser of the Offer Shares in the United States will be required to make certain acknowledgements, representations and agreements, as described under Section United States. Any offer or sale in the United States will be made by affiliates of the Managers who are broker-dealers registered under the U.S. Exchange Act. In addition, until 40 days after the commencement of the Offering, an offer or sale of Offer Shares within the United States by a dealer, whether or not participating in the Offering, may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A of the U.S. Securities Act and in connection with any applicable state securities laws United Kingdom Each Manager has represented, warranted and agreed that: a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the FSMA )) received by it in connection with the issue or sale of any Offer Shares in circumstances in which Section 21(1) of the FSMA does not apply to the Company; and b) it has complied and will comply with all applicable provisions of the FSMA with respect to everything done by it in relation to the Offer Shares in, from or otherwise involving the United Kingdom European Economic Area In relation to each Relevant Member State, with effect from and including the Relevant Implementation Date, an offer to the public of any Offer Shares which are the subject of the offering contemplated by this Prospectus may not be made in that Relevant Member State, other than the offering in Norway as described in this Prospectus, once the Prospectus has been approved by the competent authority in Norway and published in accordance with the EU Prospectus Directive (as implemented in Norway), except that an offer to the public in that Relevant Member State of any Offer Shares may be made at any time with effect from and including the Relevant Implementation Date under the following exemptions under the EU Prospectus Directive, if they have been implemented in that Relevant Member State: 178

185 Odfjell Drilling Ltd - Prospectus a) to legal entities which are qualified investors as defined in the EU Prospectus Directive; b) to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive), as permitted under the EU Prospectus Directive, subject to obtaining the prior consent of the Joint Bookrunners for any such offer, or c) in any other circumstances falling within Article 3(2) of the EU Prospectus Directive; provided that no such offer of Offer Shares shall require the Company, the Selling Shareholder or any Manager to publish a prospectus pursuant to Article 3 of the EU Prospectus Directive or supplement a prospectus pursuant to Article 16 of the EU Prospectus Directive. For the purposes of this provision, the expression an offer to the public in relation to any Offer Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Securities to be offered so as to enable an investor to decide to purchase any Offer Shares, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State the expression EU Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. This EEA selling restriction is in addition to any other selling restrictions set out in this Prospectus Switzerland The Offer Shares may not be publicly offered in Switzerland and will not be listed on the Swiss Exchange ( SIX ) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under article 652a or article 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under article 27 ff of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Offer Shares or the Offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this document nor any other offering or marketing material relating to the Offering, the Company or our Shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the Offering will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the Offering has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes ( CISA ). The investor protection afforded to acquirors of interests in collective investment schemes under the CISA does not extend to acquirors of shares Canada This Prospectus is not, and under no circumstance is to be construed as, a prospectus, an advertisement or a public offering of the Offer Shares in Canada or any province or territory thereof. Any offer or sale of the Offer Shares in Canada will be made only pursuant to an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable provincial securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made Hong Kong The Offer Shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, or (ii) to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the Offer Shares may be issued or may be in the possession of any person for the purposes of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Offer Shares which are or are intended to be disposed 179

186 Odfjell Drilling Ltd - Prospectus of only to persons outside Hong Kong or only to professional investors within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder Singapore This Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this Prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Offer Shares may not be circulated or distributed, nor may they be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA ), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA Additional jurisdictions The Offer Shares may not be offered, sold, resold, transferred or delivered, directly or indirectly, in or into, Japan, Australia or any other jurisdiction in which it would not be permissible to offer the Offer Shares. In jurisdictions outside the United States and the EEA where the Offering would be permissible, the Offer Shares will only be offered pursuant to applicable exceptions from prospectus requirements in such jurisdictions Transfer restrictions United States The Offer Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. Terms defined in Rule 144A or Regulation S shall have the same meaning when used in this section. Each purchaser of the Offer Shares outside the United States pursuant to Regulation S will be deemed to have acknowledged, represented and agreed that it has received a copy of this Prospectus and such other information as it deems necessary to make an informed decision and that: The purchaser is authorised to consummate the purchase of the Offer Shares in compliance with all applicable laws and regulations. The purchaser acknowledges that the Offer Shares have not been and will not be registered under the U.S. Securities Act, or with any securities regulatory authority or any state of the United States, and are subject to significant restrictions on transfer. The purchaser is, and the person, if any, for whose account or benefit the purchaser is acquiring the Offer Shares was located outside the United States at the time the buy order for the Offer Shares was originated and continues to be located outside the United States and has not purchased the Offer Shares for the benefit of any person in the United States or entered into any arrangement for the transfer of the Offer Shares to any person in the United States. The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Offer Shares from the Company or an affiliate thereof in the initial distribution of such Shares. The purchaser is aware of the restrictions on the offer and sale of the Offer Shares pursuant to Regulation S described in this Prospectus. The Offer Shares have not been offered to it by means of any directed selling efforts as defined in Regulation S. The Company shall not recognise any offer, sale, pledge or other transfer of the Offer Shares made other than in compliance with the above restrictions. 180

187 Odfjell Drilling Ltd - Prospectus The purchaser acknowledges that the Company, the Selling Shareholder, the Managers and their respective advisers will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. Each purchaser of the Offer Shares within the United States pursuant to Rule 144A will be deemed to have acknowledged, represented and agreed that it has received a copy of this Prospectus and such other information as it deems necessary to make an informed investment decision and that: The purchaser is authorised to consummate the purchase of the Offer Shares in compliance with all applicable laws and regulations. The purchaser acknowledges that the Offer Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions to transfer. The purchaser (i) is a QIB (as defined in Rule 144A), (ii) is aware that the sale to it is being made in reliance on Rule 144A and (iii) is acquiring such Offer Shares for its own account or for the account of a QIB, in each case for investment and not with a view to any resale or distribution to the Offer Shares, as the case The purchaser is aware that the Offer Shares are being offered in the United States in a transaction not involving any public offering in the United States within the meaning of the U.S. Securities Act. If, in the future, the purchaser decides to offer, resell, pledge or otherwise transfer such Offer Shares, as the case may be, such Shares may be offered, sold, pledged or otherwise transferred only (i) to a person whom the beneficial owner and/or any person acting on its behalf reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in accordance with Regulation S, (iii) in accordance with Rule 144 (if available), (iv) pursuant to any other exemption from the registration requirements of the U.S. Securities Act, subject to the receipt by the Company of an opinion of counsel or such other evidence that the Company may reasonably require that such sale or transfer is in compliance with the U.S. Securities Act or (v) pursuant to an effective registration statement under the U.S. Securities Act, in each case in accordance with any applicable securities laws of any state or territory of the United States or any other jurisdiction. The purchaser is not an affiliate of the Company or a person acting on behalf of such affiliate, and is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Offer Shares from the Company or an affiliate thereof in the initial distribution of such Shares. The Offer Shares are restricted securities within the meaning of Rule 144(a) (3) and no representation is made as to the availability of the exemption provided by Rule 144 for resales of any Offer Shares, as the case may be. The Company shall not recognise any offer, sale pledge or other transfer of the Offer Shares made other than in compliance with the above-stated restrictions. The purchaser acknowledges that the Company, the Selling Shareholder, the Managers and their respective advisers will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements European Economic Area Each person in a Relevant Member State (other than, in the case of paragraph (a), persons receiving offers contemplated in this Prospectus in Norway) who receives any communication in respect of, or who acquires any Offer Shares under, the offers contemplated in this Prospectus will be deemed to have represented, warranted and agreed to and with each Manager and the Company that: (a) it is a qualified investor as defined in the EU Prospectus Directive; and 181

188 Odfjell Drilling Ltd - Prospectus (b) in the case of any Offer Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the EU Prospectus Directive, (i) the Offer Shares acquired by it in the offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in circumstances in which the prior consent of the Managers has been given to the offer or resale; or (ii) where Offer Shares have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of those Shares to it is not treated under the EU Prospectus Directive as having been made to such persons. For the purposes of this representation, the expression an offer in relation to any Offer Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any Offer Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Offer Shares, as the same may be varied in that Relevant Member State by any measure implementing the EU Prospectus Directive in that Relevant Member State and the expression EU Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU. 182

189 Odfjell Drilling Ltd - Prospectus 20 ADDITIONAL INFORMATION 20.1 Auditor and advisors The Company s independent auditor is PricewaterhouseCoopers AS, Dronning Eufemias gate 8, N-0191 Oslo, Norway. PricewaterhouseCoopers AS and its auditors are members of Den Norske Revisorforening (The Norwegian Institute of Public Accountants). ABG Sundal Collier (Munkedamsveien 45 E, Vika Atrium, P.O. Box 1444 Vika, N-0115 Oslo, Norway), DNB Markets, part of DNB Bank ASA (Dronning Eufemias gate 30, P.O. Box 1600 Sentrum, N-0021 Oslo, Norway) and Goldman Sachs International (Peterborough Court, 133 Fleet Street London EC4A 2BB, United Kingdom) are acting as Joint Global Coordinators and Joint Bookrunners for the Offering. Arctic Securities (Haakon VII s gate 5, P.O. Box 1833 Vika, N-0123 Oslo, Norway), Danske Bank Markets (Stortingsgaten 6, P.O. Box 1170 Sentrum, N-0161 Oslo, Norway) and Swedbank First Securities (Filipstad Brygge 1, P.O. Box 1441 Vika, N-0115 Oslo, Norway) are acting as Co-Lead Managers for the Offering. Certain legal matters in connection with the Offering will be passed upon by Advokatfirmaet Thommessen AS (Haakon VII s gate 10, N-0161 Oslo, Norway) acting as Norwegian legal counsel to the Company, by Linklaters LLP (One Silk Street, London EC2Y 8HQ, United Kingdom), acting as international counsel to the Company and by Conyers Dill & Pearman Limited (Clarendon House, 2 Church Street, Hamilton HM11, Bermuda) acting as special Bermuda legal counsel to the Company. Advokatfirmaet BA-HR DA (Tjuvholmen allé 16, N-0117 Oslo, Norway) is acting as Norwegian legal counsel to the Joint Bookrunners, and Cleary Gottlieb Steen Hamilton LLP (City Place House, 55 Basinghall Street, London, EC2V 5EH, United Kingdom) acting as international counsel to the Joint Bookrunners. Advokatfirmaet Wiersholm AS (Ruseløkkveien 26, N-0251 Oslo, Norway) is acting as Norwegian legal counsel to the Selling Shareholder Documents on display Copies of the following documents will be available for inspection at the Company s offices at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, during normal business hours from Monday to Friday each week (except public holidays) for a period of twelve months from the date of this Prospectus: The Company s Memorandum of Association and Bye-Laws; The Group s audited consolidated financial statements and the Company s subsidiaries audited financial statements as of and for the years ended 31 December 2012, 2011 and 2010, and the Group s unaudited consolidated financial information as of and for the three and six months periods ended 30 June 2013 and 2012; and This Prospectus. 183

190 Odfjell Drilling Ltd - Prospectus 21 NORWEGIAN SUMMARY (NORSK SAMMENDRAG) Sammendrag består av informasjon som skal gis i form av Elementer. Elementene er nummerert i punktene A E (A.1 E.7) nedenfor. Dette sammendraget inneholder alle Elementer som skal være inkludert i et sammendrag for denne type verdipapir og utsteder. Som følge av at enkelte Elementer ikke må beskrives, kan det være huller i nummereringen av Elementene. Selv om man kan være pålagt å innta et Element i sammendraget på grunn av typen verdipapir og utsteder, er det mulig at det ikke kan gis relevant informasjon knyttet til Elementet. I så fall er det inntatt en kort beskrivelse av Elementet i sammendraget sammen med benevnelsen ikke aktuelt. I dette norske sammendraget skal definerte ord og uttrykk (angitt med stor forbokstav) som er oversatt til norsk forstås i samsvar med tilsvarende engelskspråklige ord eller uttrykk slik disse er definert i det engelskspråklige Prospektet. Noen eksempler på slike engelskspråklige motstykker til definerte ord og uttrykk som er oversatt til norsk er som følger: Med Prospektet forstås Prospectus, med Konsernet forstås Group eller Odfjell Drilling, med Selskapet forstås Company, med Tilbudet forstås Offering, med Aksjene forstås Shares, med Salgsaksjene forstås Sale Shares, med Tilbudsaksjene forstås Offer Shares og med Tilleggsaksjene forstås Additional Shares. Avsnitt A Introduksjon og Advarsel A.1 Advarsel Dette sammendraget bør leses som en innledning til Prospektet; enhver beslutning om å investere i verdipapirene bør baseres på investorens vurdering av Prospektet i sin helhet; dersom et krav knyttet til informasjonen i prospektet fremsettes for en domstol, kan saksøkende investor, i henhold til nasjonal lovgivning i sitt Medlemsland, bli pålagt å dekke kostnadene med å oversette Prospektet før rettsforhandlingene igangsettes; og sivilrettslig ansvar kan kun pådras for de personer som har satt opp sammendraget, herunder oversatt dette, men kun dersom sammendraget er misvisende, ikke korrekt eller usammenhengende når det leses i sammenheng med andre deler av Prospektet eller dersom sammendraget, når det leses sammen med andre deler av Prospektet, ikke gir nøkkelinformasjon som investorene behøver når de vurderer om de skal investere i slike verdipapirer. Avsnitt B - Utsteder B.1 Juridisk og forretningsnavn B.2 Hjemstat og rettslig organisering, lovgivning og stiftelsesland B.3 Eksisterende virksomhet, hovedaktiviteter og markeder Odfjell Drilling Ltd Odfjell Drilling Ltd ble stiftet 16. november 2005 som et aksjeselskap med begrenset ansvar under Bermudas lover og i henhold til Bermuda Companies Act. Odfjell Drilling er en integrert leverandør av tjenester innenfor boring, ingeniørvirksomhet og brønntjenester med mer enn 40 års erfaring, med fokus på krevende offshore- og dypvannsmarkeder. Konsernet har i dag rundt ansatte i mer enn 20 land over hele verden. Odfjell Drilling driver virksomhet gjennom tre ulike segmenter: Mobile Offshore Drilling Units (MODU), Well Services og Drilling & Technology. Odfjell Drillings kunder er hovedsakelig store olje- og gasselskaper. (i) Mobile Offshore Drilling Units (MODU) I MODU segmentet opererer Konsernet boreenheter som er eiet av både Konsernet og tredjeparter. Odfjell Drilling eier på nåværende tidspunkt tre halvt nedsenkbare borerigger til bruk i krevende områder; Deepsea Atlantic, Deepsea Stavanger og 184

191 Odfjell Drilling Ltd - Prospectus Deepsea Bergen. Deepsea Atlantic og Deepsea Stavanger ble levert i henholdsvis 2009 og 2010 og er begge sjettegenerasjons halvt nedsenkbare borerigger til bruk på ultradypt vann. Deepsea Bergen er en tredjegenerasjons halvt nedsenkbar borerigg bygget i 1983 og er siden kontinuerlig oppgradert for å imøtekomme endringer i regulatoriske krav og kundenes etterspørsel. Videre har Konsernet, gjennom et joint-venture, Deep Sea Metro, en eierinteresse på 40 % i to sjettegenerasjons boreskip til bruk på ultradypt vann, Deepsea Metro I og Deepsea Metro II, som ble levert i Konsernet chartrer sine borerigger gjennom en kombinasjon av kontrakter med mellomlang og lang varighet med store olje- og gasselskaper, herunder Statoil, BP, BG og Petrobras. Konsernet har en halvt nedsenkbar borerigg til bruk i krevende områder og på ultradypt vann under bygging, hvor forventet levering fra DSME er i mai Riggen vil bli kalt Deepsea Aberdeen og vil være på kontrakt med BP Exploration i en syvårsperiode, hvor forventet operativ oppstart er i fjerde kvartal I tillegg har Konsernet en 50 % eierinteresse i Odfjell Galvão B.V., et joint venture selskap stiftet sammen med Galvão Oil og Gas Holding B.V. Odfjell Galvão B.V. eier 20 % av aksjene i tre nederlandske special purpose selskaper og hver av disse har inngått byggekontrakt for byggingen av et boreskip, hovedsakelig i Estaleiro Jurong Aracruz i Brasil. Boreskipene forventes å bli levert i perioden fra juli 2016 til desember MODU segmentet tilbyr også managementtjenester til andre eiere av halvt nedsenkbare rigger, boreskip og oppjekkbare rigger, hovedsakelig operasjonelt management, forvaltning av regulatoriske krav, markedsføring, kontraktsforhandlinger og klientrelasjoner, forberedelser til drift og mobilisering. Odfjell Drilling er for tiden ansvarlig for forvaltningen av følgende offshore mobile boreenheter som eies av tredjeparter eller av Konsernet og tredjeparter i fellesskap: (i) Deepsea Metro I og Deepsea Metro II og (ii) Island Innovator. I tillegg skal Odfjell Galvão Perfurações Ltda, som er et datterselskap av Odfjell Galvão B.V., yte managementtjenester til Petrobras i forbindelse med de femten år lange riggkontraktene på de tre boreskipene som skal leveres under det brasilianske joint venture selskapet nevnt overfor. (ii) Well Services Well Services segmentet tilbyr casing and tubular running services (både automatiske og konvensjonelle), i tillegg til boreverktøy og tubular rental services, både for letebrønner og for produksjonsformål. Konsernet tilbyr tjenester i mer enn 20 land og til mer enn 50 borerigger. Odfjell Drilling har mer enn 30 års erfaring innenfor det globale brønntjenestemarkedet og Selskapet er av den oppfatning at det er en av de ledende aktørene innenfor fjernstyrt håndteringsutstyr for casing and tubular running services. Når det gjelder virksomheten knyttet til utleie av boreverktøy, har Konsernet en velutviklet leverandørbase og kan tilby en stor beholdning av moderne boreverktøy- og utstyr av høy kvalitet, som har blitt produsert og sertifisert i henhold til gjeldende bransjestandarder. Selskapet tar sikte på å være en totalleverandør for boreaktører og operatører 185

192 Odfjell Drilling Ltd - Prospectus og har også kapasitet til å designe skreddersydd utstyr. Well Services segmentet betjener for tiden rundt 50 kunder, hvorav 10 av disse representerer vesentlige volumer. (iii) Drilling & Technology Drilling & Technology segmentet er delt i to forretningsområder: Platform Drilling (plattform boring) og Technology (teknologi). Hovedtjenesten som forretningsområdet Platform Drilling tilbyr er produksjonsboring og ferdigstilling av brønner med kundenes rigger. Andre tjenester som tilbys er slot recovery, plug and abandonment, work-overs og vedlikeholdsarbeid. Konsernet har mer enn 35 års erfaring innenfor boreoperasjoner på plattformer, og har vært en av de ledende leverandørene av plattformboretjenester i Nordsjøen siden 1980-tallet, med fokus på high-end markedet for plattformboretjenester. Forretningsområdet Technology tilbyr ingeniørtjenester innen alt fra design og ingeniørarbeid til byggetilsyn, prosjektledelse og operasjonell bistand til nybyggingsprosjekter, klassesertifiseringer og verftsopphold. Forretningsområdet Technology utfører mindre og mellomstore frittstående prosjekter, herunder ingeniør-, innkjøps-, bygge- og installasjonsprosjekter. Forretningsområdet Technology har en vellykket merittliste når det gjelder MODU nybyggingsprosjekter og verftsopphold, som strekker seg over 40 år. Forretningsområdet har også en sterk posisjon i Nordsjømarkedet. Forretningsområdet Technology har til sammen rundt 400 ansatte og 90 kontraktører. Forretningskontorene er lokalisert nær dets viktigste kunder i Norge, Storbritannia og Filippinene. B.4a Vesentlige aktuelle trender som påvirker utsteder og industrien som utsteder opererer i Vekst og etterspørsel innenfor offshore olje- og gasserviceindustrien påvirkes av følgende hovedfaktorer: (i) Pris og etterspørsel etter olje og gass: Lete- og produksjonskostnader for olje og gass (E&P spending) er hovedfaktoren hva gjelder etterspørsel i olje- og gasserviceindustrien. E&P spending er direkte knyttet til inntjeningen til olje- og gasselskapene, som igjen er avhengig av gjennomsnittlige olje- og gasspriser. Fluktuasjon i oljeprisen kan derfor redusere olje- og gasselskapenes mulighet til å budsjettere midler til økt E&P spending. Mens markedsforventningene til en mulig nedgang i oljeprisene vil gå utover E&P spending og drift, vil ultra dypvannsprosjekter, som er store prosjekter hvor det er lenger ledetid og langsiktig fremtidsperspektiv, være mindre påvirket av kortsiktige endringer i oljeprisen. (ii) Reserveerstatning: Den fremtidige produksjonskapasiteten til olje- og gassindustrien beror på olje- og gasselskapenes evne til å opprettholde en bærekraftig reserveerstatningsgrad gjennom leting og utvikling av nye reservoarer eller ved utbedring av oljeutvinningsteknikker. Foreløpig er olje- og gasselskapene så vidt i stand til å fullt ut erstatte hydrokarbonene de produserer, og IEA rapporterer at påviste oljereserver globalt sett (en indikasjon på potensial for ny produksjon på kort eller mellomlang sikt) økte svakt med milliarder fat, eller 3,6 %, i slutten av 2011, sammenlignet med året før (IEA, World Energy 186

193 Odfjell Drilling Ltd - Prospectus Outlook 2012, 12 November 2012). (iii) Økt trykk på E&P spending: Olje og gasselskapene øker både sin totale E&P spending og sin andel av E&P spending på offshoredrift. Den største veksten av E&P spending de siste årene har vært innenfor dypvannsleting og produksjon, hvilket delvis er drevet av mangel på nye, store funn på land og grunt vann. Fremtidige oppstrøminvesteringer vil ha økt fokus på offshore når leting og utvikling fortsetter å rette seg mot mer krevende og dypere farvann. (iv) Boreteknologi og innovasjon: Nylige fremskritt innenfor offshoreteknologi har forbedret olje- og gasselskapenes evne til å utvikle reservoarer på dypere vann og i mer krevende og avsidesliggende havområder. En ny generasjon av borerigger, med mulighet til å bore brønner opp til fot, i vanndybder opp til fot, er etablert, og som følge av dette har nye typer undersjøiske konstruksjonsfartøyer og produksjonsfasiliteter blitt utviklet. (v) Det generelle politiske og økonomiske miljøet: Endringer i det politisk, økonomiske og regulatoriske miljøet i forskjellige regioner påvirker den globale etterspørselen etter oljeservicetjenester. De politiske og regulatoriske regimene i de enkelte land har også en betydelig innvirking på nivået av oljeog gassutvinningsdrift innenfor sitt landområde. Endringer av skatteregler kan også endre lønnsomheten til enkelte prosjekter og således også E&P spending. (vi) Økt fokus på helse, miljø, sikkerhet og kvalitet: På grunn av de potensielle alvorlige konsekvensene av en ulykke innenfor oljeog gassindustrien, har bransjen utviklet høye standarder for å begrense risiko knyttet til helse, miljø, sikkerhet og kvalitet. Det har blitt økt fokus på dette området etter Macondo-hendelsen i 2010, og olje- og gasselskapene vil i økt grad kun kontrahere med selskaper som har rutiner og know-how for å styre slik risiko på en adekvat måte. Denne trenden har økt terskelen for å komme inn på markedet. Konsernet har opplevd generelt gode markedsforhold og driftsforhold gjennom første halvdel av Konsernet er av den oppfatning at den nåværende ordrereserven (backlog) gir en relativ høy grad av finansiell forutberegnlighet for de neste par årene. Konsernet venter at fremtidsutsiktene for de tre forretningssegmentene er positive. MODU-segmentet har sterke fremtidsutsikter i et mellomlangt til langt perspektiv i boremarkedet. Deepsea Aberdeen, hvor forventet oppstart av drift er i fjerde kvartal av 2014, og potensielle og gradvis økende investeringsmuligheter er forventet å drive Konsernets vekst. Til tross for at Deep Sea Metro joint-venturet så langt har gått med underskudd som følge av relativt høye finansieringskostnader i dette joint venturet og lav finansiell utnyttelse for Deepsea Metro II, forventer Konsernet at joint venturet skal bidra positivt i fremtiden på bakgrunn av Deepsea Metro Is kontraktsforlengelse på høyere dagrater kombinert med en mer normalisert finansiell utnyttelse for Deepsea Metro II. Konsernet forventer også en sterk vekst innenfor segmentet Well Services i de kommende årene i tråd med de siste årene. Innenfor segmentet Drilling 187

194 Odfjell Drilling Ltd - Prospectus & Technology forventer Konsernet en beskjeden vekst for forretningsområdet Platform Drilling basert på den eksisterende ordrereserven (backlog) og vekst i forretningsområdet Technology som følge av forventet høy aktivitet i boreindustrien i de kommende årene. Konsernets managementavtale for Dalian Developer ble oppsagt av Dalian Deepwater Developer Ltd på 4. september 2013 etter en 30- dagers stillstand periode som følge av Dalian Deepwater Developer Ltds oppsigelse av byggekontrakten for boreskipet. B.5 Beskrivelsen av Konsernet Odfjell Drilling Ltd, som er morselskapet i Konsernet, er et holdingselskap. Konsernets virksomhet drives gjennom Konsernets operasjonelle datterselskaper. Odfjell Drilling Ltd har to heleide datterselskap, Odfjell Offshore Ltd. (holdingselskap for Boreenhetene) og Odfjell Drilling Services Ltd. (holdingselskap for Konsernets forretningsområde MODU Management og segmentene Well Services og Drilling & Technology ), begge stiftet på Bermuda. B.6 Personer som har interesser i utsteders kapital og stemmeretter Aksjonærer som eier mer enn 5 % av Aksjene har en interesse i Selskapets aksjekapital som er meldepliktig i henhold til Verdipapirhandelloven. Tabellen nedenfor viser eierinteressene til disse meldepliktige aksjeeierne. Aksjonærer Antall aksjer Prosent Odfjell Partners Ltd BCB Paragon Trust Limited, som forvalter av Larine Trust Totalt Det er ingen forskjeller i stemmeretter mellom aksjeeierne. Etter gjennomføringen av Tilbudet vil Odfjell Partners Ltd. kontrollere majoriteten av Aksjene. Selskapet kjenner ikke til noen arrangementer som på et senere tidspunkt vil føre til kontrollskifte i Selskapet. B.7 Utvalgt historisk finansiell nøkkelinformasjon Den følgende utvalgte finansielle informasjonen er hentet fra Konsernets reviderte årsregnskaper (inkludert notene til disse) per og for regnskapsårene 2012, 2011 and 2010 ( the Financial Statements ), i tillegg til urevidert konsolidert delårsinformasjon per og for tre- og seksmånedersperiodene avsluttet 30. juni 2013 og 2012 ( the Interim Financial Statements ). Årsregnskapene for regnskapsåret som utløp 31. desember 2012, med sammenligningstall for året som utløp 31. desember 2011, har blitt utarbeidet i henhold til IFRS, som vedtatt av EU, mens regnskapene for årene som utløp 31. desember 2011 og 2010 har blitt utarbeidet i henhold til NGAAP. Delårsregnskapene, sammen med relevant informasjon i den finansielle gjennomgangen, har blitt utarbeidet i henhold til IAS 34. Den utvalgte finansielle informasjonen som presenteres her bør leses i sammenheng med kapittel 11 Operating and financial review og Financial Statements og Interim Financial Statements (inntatt som Vedlegg B og Vedlegg C til Prospektet). 188

195 Odfjell Drilling Ltd - Prospectus Per og for tremånedersperioden avsluttet 30. juni Per og for seksmånedersperioden avsluttet 30. juni Per og for året avsluttet 31. desember (I millioner USD) 2013 (IFRS) (urevidert) 2012 (IFRS) (urevidert) 2013 (IFRS) (urevidert) 2012 (IFRS) (urevidert) 2012 (IFRS) (revidert) 2011 (IFRS) (revidert) Konsolidert resultatregnskap Driftsinntekter ,0 259,3 585,2 525, , ,7 EBITDA ,3 80,8 201,9 161,2 331,0 382,4 Driftsresultat (EBIT)... 77,2 44,9 128,2 88,9 183,7 237,4 Gevinst/(tap) i perioden... (9,2) 13,0 12,3 45,6 116,9 121,3 Konsolidert balanse Totale langsiktige eiendeler , , , ,4 Totale kortsiktige eiendeler ,1 414,4 480,9 582,2 Totale eiendeler , , , ,6 Total egenkapital , , , ,8 Total langsiktig gjeld , , , ,6 Total kortsiktig gjeld ,3 315,0 416,4 297,2 Total gjeld , , , ,8 Total egenkapital og gjeld , , , ,6 Konsolidert kontantstrømsoppstilling Netto kontanter fra operasjonelle aktiviteter... 61,1 62,6 115,9 145,4 267,2 197,6 Netto kontanter brukt til investeringsaktiviteter.. 23,2 (155,0) 4,4 (237,6) (305,9) (213,0) Netto kontanter brukt til finansieringsaktiviteter... (60,2) (49,7) (78,0) (49,7) (61,0) 66,0 Netto endring i kontanter og kontantekvivalenter... 24,0 (142,1) 42,3 (141,9) (99,7) 50,6 Kontanter og kontaktekvivalenter ved periodens utløp ,2 161,8 245,2 161,8 200,6 303,1 Per og for året avsluttet 31. desember (I millioner NOK) 2011 (NGAAP) (revidert) 2010 (NGAAP) (revidert) Konsolidert resultatregnskap Totale driftsinntekter , ,9 Totale driftsutgifter , ,2 Driftsresulat/tap ,1 (5,3) Netto resultat for året ,1 305,3 Konsolidert balanse Totale anleggsmidler , ,4 Totale omløpsmidler , ,1 Totale eiendeler , ,4 Total egenkapital , ,7 Total langsiktig gjeld , ,8 Total kortsiktig gjeld , ,0 Total gjeld , ,7 Total egenkapital og gjeld , ,4 Konsolidert kontantstrømoppstilling Netto kontanter generert fra operasjonelle aktiviteter ,7 134,6 Netto kontanter brukt til investeringsaktiviteter... (957,5) (3 025,4) Netto kontanter brukt til finansielle aktiviteter , ,0 Netto endring i kontanter og kontantekvivalenter ,1 (1 323,8) Kontanter og kontantekvivalenter per , ,3 189

196 Odfjell Drilling Ltd - Prospectus B.8 Utvalgt pro forma finansiell nøkkelinformasjon B.9 Resultatprognose eller estimat B.10 Forbehold i revisjonsrapporten B.11 Utilstrekkelig arbeidskapital Ikke aktuelt. Det finnes ingen pro forma finansiell informasjon. Ikke aktuelt. Det er ikke utarbeidet noen resultatprognose eller estimat. Ikke aktuelt. Det er ingen forbehold i revisjonsrapportene. Ikke aktuelt. Selskapet er av den oppfatning at arbeidskapitalen som er tilgjengelig for Konsernet er tilstrekkelig for Konsernets nåværende behov, for en periode som dekker minst 12 måneder fra datoen for dette Prospektet. Punkt C - Verdipapirene C.1 Type og klasse verdipapir tatt opp til notering og identifikasjonsnummer Selskapet har én aksjeklasse utstedt, og samtlige aksjer i denne klassen har like rettigheter som alle andre aksjer i samme klasse i henhold Selskapets Vedtekter ( Bye-Laws ). Aksjene har blitt utstedt i henhold til Bermuda Companies Act og er registrert i VPS under ISIN BMG C.2 Valuta på utstedelse Aksjene er utstedt i USD, men vil bli notert og handlet i NOK på Oslo Børs. C.3 Antall aksjer utstedt og pålydende verdi C.4 Rettigheter knyttet til verdipapirene Per datoen for dette Prospektet er Selskapets autoriserte aksjekapital USD bestående av aksjer, hver pålydende USD 0,01, hvorav Aksjer er utstedt. I henhold til Vedtektene har eierne av Aksjene ingen forkjøpsrett, innløsningsrett, konverteringsrett eller såkalte sinking fund rettigheter. Eierne av Aksjene er berettiget til å stemme en gang per Aksje i alle saker som skal forelegges aksjeeierne for avstemning. I henhold til Bermuda rett har et selskap ikke adgang til å fastsette eller utbetale utbytte dersom det er rimelig grunn til å tro at: (i) selskapet er, eller etter utbetalingen av utbyttet vil være, ute av stand til å gjøre opp sine forpliktelser etter hvert som de forfaller; eller (ii) den realiserbare verdien av selskapets eiendeler deretter ville blitt mindre enn dets forpliktelser. I henhold til Selskapets Vedtekter har hver Aksje rett til utbytte på det tidspunkt utbytte fastsettes av Styret, likevel slik at eventuell fortrinnsrett til utbytte til eiere av preferanseaksjer går foran. C.5 Begrensninger i verdipapirenes omsettelighet I henhold til Selskapets Vedtekter kan styret nekte å registrere overføring av enhver interesse i enhver Aksje i aksjeeierboken, eller nekte å instruere enhver registerfører oppnevnt av Selskapet til å registrere en overføring, der en slik overføring vil resultere i at 50 % eller flere av Aksjene eller stemmene i Selskapet, innehas, kontrolleres eller eies direkte eller indirekte av fysiske eller rettslige personer, som skatterettslig anses bosatt i Norge eller tilknyttet norsk næringsvirksomhet, for å unngå at Selskapet blir ansett å være et kontrollert utenlandske foretak slik dette begrepet er definert i norske skatteregler. Med forbehold om ovennevnte, men uavhengig av avvikende bestemmelser i Vedtektene, kan aksjer som er notert eller tatt opp til handel på en angitt børs overføres i henhold til reglene og forskriftene til 190

197 Odfjell Drilling Ltd - Prospectus en slik børs. Alle overdragelser av usertifiserte aksjer må gjøres i henhold til, og være underlagt, adgangen og kravene til overdragelse av eierskap til aksjer i den klassen i henhold til VPS eller ethvert annet relevant system og i henhold til enhver ordning satt opp av Styret i henhold til Vedtektene. Styret skal nekte en overdragelse med mindre registreringen av slik overdragelse oppfyller alle gjeldende krav til samtykker, autorisasjoner og tillatelser fra enhver myndighet eller ethvert organ på Bermuda. Styret kan også nekte å anerkjenne en overdragelsesmetode av en aksje med mindre det relevante aksjebeviset (hvis utstedt) samt slikt annet bevis for overdragers rett til å gjennomføre overdragelsen som Styret med rimelighet kan kreve er vedlagt. Vennligst også se punkt 19 Selling and transfer restrictions. C.6 Opptak til notering Den 12. september 2013 søkte Selskapet om notering av Aksjene på Oslo Børs. Det er forventet at styret i Oslo Børs godkjenner noteringssøknaden til Selskapet den 25. september 2013, betinget av at enkelte vilkår oppfylles. Se punkt Conditions for completion of the Offering Listing and trading of the Offer Shares. På nåværende tidspunkt forventer Selskapet oppstart av handel i Aksjene på Oslo Børs på hvis solgt basis, på eller rundt 30. september 2013 og på vanlig basis på eller rundt 3. oktober Selskapet har ikke søkt om notering av Aksjene på noen annen børs eller regulert market. C.7 Utbyttepolitikk Selskapet tar sikte på å sikre at aksjeeiernes avkastning reflekterer Selskapets verdiskapning, og at denne vil bestå av både utbytte og en positiv utvikling i aksjekursen. Selskapet sikter mot en langsiktig årlig utbytteutbetaling som representerer omtrent % av dets konsoliderte nettoresultat. Ettersom Selskapet er i en fase som involverer betydelige investeringer, er det ikke planlagt utbytte for regnskapsåret som avsluttes 31. desember Selskapet har høy fokus på verdiskapning og vil ha en utbyttepolitikk som ivaretar interessene til Selskapet og dets aksjeeiere. Ved beslutningen om det skal vedtas og utbetales et årlig utbytte, vil Styret ta i betraktning markedsutsiktene, ordrereserve (backlog), kontantstrøm, investeringsplaner og finansieringsbehov samtidig som tilstrekkelig finansiell fleksibilitet skal opprettholdes. Styret kan revidere utbyttepolitikken over tid. Forslag om i ethvert år å betale utbytte er underlagt: (i) de begrensninger som følger av vilkårene i enkelte av Konsernets lån, og (ii) at det er tilstrekkelig fri egenkapital. Punkt D - Risiko D.1 Vesentlige risiki knyttet til Selskapet eller dets bransje Risiko knyttet til bransjen som Konsernet opererer i (i) Konsernets virksomhet beror på aktivitetsnivået innenfor olje- og gassleting samt identifikasjon og utvikling av olje- og gassreservoarer og produksjon i offshoreområder i hele verden, særlig i krevende og ultradype farvann. Særlig påvirker olje- og gasspriser, og markedets forventinger til potensielle endringer i disse prisene, aktivitetsnivået til olje- og gasselskapenes lete- og produksjonsdrift i vesentlig grad. Som følge av de betydelige investeringer som gjøres i leting og, ofte i produksjonen som utføres av Konsernets kunder på eller før tidspunktet de 191

198 Odfjell Drilling Ltd - Prospectus kontraherer tjenester som ytes av MODU segmentet og forretningsområdet Platform Drilling, er disse virksomhetene typisk påvirket av langsiktige E&P spending beslutninger basert på langsiktige pristrender, mens forretningsområdet Technology og Well Services segmentet er mer utsatt for beslutninger knyttet til E&P spending som kundene tar som følge av kortsiktig fluktuasjon i olje- og gassprisene. Enhver nedgang i etterspørselen etter noen av tjenestene til Konsernets segmenter kan ha en betydelig negativ innvirkning på Konsernets virksomhet, driftsresultater, kontantstrøm og finansielle stilling. (ii) Usikkerhet knyttet til globale økonomiske forhold og utvikling kan redusere etterspørselen etter Konsernets Boreenheter og tjenester, eller resultere i forsinkelser eller kanselleringer av kontrakter. Enhver nedgang i etterspørselen forårsaket av slik usikkerhet kan ha en betydelig negativ innvirkning på Konsernets driftsresultater, kontantstrøm og finansielle stilling. (iii) Overproduksjon av boreenheter eller utleieutstyr kan føre til en reduksjon av dagratene for MODU segmentet og prisene for Well Services segmentet. Perioder med overskudd av tilgang på boreenheter intensiverer konkurransen i bransjen, og kan resultere i at boreenheter er inaktive i lange perioder av gangen. Overskudd på tilgang av boreenheter kan være forårsaket av at det tas i bruk nye og oppgraderte enheter eller av at konkurrenter flytter boreenheter til de regionene hvor Konsernets Boreenheter opererer. For stor tilgang på utstyret Konsernet leier ut til klienter (Utleieutstyr), som tilbys av Well Services segmentet, kan føre til at dette segmentet opplever reduserte priser og / eller kundebestillinger for sitt Utleieutstyr. Enhver av disse hendelsene kan få vesentlig betydning for Konsernets driftsresultater. (iv) Olje- og gasservicebransjen Konsernet opererer i er svært konkurranseutsatt og fragmentert, og omfatter både små og store aktører som konkurrerer med Konsernet. Konsernets virksomhet kan bli vesentlig negativt påvirket dersom dagens konkurrenter eller nye deltakere i markedet introdusere nye produkter eller tjenester med egenskaper som ligner på, eller er bedre enn, Konsernets produkter og tjenester, eller utvider sin virksomhet til tjenesteområder Konsernet opererer innenfor. Konkurransepress eller andre faktorer som resulterer i betydelig priskonkurranse kan, særlig i industrielle nedgangstider, ha en betydelig negativ innvirkning på Konsernets virksomhet, driftsresultater, kontantstrøm og finansielle tilstand. (v) Konsernets virksomhet er underlagt en rekke operasjonelle farer som også kan utsette Konsernet for eiendoms-, miljømessige- og andre skadeserstatningskrav fra tredjeparter dersom de materialiserer seg. Konsernets forsikringer og kontraktsmessige rett til erstatning vil ikke nødvendigvis dekke tap i tilstrekkelig grad, og Konsernet har ikke forsikringsdekning eller skadesløsholdelser for enhver risiko. Inntrer en betydelig ulykke eller annen alvorlig hendelse som ikke er fullt ut dekket av Konsernets forsikring eller skadesløsholdelser fra en kunde som kan håndheves eller inndrives, kan dette medføre betydelige tap 192

199 Odfjell Drilling Ltd - Prospectus for Konsernet. (vi) Konsernets segmenter opererer i ulike jurisdiksjoner, hvilket utsetter Konsernet for den risiko som ligger i internasjonale virksomheter og som kan være utenfor Konsernets kontroll, slik som krig, naturkatastrofer, politisk uro, offentlige helsetrusler og inkonsekvent bruk av utenlandske lover og forskrifter. Noen av disse risikofaktorene kan forstyrre Konsernets drift og dermed ha en betydelig negativ innvirkning på Konsernets virksomhet, driftsresultater, kontantstrøm og finansielle stilling. Videre opererer Konsernet i mange utviklingsland, hvilket medfører risiko forbundet med svindel, bestikkelser, korrupsjon og internasjonale sanksjonsregimer. Unnlatelse av å overholde slike lover kan resultere i vesentlige bøter og straffer og kan skade Konsernets omdømme. Risiko knyttet til Konsernet (i) Konsernets ordrereserve (backlog) vil kanskje ikke kunne realiseres på grunn av en rekke årsaker, herunder kundenes handlinger eller Konsernets manglende evne til å oppfylle sine forpliktelser i henhold til sine kontrakter. Konsernets ordrereserve (backlog) representerer den kontraktsfestede fremtidige inntekten under kontrakter for Boreenhetene og tjenester som tilbys av MODU-segmentet og forretningsområdet Platform Drilling. Konsernet presenterer ordrereserver (backlog) både inklusiv og eksklusiv eventuelle prisede opsjonsperioder som kan utøves av kundene beregnet for å reflektere den nominelle verdien av kontrakten, som nærmere beskrevet i punkt "Backlog". Ordrereserven (backlog) gir ikke en presis angivelse av den perioden Konsernet er kontraktsrettslig berettiget til å motta slike inntekter, og det er ingen garanti for at slike inntekter faktisk blir realisert i de forventede periodene, eller i det hele tatt. Dersom Konsernet ikke er i stand til å realisere ordrereserver (backlog) vil dette kunne ha en betydelig negativ innvirkning på Konsernets driftsresultater, kontantstrøm og finansielle stilling. (ii) Konsernets fremtidige resultater avhenger av Konsernets evne til å fornye og forlenge eksisterende kontrakter og å vinne nye kontrakter. Konsernets evne til å fornye eller forlenge eksisterende kontrakter eller inngå nye kontrakter vil i stor grad avhenge av de gjeldende markedsforholdene. Dersom Konsernet ikke er i stand til å signere nye kontrakter med oppstart umiddelbart etter opphør av nåværende kontrakter, eller når det gjelder MODU-segmentet eller forretningsområdet Platform Drilling, dersom nye kontrakter er inngått til dagrater eller priser som er vesentlig lavere enn eksisterende dagrater eller priser, eller på vilkår som ellers er mindre gunstige sammenlignet med eksisterende avtalevilkår, eller som pådrar Konsernet kostnader forbundet med mobilisering eller demobilisering som ikke fullt ut kan kreves dekket, vil Konsernets virksomhet, driftsresultat, kontantstrøm og finansielle tilstand kunne påvirkes negativt. Risiko knyttet til driften (i) Konsernet, særlig MODU-segmentet og forretningsområdet Platform Drilling, er utsatt for risiko forbundet med kundesammensetning. Dersom noen av Konsernets viktigste 193

200 Odfjell Drilling Ltd - Prospectus kunder ikke klarer å kompensere Konsernet, sier opp sine kontrakter, ikke fornyer sine eksisterende kontrakter eller nekter å tildele Konsernet nye kontrakter, og Konsernet ikke er i stand til å inngå kontrakter med nye kunder på sammenlignbare dagrater, vil dette kunne ha en betydelig negativ innvirkning på Konsernets driftsresultater. (ii) Konsernets drifts- og vedlikeholdskostnader vil ikke nødvendigvis fluktuere i samme forhold som endringer i driftsinntekter. I en situasjon der en boreenhet står foran lengre inaktive perioder, vil kostnadsreduksjoner ikke nødvendigvis være umiddelbare ettersom noe av mannskapet kan bli pålagt å forberede boreenhetene for den inaktive perioden. Det er således ikke sikkert at Konsernet vil lykkes med å redusere sine driftskostnader under forhold hvor inntektene også blir redusert. I den grad endringer i Konsernets drifts- og vedlikeholdskostnader ikke står i forhold til endringer i driftsinntektene, kan det ha en betydelig negativ innvirkning på Konsernets virksomhet, driftsresultater, kontantstrøm og finansielle stilling. (iii) Konsernets byggeprosjekter knyttet til nybygg av boreenheter er eksponert for risiko tilknyttet forsinkelser, kvalitetsproblemer, skader på personell, utstyr og miljø eller kostnadsoverskridelser som naturlig knytter seg til alle store byggeprosjekter på grunn av mange faktorer. Konsernet leverer også rådgivings- og prosjektadministrasjonstjenester til andre nybyggingsprosjekter hvor Konsernet både har eller ikke har en eierinteresse. Betydelige kostnadsoverskridelser eller forsinkelser av prosjekter kan resultere i tapte inntekter, potensielle bøter/krav fra kunden eller i at kunden kansellerer. Dersom noen av disse risikofaktorene skulle materialisere seg vil dette kunne ha en betydelig negativ innvirkning på Konsernets driftsresultat, kontantstrøm og finansielle stilling. (iv) Konsernet utøver en del av sin virksomhet gjennom felleskontrollerte selskaper (joint-venture selskaper), og er derfor utsatt for risiko og usikkerhet forbundet med å delta i jointventure selskaper. Ulike synspunkter blant joint-venture partnere kan resultere i forsinkede beslutninger eller i at man ikke enes om viktige saker. Dersom en joint-venture partner selger aksjene sine i joint-venture selskapet, kan dette medføre et kontrollskifte under obligasjonslånene som finansierer joint-venture selskapet, med mindre Konsernet erverver aksjene. Dersom Konsernets partnere ikke oppfyller sine kontraktsforpliktelser, kan det respektive joint-venture selskapet være ute av stand til å utføre og levere sine kontraktfestede tjenester på en adekvat måte, hvilket vil kreve at Konsernet foretar ytterligere investeringer eller utfører tilleggstjenester. Konsernet vil kunne bli ansvarlig for både sine egne og partnerens forpliktelser, hvilket kan resultere i redusert fortjeneste eller, i noen tilfeller, betydelige tap på prosjektet. Disse faktorene kan ha en betydelig negativ innvirkning på driften av joint-venture selskapet, og igjen, Konsernets virksomhet og omdømme. (v) Drift og utvikling av Konsernets virksomhet er avhengig av at Konsernet beholder nøkkelpersonell og Konsernets evne til å 194

201 Odfjell Drilling Ltd - Prospectus rekruttere, beholde og utvikle dyktige medarbeidere til sin virksomhet. Mangel på kvalifisert personell, eller Konsernets manglende evne til å finne og beholde kvalifisert personell, vil kunne ha en betydelig negativ innvirkning på Konsernets virksomhet. (vi) Et tap i en stor skattetvist knyttet til Konsernets operasjonelle struktur eller Konsernets skattebetalinger kan blant annet resultere i høyere skattesats på Konsernets inntekter, som kan ha en betydelig negativ innvirkning på Konsernets inntekter og kontantstrøm. Konsernets skattebetalinger kan fra tid til annen bli underlagt gjennomgang eller bokettersyn fra skattemyndighetene i jurisdiksjonene hvor Konsernet opererer. Konsernet er for tiden underlagt et bokettersyn vedrørende Deepsea Atlantic (som kan ha en negativ innvirkning på likviditeten med rundt USD 50 millioner) og en skattetvist vedrørende Deepsea Bergen (hvor Konsernets tap på USD 62,8 millioner (allerede kostnadsført per 30. juni 2013) vil bli endelig dersom tingrettens dom stadfestes i forbindelse med anken). Risiko knyttet til konsernstrukturen (i) Konsernet driver i dag sin virksomhet gjennom, og de fleste av Konsernets eiendeler er eiet av, Konsernets datterselskaper. Således er det kontantene Konsernet mottar fra sine datterselskaper som er hovedkilden til midler Konsernet trenger til å oppfylle sine forpliktelser. Manglende evne til å overføre penger fra Konsernets datterselskaper eller felleskontrollerte selskaper kan bety at Konsernet ikke kan foreta de nødvendige overføringer fra sine datterselskaper eller felleskontrollerte selskaper til å oppfylle sine forpliktelser eller betale utbytte til sine aksjeeiere. Dersom Konsernet eller noen av Konsernets datterselskaper misligholder betalingsforpliktelser under noen av sine gjeldsinstrumenter vil det ha en betydelig negativ innvirkning på Konsernets virksomhet, driftsresultat, kontantstrøm og finansielle stilling. D.3 Vesentlige risiki knyttet til verdipapirene Risiko knyttet til Aksjene (i) Etter gjennomføringen av Tilbudet er det forventet at Odfjell Partners Ltd. vil fortsette å være den største aksjonæren i Konsernet, og følgelig fortsette å ha et flertall av aksjeeiernes stemmer. Det er dermed forventet at Odfjell Partners Ltd. vil kunne ha stor innflytelse på utfallet av saker som legges frem for avstemning blant Selskapets aksjeeiere, herunder valg av medlemmer til Styret. Det er ingen garanti for at de kommersielle målene for Odfjell Partners Ltd. og Selskapet alltid vil fortsette å være overensstemmende, eller at denne eierkonsentrasjonen alltid vil fortsette å være i de øvrige aksjeeiernes beste interesse. Selv om det er forventet at Odfjell Partners Ltd. vil fortsette å være den største aksjeeieren i Selskapet etter Tilbudet, kan det ikke gis noen garanti for at det vil fortsette på permanent basis. Dersom Odfjell Partners Ltd. ikke skulle fortsette å være en stor aksjeeier i Selskapet, eller dersom dets kommersielle mål ikke skulle være i Konsernets beste interesse, kan dette få en betydelig negativ innvirkning på markedsverdien av Aksjene. (ii) Etter gjennomføringen av Tilbudet vil det være en begrenset fri 195

202 Odfjell Drilling Ltd - Prospectus flyt av Aksjene. Den begrensede frie flyten kan ha en negativ innvirkning på likviditeten i Aksjene og kan resultere i et lavt omsetningsvolum for Aksjene, hvilket kan ha en negativ innvirning på den rådende markedsprisen for Aksjene. Risiko knyttet til at Selskapet er stiftet på Bermuda (i) Selskapets vedtekter inneholder bestemmelser som kan gjøre det vanskeligere for en tredjepart å kjøpe Selskapet uten samtykke fra Selskapets Styre. Disse bestemmelsene kan gjøre det vanskeligere for en tredjepart å kjøpe Selskapet, selv om mange av aksjonærene anser tredjepartens tilbud som fordelaktig. Punkt E - Tilbudet E.1 Nettoproveny og estimerte kostnader Den Selgende Aksjonæren vil motta provenyet av Tilbudet. De totale kostnadene og utgiftene til Noteringen og Tilbudet er anslått til NOK 89 millioner (ekskludert moms) dersom alle Tilbudsaksjene blir solgt av Selgende Aksjonær og Selskapet beslutter å betale det diskresjonære honoraret fullt ut (beregnet av en pris per aksje på NOK 42,50 - som utgjør midtverdien i det Indikative Prisintervallet). Kostnadene skal dekkes av Selskapet. E.2a Bakgrunnen for tilbudet og bruk av provenyet (i) For å legge til rette for en bærekraftig eierstruktur som støtter Selskapets langsiktige strategi, ved å tilby Selgende Aksjonær en mulighet til å selge alle sine Aksjer. (ii) For å styrke Selskapets finansieringskilder, og dermed øke dets strategiske fleksibilitet for fremtidige vekstmuligheter. (iii) For å styrke Selskapets evne til å tiltrekke seg talenter ved å heve profilen til Konsernet og dets merkevare. Det estimerte nettoprovenyet av Tilbudet er NOK millioner. Selgende Aksjonær vil motta provenyet av Tilbudet. Selskapet vil ikke motta noe av provenyet av Tilbudet. E.3 Vilkår for tilbudet Tilbudet består av inntil Salgsaksjer, som alle er eksisterende, gyldig utstedte og fullt innbetalte registrerte Aksjer med en pålydende verdi på USD 0,01, og som tilbys av den Selgende Aksjonæren. Salgsaksjene representerer, og vil ved gjennomføring av Tilbudet representere, inntil 28 % av de utstedte Aksjene i Selskapet. I tillegg kan Joint Bookrunners velge å overtildele inntil Tilleggsaksjer, tilsvarende inntil ca 7 % av antall Salgsaksjer (som representerer opp til 2 % av de utstedte Aksjene i Selskapet). Selgende Aksjonær har tildelt DNB Markets, på vegne av Tilretteleggerne, en opsjon til å kjøpe et tilsvarende antall Tilleggsaksjer for å dekke eventuelle overallokeringer (Overtildelingsopsjonen). Forutsatt at opsjonen er utnyttet i sin helhet, vil Tilbudet omfatte inntil Aksjer, tilsvarende inntil 30 % av Aksjene. Tilbudet består av: Et Institusjonelt Tilbud, hvor Tilbudsaksjer tilbys til (a) investorer i Norge, (b) investorer utenfor Norge og USA, i 196

203 Odfjell Drilling Ltd - Prospectus henhold til gjeldende unntak fra prospektkrav, og (c) i USA til QIBs, som definert i, og i henhold til Rule 144A i US Securities Act. Det Institusjonelle Tilbudet er underlagt en nedre grense per bestilling på NOK Et Offentlige Tilbud, hvor Tilbudsaksjer tilbys til allmennheten i Norge med en nedre grense per bestilling på et beløp tilsvarende NOK og en øvre grense per bestilling på NOK for hver investor. Investorer i det Offentlige Tilbudet vil få en rabatt på NOK på den samlede kjøpesummen for Tilbudsaksjene tildelt slike investorer. Investorer som ønsker å legge inn en bestilling som overstiger NOK må gjøre det i det Institusjonelle Tilbudet. Flere bestillinger fra én bestiller i det Offentlige Tilbudet vil bli behandlet som én bestilling hva gjelder maksimal bestillingsgrense og rabatten. Ethvert tilbud eller salg utenfor USA vil bli gjort i overensstemmelse med Regulation S. Bookbuildingperioden for det Institusjonelle Tilbudet er forventet å løpe fra kl 09:00 norsk tid 16. september 2013 til kl 15:00 norsk tid 27. september Bestillingsperioden for det Offentlige Tilbudet vil løpe fra kl 09:00 norsk tid 16. september 2013 til kl 12:00 norsk tid 27. september Selskapet, i samråd med Selgende Aksjonær og Joint Bookrunners, forbeholder seg retten til når som helst å forkorte eller forlenge Bookbuildingperioden og Tegningsperioden. Tilretteleggerne forventer å gi beskjed om tildeling av Tilbudsaksjer i det Institusjonelle Tilbudet på eller rundt 30. september 2013, gjennom utstedelse av sluttseddel til bestillerne via post eller på annen måte. DNB Markets, som opptrer som oppgjørsagent for det Offentlige Tilbudet, forventer å gi beskjed om tildeling av Tilbudsaksjer i det Offentlige Tilbudet på eller rundt 30. september 2013, ved utstedelse av allokeringsbrev til bestillerne via post eller på annen måte. Betaling fra bestillerne i det Institusjonelle Tilbudet vil finne sted mot levering av Tilbudsaksjer. Levering og betaling av Tilbudsaksjene i det Institusjonelle Tilbudet er forventet å finne sted på eller rundt 3. oktober Fristen for betaling i det Offentlig Tilbudet er på eller rundt 2. oktober Forutsatt rettidig betaling av bestilleren, er levering av Tilbudsaksjene tildelt i det Offentlige Tilbudet forventet å finne sted på eller rundt 2. oktober E.4 Vesentlige og motstridende interesser Tilretteleggerne eller deres nærstående har fra tid til annen ytet, og vil i fremtiden yte, investeringstjenester og kommersielle banktjenester til Selskapet og dets nærstående som ledd i ordinær virksomhet. For slike tjenester kan de ha mottatt og vil kunne fortsette å motta vanlige honorarer og provisjoner. Tilretteleggerne har ikke til hensikt å fremlegge omfanget av slike investeringer eller transaksjoner med mindre de er juridisk eller regulatorisk forpliktet til dette. Den Selgende Aksjonæren vil motta provenyet av Tilbudet. Utover det ovennevnte er Selskapet ikke kjent med noen interesse noen 197

204 Odfjell Drilling Ltd - Prospectus fysiske eller juridiske personer involvert i Tilbudet har. E.5 Selgende aksjonær og bindingsavtaler Selgende Aksjonær er BCB Paragon Trust Limited, som forvalter av Larine Trust. Marianne Odfjell er en begunstiget av trusten. Per dato for dette Prospektet eier Selgende Aksjonær Aksjer i Selskapet, tilsvarende 30 % av de utstedte og utestående Aksjene. Forutsatt at (i) Tilbudet blir fulltegnet, (ii) Tilleggsaksjene blir tildelt og (iii) Overtildelingsopsjonen blir utøvd i sin helhet, vil Selgende Aksjonær ikke eie Aksjer etter gjennomføringen av Tilbudet. Dersom Stabiliserende Tilrettelegger, på vegne av Tilretteleggerne, i henhold til Låneopsjonen leverer tilbake noen av de lånte Aksjene til Selgende Aksjonær ved utløpet av stabiliseringsperioden, har Selgende Aksjonær rett til å kreve at Odfjell Partners Ltd. kjøper 50 % av de tilbakeleverte Aksjer fra Selgende Aksjonær, og Odfjell Partners Ltd. har en tilsvarende rett til å kreve at Selgende Aksjonær selger 50 % av de tilbakeleverte Aksjer. I forbindelse med Kjøpsavtalen vil Odfjell Partners Ltd., Selgende Aksjonær, Selskapet og Simen Lieungh (President og CEO i Konsernet) påta seg en forpliktelse som vil begrense deres mulighet til å utstede, selge eller overføre Aksjer i en periode på ni måneder etter datoen for Kjøpsavtalen. For mer informasjon om disse begrensningene, se punkt "Lock-up". E.6 Utvanning som følge av Tilbudet E.7 Estimerte kostnader som vil kreves fra investorene Ikke aktuelt. Ingen nye aksjer vil bli utstedt i Tilbudet. Ikke aktuelt. Kostnadene relatert til Tilbudet vil bli dekket av Selskapet. 198

205 Odfjell Drilling Ltd - Prospectus 22 DEFINITIONS AND GLOSSARY 2010 PD Amending Directive... Directive 2010/73/EU amending the EU Prospectus Directive. Additional Shares... ABG Sundal Collier... Anti-Money Laundering Legislation... Up to 4,000,000 additional Shares sold pursuant to the over-allotment by the Stabilisation Manager, equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company). ABG Sundal Collier Norge ASA. The Norwegian Money Laundering Act no. 11 of 6 March 2009 and the Norwegian Money Laundering Regulations no. 302 of 13 March 2009, collectively. Application Period... The application period for the Retail Offering which will take place from 09:00 hours (CET) on 16 September 2013 to 12:00 hours (CET) on 27 September 2013, unless shortened or extended. Appointed Stock Exchange... Arctic Securities... backlog... Bermuda Companies Act... BG... Board of Directors... boe... Bookbuilding Period... BOP... BRL... Bye-Laws... CAGR... Capex... CET... Chloe Marine... CISA... Co-Lead Managers... Company... An appointed stock exchange in accordance with the provisions of the Bermuda Companies Act. Arctic Securities ASA. Please refer to the definition in Section Backlog. The Companies Act 1981, as amended of Bermuda. BG International Ltd. The Board of Directors of the Company. Barrel of oil equivalent. The book-building period for the Institutional Offering, which is expected to run from 09:00 hours (CET) on 16 September 2013 to 15:00 hours (CET) on 27 September 2013, unless shortened or extended. Blow Out Preventer. Brazilian Real, the lawful currency of Brazil. The Company s bye-laws. Compound annual growth rate. Capital expenditures. Central European Time. Chloe Marine Corporation Ltd. Swiss Federal Act on Collective Investment Schemes. Arctic Securities, Danske Bank Markets and Swedbank First Securities, collectively. Odfjell Drilling Ltd. Construction Contract... The contracts for the construction of Deepsea Aberdeen (Hull no 3033). Corporate Governance Code... CRTi... Deep Sea Metro... debt/equity... deepwater... DNB Markets... DP... Drillships... Drilling Units... DSME... E&P... EBIT... EBITDA... EEA... equity ratio... EUR... The Norwegian Code of Practice for Corporate Governance, dated 23 October New generation, fully mechanical, Casing Running Tool. Deep Sea Metro Ltd. Interest bearing debt (excluding pension liabilities) divided by equity. Water depths of 3,000 to 7,500 feet. DNB Bank ASA, DNB Markets. Dynamic positioning. Deepsea Metro I and Deepsea Metro II. The mobile drilling units Deepsea Bergen, Deepsea Atlantic, Deepsea Stavanger, Deepsea Aberdeen, Deepsea Metro I and Deepsea Metro II. Daewoo Shipbuilding & Marine Engineering Co., Ltd. Exploration and production. Earnings before interest and tax. Earnings before interest, tax, depreciation and amortisation. The European Economic Area. Total equity divided by total assets. The lawful common currency of the EU member states who have adopted the Euro as their sole national currency. EU Prospectus Directive... Directive 2003/71/EC of the European Parliament and of the Council of 4 199

206 Odfjell Drilling Ltd - Prospectus November 2003, and amendments thereto, including the 2010 PD Amending Directive to the extent implemented in the Relevant Member State. fifth generation rigs... Financial Information... Financial Statements... Rigs built in the late 1990s and early 2000s, designed to operate in water depths from 7,500 feet to 10,000 feet. The Financial Statements and the Interim Financial Statements. The Company s audited consolidated financial statements as of and for the years ended 31 December 2012, 2011 and FSMA... UK Financial Services and Markets Act GBP... Golden Close... Group... HSE... IAS... IEA... IFRS... IFRS Financial Statements... Indicative Price Range... Institutional Closing date... interest bearing debt... interest coverage... Interim Directors... Interim Financial Statements... IT... Joint Bookrunners... Lending Option... Listing... LTM EBITDA... Management... Managers... Metro Exploration... NCS... net working capital... net interest bearing debt... New Board of Directors... NGAAP Financial Statements... NOK... Norwegian FSA... Norwegian Securities Trading Act... Odfjell Drilling... Offering... Offer Price... Great British Pounds, the lawful currency of the United Kingdom. Golden Close Maritime Corp. Ltd. Odfjell Drilling and its consolidated subsidiaries. Health, safety and environment. International Accounting Standard. International Energy Agency. International Financial Reporting Standards as adopted by the European Union. The Company s audited consolidated financial statements as of and for the year ended 31 December 2012, with comparable figures for the year ended 31 December 2011, prepared in accordance with IFRS. The indicative price range in the Offering of NOK 37 to NOK 48 per Offer Share. Delivery and payment for the Offer Shares by the applicants in the Institutional Offering is expected to take place on or about 3 October Non-current borrowings and current portion of non-current borrowings. EBITDA divided by interest expenses. The Directors whom will serve as members of the Board of Directors up to the first day of the Listing. The Company s unaudited consolidated financial statements as of and for the three and six month periods ended 30 June 2013 and Information technology. ABG Sundal Collier, DNB Markets and Goldman Sachs International, collectively. A lending option granted to the Stabilisation Manager by the Selling Shareholder, pursuant to which the Stabilisation Manager may require the Selling Shareholders to lend to the Stabilisation Manager, on behalf of the Managers, up to a number of Shares equal to the number of Additional Shares. The listing of the Shares on the Oslo Stock Exchange. The EBITDA for the latest 12 months. The senior management team of the Group. The Joint Bookrunners and the Co-Lead Managers, collectively. Metro Exploration Holding Corp. Norwegian Continental Shelf. Non-interest bearing current assets less non-interest bearing current liabilities. Non-current borrowings and current potion of non-current borrowings less cash. The five Directors which will form the new Board of Directors from the first day of Listing. The Company s audited consolidated financial statements as of and for the years ended 31 December 2011 and 2010, prepared in accordance with NGAAP. Norwegian Kroner, the lawful currency of Norway. The Norwegian Financial Supervisory Authority (Nw. Finanstilsynet). The Norwegian Securities Trading Act of 28 June 2007, no. 75 (Nw verdipapirhandelloven). The Company and its consolidated subsidiaries. The global offering including the Institutional Offering and the Retail Offering taken together. The final offering price for the Offer Shares in the Offering. The Offer Price may be set above or below the Indicative Price Range. 200

207 Odfjell Drilling Ltd - Prospectus Offer Shares... OPEC... The Additional Shares together with the Sale Shares the Shares offered pursuant to the Offering. The Organization of Petroleum Exporting Countries. Order... The UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended. Oslo Stock Exchange... Over-Allotment Option... Payment Date... PP&E Purchase Agreement... Oslo Børs ASA, or, as the context may require, Oslo Børs, a Norwegian regulated stock exchange operated by Oslo Børs ASA. Option granted by the Selling Shareholder to the Stabilisation Manager, on behalf of the Managers, to purchase up to 4,000,000 Additional Shares (together with the Sale Shares, the Offer Shares), equalling up to approximately 7% of the number of Sale Shares (representing up to 2% of the Shares in issue in the Company), exercisable within a 30-day period commencing at the time at which if sold trading in the Shares commences on the Oslo Stock Exchange, expected to be on 30 September 2013, to cover over-allotments, if any, in connection with the Offering. The payment date for the Offer Shares under the Retail Offering, expected to be on 2 October Property, plant and equipment. The purchase agreement expected to be entered into by the Company, the Selling Shareholder and the Joint Bookrunners (as representatives of the Managers) on or about 27 September 2013 with respect to the Offering of the Offer Shares. Prospectus... This Prospectus, dated 13 September QIBs... Qualified institutional buyers as defined in Rule 144A. QHSE... Regulation S... Relevant Member State... Quality, Health, Safety and Environment. Regulation S under the U.S. Securities Act. Each Member State of the European Economic Area which has implemented the EU Prospectus Directive. Relevant Persons... Persons in the UK that are (i) investment professionals falling within Article 19(5) of the Order or (ii) high net worth entities, and other persons to whom the Prospectus may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order. Rental Equipment... Restricted Shares... Rig or Rigs... Rule 144A... Sale Shares... SFA... Share(s)... SIX... sixth generation rigs... SPS... Stabilisation Manager... The Group s casing, running and rental equipment. Offer Shares purchased in the Offering inside the US. Each of, or collectively, Deepsea Atlantic, Deepsea Stavanger, Deepsea Bergen and Deepsea Aberdeen. Rule 144A under the U.S. Securities Act. Up to 56,000,000 common shares of the Company offered pursuant to the Offer. The Securities and Futures Act, Chapter 289 of Singapore. Shares in the share capital of the Company, each with a par value of USD 0.01, or any one of them. Swiss Exchange. Rigs built from 2005, designed to operate in water depths of 10,000 feet. Special periodic survey. DNB Markets. third generation rigs... Rigs built from 1982 to 1986, designed to operate in water depths up to 2,500 feet. UK... UKCS... ultra-deepwater... U.S. or United States... U.S. Exchange Act... U.S. Securities Act... USD... VPS... VPS account... The United Kingdom. UK Continental Shelf. Water depths of 7,500 feet or more. The United States of America. The U.S. Securities Exchange Act of 1934, as amended. The U.S. Securities Act of 1933, as amended. United States Dollars, the lawful currency in the United States. The Norwegian Central Securities Depository (Nw Verdipapirsentralen). An account with VPS for the registration of holdings of securities. 201

208 Odfjell Drilling Ltd - Prospectus working capital... Non-interest bearing current assets plus non-interest bearing current liabilities. 202

209 Appendix A Bye-Laws of Odfjell Drilling Ltd A1

210 BYE-LAWS OF ODFJELL DRILLING LTD A2

211 TABLE OF CONTENTS 1. DEFINITIONS 2. POWER TO ISSUE SHARES 3. POWER OF THE COMPANY TO PURCHASE ITS SHARES 4. RIGHTS ATTACHING TO SHARES 5. CALLS ON SHARES 6. FORFEITURE OF SHARES 7. DEPOSITARY INTEREST 8. SHARE CERTIFICATES 9. FRACTIONAL SHARES 10. REGISTER OF MEMBERS 11. REGISTERED HOLDER ABSOLUTE OWNER 12. TRANSFER OF REGISTERED SHARES 13. TRANSMISSION OF REGISTERED SHARES 14. COMPULSORY PURCHASE OF SHARES 15. POWER TO ALTER CAPITAL 16. VARIATION OF RIGHTS ATTACHING TO SHARES 17. DIVIDENDS 18. POWER TO SET ASIDE PROFITS 19. METHOD OF PAYMENT 20. CAPITALISATION 21. ANNUAL GENERAL MEETINGS 22. SPECIAL GENERAL MEETINGS 23. REQUISITIONED GENERAL MEETINGS 24. NOTICE 25. GIVING NOTICE AND ACCESS 26. POSTPONEMENT OR CANCELLATION OF GENERAL MEETING 27. ELECTRONIC PARTICIPATION AND SECURITY IN MEETINGS 28. QUORUM AT GENERAL MEETINGS 29. CHAIRMAN TO PRESIDE AT GENERAL MEETINGS 30. VOTING ON RESOLUTIONS 31. POWER TO DEMAND A VOTE ON A POLL 32. VOTING BY JOINT HOLDERS OF SHARES A3

212 Odfjell Drilling Ltd Page INSTRUMENT OF PROXY 34. REPRESENTATION OF CORPORATE MEMBER 35. ADJOURNMENT OF GENERAL MEETING 36. WRITTEN RESOLUTIONS 37. DIRECTORS AND THE AUDITOR S ATTENDANCE AT GENERAL MEETINGS 38. MOTION FOR INQUIRY 39. ELECTION OF DIRECTORS 40. NUMBER OF DIRECTORS 41. TERM OF OFFICE OF DIRECTORS 42. ALTERNATE DIRECTORS 43. REMOVAL OF DIRECTORS 44. VACANCY IN THE OFFICE OF DIRECTOR 45. REMUNERATION OF DIRECTORS 46. DEFECT IN APPOINTMENT 47. DIRECTORS TO MANAGE BUSINESS 48. POWERS OF THE BOARD OF DIRECTORS 49. REGISTER OF DIRECTORS AND OFFICERS 50. APPOINTMENT OF OFFICERS 51. APPOINTMENT OF SECRETARY 52. DUTIES OF OFFICERS 53. REMUNERATION OF OFFICERS 54. CONFLICTS OF INTEREST 55. RELATED PARTY TRANSACTIONS 56. INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS 57. BOARD MEETINGS 58. NOTICE OF BOARD MEETINGS 59. ELECTRONIC PARTICIPATION IN MEETINGS 60. QUORUM AT BOARD MEETINGS 61. BOARD TO CONTINUE IN THE EVENT OF VACANCY 62. CHAIRMAN TO PRESIDE 63. WRITTEN RESOLUTIONS A4

213 Odfjell Drilling Ltd Page VALIDITY OF PRIOR ACTS OF THE BOARD 65. MINUTES 66. PLACE WHERE CORPORATE RECORDS KEPT 67. FORM AND USE OF SEAL 68. RECORDS OF ACCOUNT 69. FINANCIAL YEAR END 70. ANNUAL AUDIT 71. APPOINTMENT OF AUDITOR 72. REMUNERATION OF AUDITOR 73. DUTIES OF AUDITOR 74. ACCESS TO RECORDS 75. FINANCIAL STATEMENTS 76. DISTRIBUTION OF AUDITOR S REPORT 77. VACANCY IN THE OFFICE OF AUDITOR 78. WINDING-UP 79. CHANGES TO BYE-LAWS 80. CHANGES TO THE MEMORANDUM OF ASSOCIATION 81. DISCONTINUANCE A5

214 Odfjell Drilling Ltd Page 3 1. Definitions INTERPRETATION 1.1 In these Bye-laws, the following words and expressions shall, where not inconsistent with the context, have the following meanings, respectively: Act Alternate Director Auditor Board Chairman Company Director Member notice Officer the Companies Act 1981 as amended from time to time; an alternate director appointed in accordance with these Bye-laws; includes an individual or partnership; the board of directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Act and these Bye-laws or the directors present at a meeting of directors at which there is a quorum; the Director of the Company appointed by the Board in accordance with these Bye-laws to perform any or all of the duties of the chairman of the Company; the company for which these Bye-laws are approved and confirmed; a director of the Company and shall include an Alternate Director; the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means the person whose name stands first in the Register of Members as one of such joint holders or all of such persons, as the context so requires; written notice as further provided in these Byelaws unless otherwise specifically stated; any person appointed by the Board to hold an office in the Company; A6

215 Odfjell Drilling Ltd Page 4 Register of Directors and Officers Register of Members the register of directors and officers referred to in these Bye-laws; the register of members referred to in these Byelaws; Resident Representative any person appointed to act as resident representative and includes any deputy or assistant resident representative; Secretary Treasury Share the person appointed to perform any or all of the duties of secretary of the Company and includes any deputy or assistant secretary and any person appointed by the Board to perform any of the duties of the Secretary; and a share of the Company that was or is treated as having been acquired and held by the Company and has been held continuously by the Company since it was so acquired and has not been cancelled. 1.2 In these Bye-laws, where not inconsistent with the context: (a) (b) (c) (d) words denoting the plural number include the singular number and vice versa; words denoting the masculine gender include the feminine and neuter genders; words importing persons include companies, associations or bodies of persons whether corporate or not; the words: (i) (ii) may shall be construed as permissive; and shall shall be construed as imperative; and (e) unless otherwise provided herein, words or expressions defined in the Act shall bear the same meaning in these Bye-laws. 1.3 In these Bye-laws expressions referring to writing or its cognates shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in visible form. 1.4 Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof. A7

216 Odfjell Drilling Ltd Page 5 2. Power to Issue Shares SHARES 2.1 Subject to these Bye-laws, and without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the Board shall, subject to prior approval given by resolution of the Members, have the power to issue any unissued shares on such terms and conditions as it may determine and any shares or class of shares may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital, or otherwise as the Company may by resolution of the Members prescribe. 2.2 Subject to the Act, any preference shares may be issued or converted into shares that (at a determinable date or at the option of the Company or the holder) are liable to be redeemed on such terms and in such manner as may be determined by the Board (before the issue or conversion). 3. Power of the Company to Purchase its Shares 3.1 The Company may purchase its own shares for cancellation or acquire them as Treasury Shares in accordance with the Act on such terms as the Board shall think fit. 3.2 The Board may exercise all the powers of the Company to purchase or acquire all or any part of its own shares in accordance with the Act. 4. Rights Attaching to Shares 4.1 Subject to any resolution of the Members to the contrary (and without prejudice to any special rights conferred thereby on the holders of any other shares or class of shares), the share capital shall be divided into shares of a single class the holders of which shall, subject to these Bye-laws: (a) (b) (c) (d) be entitled to one vote per share; be entitled to such dividends as the Board may from time to time declare; in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company; and generally be entitled to enjoy all of the rights attaching to shares. 4.2 All the rights attaching to a Treasury Share shall be suspended and shall not be exercised by the Company while it holds such Treasury Share and, except where required by the Act and any other applicable laws and regulations, all Treasury Shares A8

217 Odfjell Drilling Ltd Page 6 5. Calls on Shares shall be excluded from the calculation of any percentage or fraction of the share capital, or shares, of the Company. 5.1 The Board may make such calls as it thinks fit upon the Members in respect of any moneys (whether in respect of nominal value or premium) unpaid on the shares allotted to or held by such Members (and not made payable at fixed times by the terms and conditions of issue) and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the actual date of payment. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls. 5.2 Any amount which by the terms of allotment of a share becomes payable upon issue or at any fixed date, whether on account of the nominal value of the share or by way of premium, shall for all the purposes of these Bye-laws be deemed to be an amount on which a call has been duly made and payable on the date on which, by the terms of issue, the same becomes payable, and in case of non-payment all the relevant provisions of these Bye-laws as to payment of interest, costs and expenses, forfeiture or otherwise shall apply as if such amount had become payable by virtue of a duly made and notified call. 5.3 The joint holders of a share shall be jointly and severally liable to pay all calls and any interest, costs and expenses in respect thereof. 5.4 The Company may accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him, although no part of that amount has been called up or become payable. 6. Forfeiture of Shares 6.1 If any Member fails to pay, on the day appointed for payment thereof, any call in respect of any share allotted to or held by such Member, the Board may, at any time thereafter during such time as the call remains unpaid, direct the Secretary to forward such Member a notice in writing in the form, or as near thereto as circumstances admit, of the following: Notice of Liability to Forfeiture for Non-Payment of Call [ ] (the "Company") You have failed to pay the call of [amount of call] made on the [ ] day of [ ], 20[ ], in respect of the [number] share(s) [number in figures] standing in your name in the Register of Members of the Company, on the [ ] day of [ A9

218 Odfjell Drilling Ltd Page 7 ], 20[ ], the day appointed for payment of such call. You are hereby notified that unless you pay such call together with interest thereon at the rate of [ ] per annum computed from the said [ ] day of [ ], 20[ ] at the registered office of the Company the share(s) will be liable to be forfeited. Dated this [ ] day of [ ], 20 [ ] [Signature of Secretary] By Order of the Board 6.2 If the requirements of such notice are not complied with, any such share may at any time thereafter before the payment of such call and the interest due in respect thereof be forfeited by a resolution of the Board to that effect, and such share shall thereupon become the property of the Company and may be disposed of as the Board shall determine. Without limiting the generality of the foregoing, the disposal may take place by sale, repurchase, redemption or any other method of disposal permitted by and consistent with these Bye-laws and the Act. 6.3 A Member whose share or shares have been so forfeited shall, notwithstanding such forfeiture, be liable to pay to the Company all calls owing on such share or shares at the time of the forfeiture, together with all interest due thereon and any costs and expenses incurred by the Company in connection therewith. 6.4 The Board may accept the surrender of any shares which it is in a position to forfeit on such terms and conditions as may be agreed. Subject to those terms and conditions, a surrendered share shall be treated as if it had been forfeited. 7. Depositary Interest The Directors shall, subject to the Act, any other applicable laws and regulations, the facilities and requirements of the system maintained by Verdipapirsentralen ASA or any relevant system concerned and these Bye-laws, have the power to implement and/or approve any arrangements they may, in their absolute discretion, deem fit in relation to (without limitation) the evidencing of title to and the transfer of depository or similar interests in shares in the capital of the Company in the form of depositary interests or similar interests, instruments or securities. The Directors may from time to time take such actions and do such things as they may, in their absolute discretion, think fit in relation to the operation of any such arrangements including, without limitation, treating holders of any depository or similar interests relating to shares as if they were the holders directly thereof for the purposes of compliance with any obligations imposed under these Bye-laws on Members. A10

219 Odfjell Drilling Ltd Page 8 8. Share Certificates 8.1 No share certificates shall be issued by the Company unless, in respect of a class of shares, the Board has either for all or for some holders of such shares (who may be determined in such manner as the Board thinks fit) determined that the holder of such shares may be entitled to share certificates. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all. 8.2 Subject to being entitled to a share certificate under the provisions of Bye-law 8.1, the Company shall be under no obligation to complete and deliver a share certificate unless specifically called upon to do so by the person to whom the shares have been allotted. 8.3 If any share certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid, or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit. 8.4 Notwithstanding any provisions of these Bye-laws: (a) the Board shall, subject always to the Act and any other applicable laws and regulations and the facilities and requirements of the relevant system concerned, have power to implement any arrangements it may, in its absolute discretion, think fit in relation to the evidencing of title to and transfer of uncertificated shares by means of the system maintained by Verdipapirsentralen ASA or any other relevant system, and to the extent such arrangements are so implemented, no provision of these Bye-laws shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of shares in uncertificated form; and (b) unless otherwise determined by the Board and as permitted by the Act and any other applicable laws and regulations, no person shall be entitled to receive a certificate in respect of any share for so long as the title to that share is evidenced otherwise than by a certificate and for so long as transfers of that share may be made otherwise than by a written instrument. 9. Fractional Shares The Company may issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding-up. A11

220 Odfjell Drilling Ltd Page Register of Members REGISTRATION OF SHARES 10.1 The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Act. Subject to the provisions of the Act, the Company may keep one or more branch registers in any place in or outside of Bermuda, and the Board may make, amend and revoke any such regulations as it may think fit respecting the keeping of such branch registers. The Board may authorise any share on the Register of Members to be included in a branch register or any share registered on a branch register to be registered on another branch register, provided that at all times the Register of Members is maintained in accordance with the Act The Register of Members shall be open to inspection without charge at the registered office of the Company on every business day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each business day be allowed for inspection. The Register of Members may, after notice has been given in accordance with the Act, be closed for any time or times not exceeding in the whole thirty days in each year. 11. Registered Holder Absolute Owner The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable claim or other claim to, or interest in, such share on the part of any other person. 12. Transfer of Registered Shares 12.1 Subject to the Act and to such of the restrictions contained in these Bye-Laws as may be applicable, any Member may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other form which the Board may approve. No such instrument shall be required on the redemption of a share or on the purchase by the Company of a share. All transfers of uncertificated shares shall be made in accordance with and be subject to the facilities and requirements of the transfer of title to shares in that class by means of the system maintained by Verdipapirsentralen ASA or any other relevant system concerned and, subject thereto, in accordance with any arrangements made by the Board pursuant to Bye-Law The instrument of transfer of a share shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been registered as having been transferred to the transferee in the Register of Members. A12

221 Odfjell Drilling Ltd Page The Board may refuse to recognise any instrument of transfer unless it is accompanied by the certificate in respect of the shares (if one has been issued) to which it relates and by such other evidence as the Board may reasonably require to prove the right of the transferor to make the transfer The joint holders of any share may transfer such share to one or more of such joint holders, and the surviving holder or holders of any share previously held by them jointly with a deceased Member may transfer any such share to the executors or administrators of such deceased Member The Board may decline to register a transfer of any share in the Register of Members, or if required, refuse to direct any registrar appointed by the Company the transfer of any interest in a share where such transfer would result in 50% or more of the issued and outstanding shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or, alternatively, such shares or votes being effectively connected to a Norwegian business activity, in order to avoid the Company being deemed a Controlled Foreign Company pursuant to Norwegian tax rules The Board shall refuse to register a transfer unless all applicable consents, authorisations and permissions of any governmental body or agency in Bermuda have been obtained. If the Board refuses to register a transfer of any share the Secretary shall, within three months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal Shares may be transferred without a written instrument if transferred by an appointed agent or otherwise in accordance with the Act Subject to Bye-law 12.5, but notwithstanding anything else contrary in these Bye-laws, shares that are listed or admitted to trading on an appointed stock exchange may be transferred in accordance with the rules and regulations of such exchange. 13. Transmission of Registered Shares 13.1 In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only persons recognised by the Company as having any title to the deceased Member's interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other persons. Subject to the Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a deceased Member or such other person as the Board may, in its absolute discretion, decide as being properly authorised to deal with the shares of a deceased Member. A13

222 Odfjell Drilling Ltd Page Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favour of such nominee an instrument of transfer in writing in the form, or as near thereto as circumstances admit, of the following: Transfer by a Person Becoming Entitled on Death/Bankruptcy of a Member [ ] (the "Company") I/We, having become entitled in consequence of the [death/bankruptcy] of [name and address of deceased/bankrupt Member] to [number] share(s) standing in the Register of Members of the Company in the name of the said [name of deceased/bankrupt Member] instead of being registered myself/ourselves, elect to have [name of transferee] (the "Transferee") registered as a transferee of such share(s) and I/we do hereby accordingly transfer the said share(s) to the Transferee to hold the same unto the Transferee, his or her executors, administrators and assigns, subject to the conditions on which the same were held at the time of the execution hereof; and the Transferee does hereby agree to take the said share(s) subject to the same conditions. DATED this [ ] day of [ ], 20 [ ] Signed by: In the presence of: Transferor Witness Transferee Witness 13.3 On the presentation of the foregoing materials to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member. Notwithstanding the foregoing, the Board shall, in any case, have the same right to decline or suspend registration as it would have had in the case of a transfer of the share by that Member before such Member's death or bankruptcy, as the case may be Where two or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be absolutely entitled to such share or shares and the Company shall A14

223 Odfjell Drilling Ltd Page 12 recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders. 14. Compulsory Purchase of Shares 14.1 If a Member holds more than nine tenths of the shares in the Company and an equivalent of the votes which may be cast at a general meeting of the Company (a Majority Shareholder ), each of the other Members (each a Selling Shareholder ) may require that the Majority Shareholder purchases all of its, his or her respective shares in the Company by written notice to the Company and the Majority Shareholder In the absence of an amicable agreement on the price payable by the Majority Shareholder for the relevant shares pursuant to a notice under Bye-law 14.1, the price shall be fixed at fair market value by a reputable and independent financial institution, auditor or accountancy firm (the Appraiser ). In the event the parties are unable to agree on the identity of the Appraiser, the price shall be fixed at fair market value by arbitration conducted under the Bermuda International Conciliation and Arbitration Act The parties agree that there shall be a single arbitrator who shall be an accountant or specialist in the field of valuation (the Arbitrator ). In the absence of an amicable agreement on the selection of the Arbitrator, the Supreme Court of Bermuda shall select the Arbitrator. The price fixed pursuant to this Bye-law 14.2 shall be binding for all purchase requests by the Members of the Company pursuant to Bye-law 14.1 for a period of three months from the date the price is fixed. 15. Power to Alter Capital ALTERATION OF SHARE CAPITAL 15.1 The Company may if authorised by resolution of the Members increase, divide, consolidate, subdivide, change the currency denomination of, diminish or otherwise alter or reduce its share capital in any manner permitted by the Act Where, on any alteration or reduction of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit. 16. Variation of Rights Attaching to Shares If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class at which meeting the necessary quorum shall be two persons at least holding or A15

224 Odfjell Drilling Ltd Page 13 representing by proxy one-third of the issued shares of the class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. 17. Dividends DIVIDENDS AND CAPITALISATION 17.1 The Board may, subject to these Bye-laws and in accordance with the Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets. No unpaid dividend shall bear interest as against the Company The Board may fix any date as the record date for determining the Members entitled to receive any dividend The Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company. No unpaid distribution shall bear interest as against the Company. 18. Power to Set Aside Profits The Board may, before declaring a dividend, set aside out of the surplus or profits of the Company, such amount as it thinks proper as a reserve to be used to meet contingencies or for equalising dividends or for any other purpose. 19. Method of Payment 19.1 Any dividend, interest, or other moneys payable in cash in respect of the shares may be paid through the system maintained by Verdipapirsentralen ASA or any other relevant system, or by cheque or draft sent through the post directed to the Member at such Member's address in the Register of Members, or to such person and to such address as the holder may in writing direct In the case of joint holders of shares, any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the address of the holder first named in the Register of Members, or to such person and to such address as the joint holders may in writing direct. If two or more persons are registered as joint holders of any shares any one of them can give an effectual receipt for any dividend paid in respect of such shares. A16

225 Odfjell Drilling Ltd Page The Board may deduct from the dividends or distributions payable to any Member all moneys due from such Member to the Company on account of calls or otherwise Any dividend and or other moneys payable in respect of a share which has remained unclaimed for 7 years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company. The payment of any unclaimed dividend or other moneys payable in respect of a share may (but need not) be paid by the Company into an account separate from the Company's own account. Such payment shall not constitute the Company a trustee in respect thereof The Company shall be entitled to cease sending dividend cheques and warrants by post or otherwise to a Member if those instruments have been returned undelivered to, or left uncashed by, that Member on at least two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish the Member's new address. The entitlement conferred on the Company by this Bye-law 19.5 in respect of any Member shall cease if the Member claims a dividend or cashes a dividend cheque or warrant. 20. Capitalisation 20.1 The Board may capitalise any amount for the time being standing to the credit of any of the Company's share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such amount in paying up unissued shares to be allotted as fully paid bonus shares pro rata to the Members (except in connection with the conversion of shares of one class to shares of another class) The Board may capitalise any amount for the time being standing to the credit of a reserve account or amounts otherwise available for dividend or distribution by applying such amounts in paying up in full, partly or nil paid shares of those Members who would have been entitled to such amounts if they were distributed by way of dividend or distribution. 21. Annual General Meetings MEETINGS OF MEMBERS The annual general meeting of the Company shall be held in each year (other than the year of incorporation) at such time and place as the Chairman or any two Directors or any Director and the Secretary or the Board shall appoint. 22. Special General Meetings The Chairman or any two Directors or any Director and the Secretary or the Board may convene a special general meeting whenever in their judgment such a meeting is necessary. A17

226 Odfjell Drilling Ltd Page Requisitioned General Meetings The Board shall, on the requisition of Members holding at the date of the deposit of the requisition not less than one-twentieth of such of the paid-up share capital of the Company as at the date of the deposit carries the right to vote at general meetings, forthwith proceed to convene a special general meeting and the provisions of the Act shall apply. 24. Notice 24.1 At least 21 days' notice of an annual general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, place and time at which the meeting is to be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting At least 21 days' notice of a special general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting Subject to Bye-law 24.5, the Board may fix any date as the record date for determining the Members entitled to receive notice of and to vote at any general meeting A general meeting shall, notwithstanding that it is called on shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) by a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting Notwithstanding any other provisions of these Bye-laws, in relation to any general meeting, or any class meeting of the Members or any adjourned meeting or any poll taken at a meeting or adjourned meeting of which notice is given, the Board may specify in the notice of the meeting or adjourned meeting or in any document sent to the Members by or on behalf of the Board in relation to the meeting, a time and date (a Record Date ) which is not more than five (5) days before the date fixed for the meeting (the Meeting Date ) and notwithstanding any provision in these Bye-laws to the contrary, in such case: (a) each person entered in the Register of Members at the Record Date as a Member, or a Member of the relevant class (a Record Date Holder ) shall be entitled to attend and vote at the relevant meeting and to exercise all of the rights and A18

227 Odfjell Drilling Ltd Page 16 privileges of a Member or a Member of the relevant class, as applicable, in relation to that meeting in respect of the shares, or the shares of the relevant class, registered in such Member s name in the Register of Members (including, for the avoidance of doubt, a branch register) at the Record Date; (b) (c) (d) as regards any shares, or shares of the relevant class, which are registered in the name of a Record Date Holder at the Record Date but are not so registered at the meeting date (the Relevant Shares ), each holder of any Relevant Shares at the meeting date shall be deemed to have irrevocably appointed that Record Date Holder as his proxy for the purpose of attending and voting in respect of those Relevant Shares at the relevant meeting (with power to appoint, or to authorise the appointment of, some other person as proxy), in such manner as the Record Date Holder in his absolute discretion may determine; accordingly, except through his proxy pursuant to this Bye-law 24.6, a holder of Relevant Shares at the meeting date who is not a Record Date Holder, shall not be entitled to attend or to vote at the relevant meeting, or to exercise any of the rights or privileges of a Member or a Member of the relevant class, in respect of the Relevant Shares at that meeting; and the entry of the name of a person in the Register of Members as a Record Date Holder shall be sufficient evidence of his appointment as proxy in respect of any Relevant Shares for the purposes of this Bye-law 24.6, but all the provisions of these Bye-laws relating to execution and deposit of an instrument appointing a proxy or any ancillary matter (including the Board s powers and discretions relevant to such matter) shall apply to any instrument appointing any person other than the Record Date Holder as proxy in respect of any Relevant Shares. 25. Giving Notice and Access 25.1 A notice may be given by the Company to a Member: (a) (b) (c) (d) by delivering it to such Member in person; or by sending it by letter mail or courier to such Member's address in the Register of Members; or by transmitting it by electronic means (including facsimile and electronic mail, but not telephone) in accordance with such directions as may be given by such Member to the Company for such purpose; or by delivering it in accordance with the provisions of the Act pertaining to delivery of electronic records by publication on a website. A19

228 Odfjell Drilling Ltd Page Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares Any notice delivered in accordance with Bye-law 25.1(a), 25.1(b) or 25.1(c) shall be deemed to have been served at the time when the same would be delivered in the ordinary course of transmission and, in proving such service, it shall be sufficient to prove that the notice was properly addressed and prepaid, if posted or sent by courier, and the time when it was posted, delivered to the courier, or transmitted by electronic means. Any notice delivered in accordance with Bye-law 25.1(d) shall be deemed to have been delivered at the time when the requirements of the Act in that regard have been met. 26. Postponement or Cancellation of General Meeting The Secretary may, and on the instruction of the Chairman or the chairman of such meeting the Secretary shall, postpone or cancel any general meeting called in accordance with these Byelaws (other than a meeting requisitioned under these Bye-laws) provided that notice of postponement or cancellation is given to each Member before the time for such meeting. Fresh notice of the date, time and place for the postponed or cancelled meeting shall be given to each Member in accordance with these Bye-laws. 27. Electronic Participation and Security in Meetings 25.1 Members may participate in any general meeting by such telephonic, electronic or other communication facilities or means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting The Board may, and at any general meeting, the chairman of such meeting may, make any arrangement and impose any requirement or restriction it or he considers appropriate to ensure the security of a general meeting including, without limitation, requirements for evidence of identity to be produced by those attending the meeting, the searching of their personal property and the restriction of items that may be taken into the meeting place. The Board and, at any general meeting, the chairman of such meeting are entitled to refuse entry to a person who refuses to comply with any such arrangements, requirements or restrictions. 28. Quorum at General Meetings 28.1 At any general meeting two or more persons present in person and representing in person or by proxy in excess of one-third of the total issued voting shares in the Company throughout the meeting shall form a quorum for the transaction of business, A20

229 Odfjell Drilling Ltd Page 18 provided that if the Company shall at any time have only one Member, one Member present in person or by proxy shall form a quorum for the transaction of business at any general meeting held during such time If within half an hour from the time appointed for the meeting a quorum is not present, then, in the case of a meeting convened on a requisition, the meeting shall be deemed cancelled and, in any other case, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine. Unless the meeting is adjourned to a specific date, time and place announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws. 29. Chairman to Preside at General Meetings Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the Chairman shall act as chairman at all general meetings at which such person is present. If the Chairman is absent, a chairman shall be appointed or elected by those present at the meeting and entitled to vote. 30. Voting on Resolutions 30.1 Subject to the Act and these Bye-laws, any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with these Bye-laws and in the case of an equality of votes the resolution shall fail No Member shall be entitled to vote at a general meeting unless such Member has paid all the calls on all shares held by such Member At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to these Bye-laws, every Member present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his hand In the event that a Member participates in a general meeting by telephone, electronic or other communication facilities or means, the chairman of the meeting shall direct the manner in which such Member may cast his vote on a show of hands At any general meeting if an amendment is proposed to any resolution under consideration and the chairman of the meeting rules on whether or not the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling. A21

230 Odfjell Drilling Ltd Page At any general meeting a declaration by the chairman of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to these Byelaws, be conclusive evidence of that fact. 31. Power to Demand a Vote on a Poll 31.1 Notwithstanding the foregoing, a poll may be demanded by any of the following persons: (a) (b) (c) (d) the chairman of such meeting; or at least three Members present in person or represented by proxy; or any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all the Members having the right to vote at such meeting; or any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total amount paid up on all such shares conferring such right Where a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have one vote for each share of which such person is the holder or for which such person holds a proxy and such vote shall be counted by ballot as described herein, or in the case of a general meeting at which one or more Members are present by telephone, electronic or other communication facilities or means, in such manner as the chairman of the meeting may direct and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands. A person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way A poll demanded for the purpose of electing a chairman of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and in such manner during such meeting as the chairman (or acting chairman) of the meeting may direct. Any business other than that upon which a poll has been demanded may be conducted pending the taking of the poll Where a vote is taken by poll, each person physically present and entitled to vote shall be furnished with a ballot paper on which such person shall record his vote in such manner as shall be determined at the meeting having regard to the nature of the A22

231 Odfjell Drilling Ltd Page 20 question on which the vote is taken, and each ballot paper shall be signed or initialled or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. Each person present by telephone, electronic or other communication facilities or means shall cast his vote in such manner as the chairman of the meeting shall direct. At the conclusion of the poll, the ballot papers and votes cast in accordance with such directions shall be examined and counted by a committee of not less than two Members or proxy holders appointed by the chairman of the meeting for the purpose and the result of the poll shall be declared by the chairman of the meeting. 32. Voting by Joint Holders of Shares In the case of joint holders, the vote of the senior who tenders a vote (whether in person or by proxy) shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members. 33. Instrument of Proxy 33.1 A Member may appoint a proxy by an instrument which shall be in writing in substantially the following form or such other form as the chairman of the meeting shall accept: Proxy [ ] (the "Company") I/We, [insert names here], being a Member of the Company with [number] shares, HEREBY APPOINT [name] of [address] or failing him, [name] of [address] to be my/our proxy to vote for me/us at the meeting of the Members to be held on the [ ] day of [ ], 20[ ] and at any adjournment thereof. (Any restrictions on voting to be inserted here.) Signed this [ ] day of [ ], 20[ ] Member(s) 33.2 The instrument appointing a proxy must be received by the Company at the registered office or at such other place or in such manner as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting at which the person named in the instrument appointing a proxy proposes to vote, and an instrument appointing a proxy which is not received in the manner so prescribed shall be invalid A Member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf in respect of different shares. A23

232 Odfjell Drilling Ltd Page The decision of the chairman of any general meeting as to the validity of any appointment of a proxy shall be final In addition to the right to be represented by a proxy, a Member may bring up to two advisers to any general meeting and may grant one such adviser the right to speak. 34. Representation of Corporate Member 34.1 A corporation which is a Member may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting and any person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Member, and that Member shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives Notwithstanding the foregoing, the chairman of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a corporation which is a Member. 35. Adjournment of General Meeting 35.1 The chairman of any general meeting at which a quorum is present may with the consent of Members holding a majority of the voting rights of those Members present in person or by proxy (and shall if so directed by Members holding a majority of the voting rights of those Members present in person or by proxy), adjourn the meeting In addition, the chairman of a general meeting may adjourn the meeting to another time and place without such consent or direction of the Members if it appears to him that: (a) (b) (c) it is likely to be impractical to hold or continue that meeting because of the number of Members wishing to attend who are not present; or the unruly conduct of persons attending the meeting prevents, or is likely to prevent, the orderly continuation of the business of the meeting; or an adjournment is otherwise clearly necessary so that the business of the meeting may be properly conducted The chairman of a general meeting may, with the consent of the Members at any general meeting at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting. Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws. A24

233 Odfjell Drilling Ltd Page Written Resolutions 36.1 Subject to these Bye-laws, anything which may be done by resolution of the Company in general meeting or by resolution of a meeting of any class of the Members may, without a meeting be done by written resolution in accordance with this Bye-law Notice of a written resolution shall be given, and a copy of the resolution shall be circulated to all Members who would be entitled to attend a meeting and vote thereon. The accidental omission to give notice to, or the non-receipt of a notice by, any Member does not invalidate the passing of a resolution A written resolution is passed when it is signed by, or in the case of a Member that is a corporation, on behalf of, the Members who at the date that the notice is given represent such majority of votes as would be required if the resolution was voted on at a meeting of Members at which all Members entitled to attend and vote thereat were present and voting A resolution in writing may be signed in any number of counterparts A resolution in writing made in accordance with this Bye-law is as valid as if it had been passed by the Company in general meeting or by a meeting of the relevant class of Members, as the case may be, and any reference in any Bye-law to a meeting at which a resolution is passed or to Members voting in favour of a resolution shall be construed accordingly A resolution in writing made in accordance with this Bye-law shall constitute minutes for the purposes of the Act This Bye-law shall not apply to: (a) (b) a resolution passed to remove an Auditor from office before the expiration of his term of office; or a resolution passed for the purpose of removing a Director before the expiration of his term of office For the purposes of this Bye-law, the effective date of the resolution is the date when the resolution is signed by, or in the case of a Member that is a corporation whether or not a company within the meaning of the Act, on behalf of, the last Member whose signature results in the necessary voting majority being achieved and any reference in any Bye-law to the date of passing of a resolution is, in relation to a resolution made in accordance with this Bye-law, a reference to such date. 37. Directors and the Auditor s Attendance at General Meetings A25

234 Odfjell Drilling Ltd Page 23 The Directors and Chief Executive Officer shall be entitled to receive notice of, attend and be heard at any general meeting, and the Chairman of the Board and the Chief Executive Officer shall attend general meetings where possible. The auditor of the Company shall receive notice of, attend and be heard at any general meeting in which the nature of the matters on the agenda so requires, and the auditor has for any general meeting a right to receive notice, attend and be heard. 38. Motion for Inquiry A Member may submit a motion requiring an inquiry into the Company s incorporation, management or further specified aspects of the management or the accounts of the Company by written notice to the Company one week prior to the notice of the annual general meeting or the special general meeting being sent to Members. The motion may be submitted at an annual general meeting or at a special general meeting of the Company for which the convening notice states that an item on such an inquiry is to be discussed. If the motion is approved by Members holding at least one-twentieth of the share capital and voting rights represented at the general meeting and is based on reasonable grounds, the Company shall engage one or more independent persons to conduct the inquiry. The persons conducting the inquiry shall submit a written inquiry report to the Company. The Company shall convene a general meeting to discuss the inquiry report, and the report must be sent to each Member with a known address no later than one week prior to the meeting. 39. Election of Directors DIRECTORS AND OFFICERS 39.1 The Board shall be elected or appointed in the first place at the statutory meeting of the Company and thereafter, except in the case of a casual vacancy, at the annual general meeting or at any special general meeting called for that purpose Only persons who are proposed or nominated in accordance with this Bye-law 39 shall be eligible for election as a Director. Subject to these Bye-laws, any Member, the Board or the nomination committee may propose any person for re-election or election as a Director in accordance with this Bye-law Where any person, other than a Director retiring at the meeting or a person proposed for re-election or election as a Director by the Board or the nomination committee, is to be proposed for election as a Director, notice must be given to the Company of the intention to propose him and of his willingness to serve as a Director. Whether a Director is to be elected at an annual general meeting or a special general meeting, that notice must be given not less than 21 days before the date of such general meeting The Company in general meeting shall appoint a nomination committee (the nomination committee ), comprising such number of persons as the Members may determine in general meeting from time to time, and members of the nomination A26

235 Odfjell Drilling Ltd Page 24 committee shall be appointed by resolution of the Members. Members and the Board may suggest candidates for the election of Directors to the nomination committee provided such suggestions are in accordance with any nomination committee guidelines or corporate governance rules adopted by the Company in general meeting from time to time and Members, Directors and the nomination committee may also propose any person for election as a Director in accordance with Bye-laws 39.2 and The nomination committee may or may not recommend any candidates suggested or proposed by any Member or the Board in accordance with any nomination committee guidelines or corporate governance rules adopted by the Company in general meeting from time to time. The nomination committee may provide recommendations on the suitability of candidates for the Board, as well as the remuneration of the members of the Board. The Members at any general meeting may stipulate guidelines for the duties of the nomination committee Where persons are validly proposed for re-election or election as a Director, the persons receiving the most votes (up to the number of Directors to be elected) shall be elected as Directors, and an absolute majority of the votes cast shall not be a prerequisite to the election of such Directors At any general meeting the Members may authorise the Board to fill any vacancy in their number left unfilled at a general meeting. 40. Number of Directors The Board shall consist of not less than five Directors or such number in excess thereof as the Members may determine. 41. Term of Office of Directors Directors shall hold office for such term as the Members may determine or, in the absence of such determination, until the annual general meeting held in the second year after the appointment or until their successors are elected or appointed or their office is otherwise vacated. 42. Alternate Directors 42.1 At any general meeting, the Members may elect a person or persons to act as a Director in the alternative to any one or more Directors or may authorise the Board to appoint such Alternate Directors Unless the Members otherwise resolve, any Director may appoint a person or persons to act as a Director in the alternative to himself by notice deposited with the Secretary Any person so elected or appointed pursuant to this Bye-law shall have all the rights and powers of the Director or Directors for whom such person is elected or appointed in A27

236 Odfjell Drilling Ltd Page 25 the alternative provided that such person shall not be counted more than once in determining whether or not a quorum is present An Alternate Director shall be entitled to receive notice of all meetings of the Board and to attend and vote at any such meeting at which a Director for whom such Alternate Director was appointed in the alternative is not personally present and generally to perform at such meeting all the functions of such Director for whom such Alternate Director was appointed An Alternate Director s office shall terminate (a) in the case of an alternate elected by the Members: (i) (ii) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to the Director for whom he was elected to act, would result in the termination of that Director; or if the Director for whom he was elected in the alternative ceases for any reason to be a Director, provided that the alternate removed in these circumstances may be re-appointed by the Board as an alternate to the person appointed to fill the vacancy; and (b) in the case of an alternate appointed by a Director: (i) (ii) (iii) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to his appointor, would result in the termination of the appointor s directorship; or when the Alternate Director s appointor revokes the appointment by notice to the Company in writing specifying when the appointment is to terminate; or if the Alternate Director s appointor ceases for any reason to be a Director. 43. Removal of Directors 43.1 Subject to any provision to the contrary in these Bye-laws, the Members entitled to vote for the election of Directors may, at any special general meeting convened and held in accordance with these Bye-laws, remove a Director provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention so to do and be served on such Director not less than 14 days before the meeting and at such meeting the Director shall be entitled to be heard on the motion for such Director's removal. A28

237 Odfjell Drilling Ltd Page If a Director is removed from the Board under this Bye-law the Members may fill the vacancy at the meeting at which such Director is removed. In the absence of such election or appointment, the Board may fill the vacancy. 44. Vacancy in the Office of Director 44.1 The office of Director shall be vacated if the Director: (a) (b) (c) (d) is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law; is or becomes bankrupt, or makes any arrangement or composition with his creditors generally; is or becomes of unsound mind or dies; or resigns his office by notice to the Company The Board shall have the power to appoint any person as a Director to fill a vacancy on the Board occurring as a result of the death, disability, disqualification or resignation of any Director or as a result of an increase in the size of the Board and to appoint an Alternate Director to any Director so appointed. 45. Remuneration of Directors The remuneration (if any) of the Directors shall be determined by the Company in general meeting and shall be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other expenses properly incurred by them in attending and returning from the meetings of the Board, any committee appointed by the Board, general meetings, or in connection with the business of the Company or their duties as Directors generally. 46. Defect in Appointment All acts done in good faith by the Board, any Director, a member of a committee appointed by the Board, any person to whom the Board may have delegated any of its powers, or any person acting as a Director shall, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person acting as aforesaid, or that he was, or any of them were, disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director or act in the relevant capacity. 47. Directors to Manage Business 47.1 The business of the Company shall be managed and conducted by the Board. In managing the business of the Company, the Board may exercise all such powers of the A29

238 Odfjell Drilling Ltd Page 27 Company as are not, by the Act or by these Bye-laws, required to be exercised by the Company in general meeting The affairs of the Company shall not be conducted in a manner oppressive or prejudicial to the interests of some part of the Members. In the event the affairs of the Company are conducted in such a manner, any Member may make an application to the Supreme Court of Bermuda pursuant to the Act. 48. Powers of the Board of Directors The Board may: (a) (b) (c) (d) (e) (f) (g) appoint, suspend, or remove any manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties; exercise all the powers of the Company to borrow money and to mortgage or charge or otherwise grant a security interest in its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party; appoint one or more Directors to the office of managing director or chief executive officer of the Company, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company; appoint a person to act as manager of the Company's day-to-day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business; by power of attorney, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney; procure that the Company pays all expenses incurred in promoting and incorporating the Company and listing the shares of the Company; delegate any of its powers (including the power to sub-delegate) to a committee of one or more persons appointed by the Board which may consist partly or entirely of non-directors, provided that every such committee shall conform to A30

239 Odfjell Drilling Ltd Page 28 such directions as the Board shall impose on them and provided further that the meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board; (h) (i) (j) (k) delegate any of its powers (including the power to sub-delegate) for a specific purpose to any person on such terms and in such manner as the Board may see fit, including any restrictions that the Board may determine at the time of delegation; present any petition and make any application in connection with the liquidation or reorganisation of the Company; in connection with the issue of any share, pay such commission and brokerage as may be permitted by law; and authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any deed, agreement, document or instrument on behalf of the Company. 49. Register of Directors and Officers The Board shall cause to be kept in one or more books at the registered office of the Company a Register of Directors and Officers and shall enter therein the particulars required by the Act. 50. Appointment of Officers The Board may appoint such Officers (who may or may not be Directors) as the Board may determine for such terms as the Board deems fit. 51. Appointment of Secretary The Secretary shall be appointed by the Board from time to time for such term as the Board deems fit. 52. Duties of Officers The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time. 53. Remuneration of Officers The Officers shall receive such remuneration as the Board may determine. A31

240 Odfjell Drilling Ltd Page Conflicts of Interest 54.1 Any Director, or any Director's firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Director's associated firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorise a Director or Director's firm, partner or company to act as Auditor to the Company A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Act Following a declaration being made pursuant to this Bye-law, and unless disqualified by the chairman of the relevant Board meeting, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting. 55. Related Party Transactions All transactions between the Company and its Members, Directors or Officers shall be based on arms length terms and conditions. In the event of any material transactions between the Company and its Members, Directors or Officers, the Company shall arrange for a valuation to be obtained from a reputable and independent financial institution, auditor or accountancy firm. 56. Indemnification and Exculpation of Directors and Officers 56.1 The Directors, Resident Representative, Secretary and other Officers (such term to include any person appointed to any committee by the Board) acting in relation to any of the affairs of the Company or any subsidiary thereof and the liquidator or trustees (if any) acting in relation to any of the affairs of the Company or any subsidiary thereof and every one of them (whether for the time being or formerly), and their heirs, executors and administrators (each of which an indemnified party ), shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and no indemnified party shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any moneys or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any moneys of or belonging to the Company shall be placed out on or invested, or for any other loss, A32

241 Odfjell Drilling Ltd Page 30 misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty in relation to the Company which may attach to any of the indemnified parties The Company may purchase and maintain insurance for the benefit of any Director or Officer against any liability incurred by him under the Act in his capacity as a Director or Officer or indemnifying such Director or Officer in respect of any loss arising or liability attaching to him by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or Officer may be guilty in relation to the Company or any subsidiary thereof The Company may advance moneys to a Director or Officer for the costs, charges and expenses incurred by the Director or Officer in defending any civil or criminal proceedings against him, on condition that the Director or Officer shall repay the advance if any allegation of fraud or dishonesty in relation to the Company is proved against him. 57. Board Meetings MEETINGS OF THE BOARD OF DIRECTORS The Board may meet for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit. Subject to these Bye-laws, a resolution put to the vote at a meeting of the Board shall be carried by the affirmative votes of a majority of the votes cast and in the case of an equality of votes the resolution shall fail. 58. Notice of Board Meetings A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notice of a meeting of the Board shall be deemed to be duly given to a Director if it is given to such Director verbally (including in person or by telephone) or otherwise communicated or sent to such Director by post, electronic means or other mode of representing words in a visible form at such Director's last known address or in accordance with any other instructions given by such Director to the Company for this purpose. 59. Electronic Participation in Meetings Directors may participate in any meeting by such telephonic, electronic or other communication facilities or means as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting. A33

242 Odfjell Drilling Ltd Page Quorum at Board Meetings The quorum necessary for the transaction of business at a meeting of the Board shall be the majority of the Directors in office. 61. Board to Continue in the Event of Vacancy The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting; or (ii) preserving the assets of the Company. 62. Chairman to Preside Unless otherwise agreed by a majority of the Directors attending, the Chairman shall act as chairman at all meetings of the Board at which such person is present. If the Chairman is absent, a chairman shall be appointed or elected by the Directors present at the meeting. 63. Written Resolutions A resolution signed by all the Directors, which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective on the date on which the last Director signs the resolution. For the purposes of this Bye-law only, "the Directors" shall not include an Alternate Director. 64. Validity of Prior Acts of the Board No regulation or alteration to these Bye-laws made by the Company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation or alteration had not been made. 65. Minutes CORPORATE RECORDS The Board shall cause minutes to be duly entered in books provided for the purpose: (a) (b) of all elections and appointments of Officers; of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and A34

243 Odfjell Drilling Ltd Page 32 (c) of all resolutions and proceedings of general meetings of the Members, meetings of the Board, meetings of managers and meetings of committees appointed by the Board. 66. Place Where Corporate Records Kept Minutes prepared in accordance with the Act and these Bye-laws shall be kept by the Secretary at the registered office of the Company. 67. Form and Use of Seal 67.1 The Company may adopt a seal in such form as the Board may determine. The Board may adopt one or more duplicate seals for use in or outside Bermuda A seal may, but need not, be affixed to any deed, instrument or document, and if the seal is to be affixed thereto, it shall be attested by the signature of (i) any Director, or (ii) any Officer, or (iii) the Secretary, or (iv) any person authorised by the Board for that purpose A Resident Representative may, but need not, affix the seal of the Company to certify the authenticity of any copies of documents. 68. Records of Account ACCOUNTS 68.1 The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to: (a) (b) (c) all amounts of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates; all sales and purchases of goods by the Company; and all assets and liabilities of the Company Such records of account shall be kept at the registered office of the Company, or subject to the Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours. 69. Financial Year End The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31 st December in each year. AUDITS A35

244 Odfjell Drilling Ltd Page Annual Audit Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to the Act, the accounts of the Company shall be audited at least once in every year. 71. Appointment of Auditor 71.1 Subject to the Act, at the annual general meeting or at a subsequent special general meeting in each year, an independent representative of the Members shall be appointed by them as Auditor of the accounts of the Company The Auditor may be a Member but no Director, Officer or employee of the Company shall, during his continuance in office, be eligible to act as an Auditor of the Company A Member or Members representing at least one-twentieth of the share capital may request in writing to the Company that the Board appoints an additional auditing firm to review the accounts of the Company in addition to the Company s Auditor appointed pursuant to Bye-law 71.1 or Bye-law 77 as applicable if such request is based on reasonable grounds. For the avoidance of doubt, an auditing firm appointed pursuant to this Bye-law 71.3 is not the Company s auditor for the purposes of the Act. The remuneration of an auditing firm appointed pursuant to this Bye-law 71.3 shall be fixed by the Board. 72. Remuneration of Auditor Save in the case of an Auditor appointed pursuant to Bye-law 77, the remuneration of the Auditor shall be fixed by the Company in general meeting or in such manner as the Members may determine. In the case of an Auditor appointed pursuant to Bye-law 77, the remuneration of the Auditor shall be fixed by the Board. 73. Duties of Auditor 73.1 The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards The generally accepted auditing standards referred to in this Bye-law may be those of a country or jurisdiction other than Bermuda or such other generally accepted auditing standards as may be provided for in the Act. If so, the financial statements and the report of the Auditor shall identify the generally accepted auditing standards used. 74. Access to Records A36

245 Odfjell Drilling Ltd Page 34 The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers for any information in their possession relating to the books or affairs of the Company. 75. Financial Statements Subject to any rights to waive laying of accounts pursuant to the Act, financial statements as required by the Act shall be laid before the Members in general meeting annually. A resolution in writing made in accordance with Bye-law 36 receiving, accepting, adopting, approving or otherwise acknowledging financial statements shall be deemed to be the laying of such statements before the Members in general meeting. 76. Distribution of Auditor s Report The report of the Auditor shall be submitted to the Members in general meeting. 77. Vacancy in the Office of Auditor The Board may fill any casual vacancy in the office of the auditor. 78. Winding-Up VOLUNTARY WINDING-UP AND DISSOLUTION If the Company shall be wound up the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in the trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability. 79. Changes to Bye-laws CHANGES TO CONSTITUTION No Bye-law may be rescinded, altered or amended and no new Bye-law may be made save in accordance with the Act and until the same has been approved by a resolution of the Board and by a resolution of the Members including the affirmative vote of not less than two-thirds of the shares and votes represented in the general meeting. 80. Changes to the Memorandum of Association A37

246 Odfjell Drilling Ltd Page 35 No alteration or amendment to the Memorandum of Association may be made save in accordance with the Act and until same has been approved by a resolution of the Board and by a resolution of the Members. 81. Discontinuance The Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside Bermuda pursuant to the Act. A38

247 Appendix B Financial statements for the years ended 31 December 2012, 2011 and 2010 B1

248 Odfjell Drilling Ltd. Consolidated financial statements 2012 B2

249 B3

250 B4

251 BOARD OF DIRECTORS REPORT Odfjell Drilling Ltd., is a privately owned international drilling, engineering and well services company, with nearly 2,800 employees and operations in more than 20 countries worldwide. The Odfjell Drilling Group generated revenues of USD 1.1 billion in 2012 and a net profit of approximately USD 117 million. Group structure Odfjell Drilling Ltd., is the parent company of the Odfjell Drilling Group, an integrated provider of mobile drilling units, platform drilling services, engineering, project management services and well services. The Company was incorporated in Hamilton, Bermuda in November 2005, based on 40 years experience in the offshore drilling industry. The operating entities in the Group are based in Norway, the UK, the Netherlands, Brazil, the Middle East, Romania, and the Philippines, as wholly or partly owned subsidiaries or joint ventures. Odfjell Drilling s vision is to become a recognised leader in the offshore drilling market. The Group aims to continue strengthening its presence in the North Sea, Brazil and Africa in addition to further broadening the geographical scope of its operations. Important developments in 2012 The Group s activities are organised in three main business areas: Mobile Offshore Drilling Units (MODU), Drilling & Technology and Well Services. In recent years the MODU business area has grown considerably, with three mobile drilling units mobilised for international operations in Angola, Tanzania and Brazil. The business area is destined to grow further as a result of the delivery of the ultra-deepwater rig Deepsea Aberdeen in 2014 and through new activities under the auspices of Odfjell Galvão, a 50/50 joint venture between Odfjell Drilling and Galvão Enghenaria in Brazil. Odfjell Galvão was awarded substantial contracts for project management and drilling services by Sete Brazil and Petrobras in July Under the contracts Odfjell Galvão will own 20 per cent of three new drillships holding long term drilling service contracts with Petrobras. The operated fleet also increased when Odfjell Drilling signed a management agreement with Maracc ASA in 2012 for the semisubmersible Island Innovator. The rig is presently being mobilised for drilling services for Lundin Petroleum Norway with start-up in the summer of This will strengthen the Group s presence in the mobile drilling market on the Norwegian continental shelf and positions the Group as a supplier to a new E&P company in the region. In the Drilling & Technology business area, the Group was awarded an important contract with Statoil in 2012 for integrated platform drilling and engineering services on eight production facilities in the North Sea. This strengthens the Group s market position in platform drilling in the North Sea and provides opportunities for additional sales of engineering and project management services to the largest E&P company in the region. Drilling & Technology has in 2012 delivered project management and engineering services in connection with two extensive yard stays for Deepsea Bergen and Songa Trym. It also mobilised project management services for the Group s South Korea newbuild project in addition to delivering project management and engineering services in connection with major B5

252 modification projects on production facilities. In 2012 the biggest projects in this category were related to modifications to Statoil s Veslefrikk and Heidrun platforms. The Well Services business area is experiencing high demand in all regional markets for all of their range of products and services. Odfjell Well Services further expanded its geographical scope significantly in 2012 by winning contracts in Jordan, Thailand and Kurdistan. One of Odfjell Drilling Ltd. s subsidiaries, Odfjell Rig Ltd., was notified by the Norwegian Tax Administration (Tax Norway West) in late 2011 of a tax ruling that affects the Company. It was ruled that income from its direct percent participation in KS Deep Sea Drilling Company II (KS DSDC II) was deemed taxable in Norway for the income years In 2012 the Norwegian Tax Administration also deemed Odfjell Rig Ltd., to be taxable for the income year In 2012 the Norwegian Tax Administration taxed Odfjell Rig Ltd., as if the Company were taxable for the income years Total tax paid per this ruling was classified as a long-term receivable because of Odfjell Rig Ltd. s argument that it is not taxable for that period. The total taxes paid and interest on taxes for the income years amounts to NOK million, NOK 2 million of which is interest on the tax amount for all three income years. The receivable of USD 19.8 million is classified as a long-term receivable because of the estimated duration of the court case. As a consequence of the disagreement with the Norwegian Tax Administration decision, Odfjell Rig Ltd., in 2012 initiated proceedings to resolve the dispute about whether Odfjell Rig Ltd., is taxable for the income years The start of the trial is scheduled for June Odfjell Rig Ltd., argues that the tax authorities assertion is based on incorrect assumptions as to the factual circumstances of the case relating to its participation in KS DSDC II. Odfjell Rig Ltd., considers the probability of winning the case, in the final court, to be in their favour. Important developments in 2013 In January 2013 the Group acquired all of the shares owned by minority shareholders in the Deepsea Bergen structure. As of the end of January 2013, the company has no minority interests. As part of the acquisition and the ensuing re-structuring of the Deepsea Bergen ownership, several of the companies involved were merged in February As part of the acquisition of minority shareholdings in 2013, the Group signed a new long-term loan agreement for USD 270 million. Going concern assumption The financial statements have been prepared on the basis of the going concern assumption and in accordance with Norwegian Accounting Act Section 3-3 the Directors have confirmed that this was realistic at the time the accounts were approved. The basis for the assumption is the positive status of the Company s equity, debt funding and secured contract portfolio. The parent company and the Group are in good financial position for future growth in each of their respective business areas. Consolidated accounts The below discussion comments on the major items in the Odfjell Drilling Group financial statements for B6

253 Income statement Odfjell Drilling generated operating income of USD 1,093.8 million in 2012, an increase of 3.5 percent over The operating profit (EBIT) amounted to USD million in 2012, (2011: USD million). EBIT in 2011 included a USD 43.3 million gain relating to the sale of shares in a subsidiary; Odfjell Well Management AS. EBIT was affected by losses from joint ventures which were USD 13.4 million in 2012 (2011: USD 6.8 million). This increased loss was primarily caused by growing losses in the joint venture with the Deep Sea Metro Ltd., Group. Net financial costs amounted to USD 35.7 million in 2012 (2011: USD 83.9 million). Financial costs included interest income of USD 7.4 million (2011: USD3.6 million), borrowing costs of USD million (2011: USD million) and other financial items totaling USD 20.9 million (2011 a loss of USD7.1 million). The change in other financial items is primarily the result of a gain on interest rate swaps of USD 1.6 million in 2012 (2011: loss of USD 26.1 million). Pre-tax profit amounted to USD million in 2012 (2011: USD million). The tax expenses amounted to USD 31.2 million in 2012, (2011: USD 32.2 million) and the net profit for the Group declined to USD million (2011: USD million). USD million of the net profit was attributable to the owners of the parent company (2011 USD108.8 million) while USD 14.3 million was attributable to non-controlling interests (2011 USD12.4 million). The latter are primarily non-controlling interests in the Deepsea Bergen structure. Total comprehensive income in 2012 was USD million (2011: USD 86.7 million). Balance sheet Consolidated total assets amounted to USD 2,804.4 million on 31 December 2012 (2011: USD 2,740.6 million). The increase primarily relates to non-current assets increasing as a result of investments in newbuild programmes. Total non-current assets amounted to USD 2,323.4 million (2011: USD 2,158.4 million) and this increase is mainly due to a higher property, plant and equipment base as well as higher investments in joint ventures, mainly the Deep Sea Metro Ltd., Group and the Odfjell Galvão joint venture in Brazil. Current assets amounted to USD million (2011: USD million), USD million of which was cash and cash equivalents (2011: USD million). The decline in cash and cash equivalents is largely a result of our investment programme and a reduction in gross borrowings. Total equity amounted to USD 1,154.3 million (2011: USD1, million), of which equity attributable to the owners of the parent company amounted to USD 1,125.5 million (2011 USD 1,010.1 million). The equity ratio was 41.2 percent at the end of 2012 (2011: 37.7 percent). Total liabilities amounted to USD 1,650.1 million at the end of 2012 (2011: USD 1,707.8 million), reflecting a decrease of post-employment benefits of USD 24.8 million and a decrease in net interest-bearing debt of USD 56.0 million. Non-current liabilities decreased B7

254 by USD million to USD 1,233.7 million after repayments and the transfer to current borrowings of payments due in 2013 plus a decrease in post-employment benefits liabilities. Total current liabilities increased by USD million to USD million, mainly reflecting an increase in short-term interest-bearing debt and an increase in current income tax of USD 19.0 million. Net interest bearing debt amounted to USD 1,351.8 million (2011: USD 1,407.8 million). Cash flow Cash flow from operating activities amounted to USD million (2011: USD million). The increase mainly reflected a decrease in trade receivables from 2011 to 2012, compared with an increase from 2010 to 2011, as well as lower increase in other accruals from 2011 to 2012 compared with the increase from 2010 to The cash outflow from investing activities amounted to USD million (2011: USD million). The main investments in 2012 being in well services equipment, the investment in the semi-submersible drilling unit Deepsea Aberdeen and a subordinated loan (originally for USD 80 million) to the joint venture company; Deep Sea Metro Ltd. The cash outflow from financing activities amounted to USD 61.0 million (2011: inflows of USD 66.0 million). This mainly reflected the net repayment of debt to financial institutions of USD 44.3 million (2011: net increase USD 89.8 million). Parent company accounts The business of the parent company; Odfjell Drilling Ltd., is as a holding company for investments in both wholly and partly owned subsidiaries and joint ventures. The parent company reported a profit of USD 5.4 million, (2011: USD 83.2 million). This result primarily reflected that there were no dividends from subsidiaries in 2012 (2011: USD 53.3 million), as well as a decrease in net currency gains during 2012 of USD 33.1 million. Dividends from subsidiaries are recognised as financial income and were USD zero in 2012 (2011: USD 53.3 million). Total assets in the parent company amounted to USD 1, million, as of 31 December 2012 (2011: USD 1,298.8 million). The increase mainly reflected an increase of USD million in loans to Group companies. Equity in the parent company stood at USD million (2011: USD million), corresponding to an equity ratio of 70.4 percent (2011: 74.8 percent). Cash flow from operating activities was USD 4.9 million (2011: USD 67.2 million). The change was mainly a reflection of the decrease in profit from 2011 to Cash flow from investing activities was down by USD million in 2012 (2011: USD million). This change reflected a net increase in long-term loans to subsidiaries in 2012 compared with a net decrease in long term loans to subsidiaries - as well as repayments of short term receivables from group companies in Cash flow from financing activities was USD 71.6 million (2011: decrease of USD million). This change mainly reflected a net increase in long-term loans from subsidiaries in 2012 and a combination of increase in loans from subsidiaries and repayments of short term liabilities to group companies in B8

255 Allocation of profits The parent company had distributable equity of USD million as of 31December The Board of Directors proposes the following allocation of the net profit of USD 5.4 million in 2012: Transferred to other equity: USD 5,421,335 Total allocated: USD 5,421,335 Segment reporting Odfjell Drilling has organised its activities into three main business areas in order to keep the Group at the forefront of both the operational and technological arenas: 1. Mobile Offshore Drilling Units 2. Drilling & Technology 3. Well Services Mobile Offshore Drilling Units (MODU) Odfjell Drilling has 40 years of experience in design, ownership and operational management of semisubmersible rigs, drillships, jack-ups and modular drilling units. In recent years, the Group has invested in a renewal of the fleet with state-of-the-art sixth generation deepwater drilling units featuring harsh environment capabilities. The total income in the MODU business area increased by USD million in 2012 to USD million, with the growth mainly reflecting that the drillships Deepsea Metro I and Deepsea Metro II started up on contracts in 2012, as well as higher financial rig uptime for the group s fully owned mobile drilling units compared with EBITDA increased by USD 58.2 million in 2012 to USD million. MODU was responsible for the operation of five owned and partly owned mobile drilling units in addition to two units under a management agreement with Songa Offshore. Deepsea Atlantic is a sixth generation ultra-deepwater and harsh environment semisubmersible on a long-term contract for Statoil on Gullfaks (on the Norwegian continental shelf). The contract runs until 2014, with a years option. Deepsea Stavanger is a sixth generation ultra-deepwater and harsh environment semisubmersible delivered by the Daewoo yard in July The rig is on contract to BP for drilling operations off the coast of Angola. The contract expires in November 2013, with 3x1 years options. Deepsea Bergen drilled for Statoil on the Norwegian continental shelf in The semisubmersible is owned by KS Deep Sea Drilling Company II, which was 71.5 percent owned by Odfjell Drilling at the end of In 2012 the drilling service contract with Statoil was extended until 2017 and in September 2012 the rig was modified to enable drilling operations on fields in Statoil s portfolio of fast track - developments. In January 2013 Odfjell Drilling purchased all outstanding shares in the rig owning entity and now owns 100 percent of the rig. B9

256 Deepsea Metro I is an ultra-deepwater drillship of Gusto P design delivered by Hyundai Heavy Industries in South Korea during June Deepsea Metro I currently operates off the coast of Tanzania for the BG Group, on a one-year drilling contract that expires in June The rig is currently being marketed to new clients. Deepsea Metro II is an ultra-deepwater drillship of Gusto P design, delivered by Hyundai Heavy Industries in South Korea in November Deepsea Metro II currentlyoperates on a three year contract, with Petrobras in Brazil, which expires in May Deepsea Metro I and Deepsea Metro II are both owned by the Deep Sea Metro Group, a joint venture between Odfjell Offshore (40 percent) and MetroExploration (60 percent). Odfjell Drilling operates the vessels under individual management agreements. Deepsea Aberdeen is a semisubmersible under construction by Daewoo Shipbuilding & Marine Engineering (DSME) in South Korea, with delivery scheduled for May This sixth generation rig will be a sister rig to Deepsea Atlantic and Deepsea Stavanger, built to the enhanced GVA 7500 harsh environment design. A seven-year contract was signed with BP in January 2012, for start-up west of Shetland (UK sector) during Q Managed drilling units In addition to the wholly and partly owned units, the Group manages the rig Island Innovator under a management agreement with Marine Accurate Well ASA (Maracc). The management agreement comprises project management, marketing and operation of the rig, including responsibility for crew, quality systems and technical operation. Rig owner Maracc and Lundin Norway AS have signed a contract to drill 12 wells over a period of approximately two years with start-up in the summer of The management agreements for Songa Delta and Songa Trym were terminated in 2012, with management responsibilities for the rigs being handed over to the owner Songa Offshore in June and August 2012, respectively. Odfjell Galvão Drillship Projects comprise three drillships to be built by Jurong in Singapore and Estaleiro Jurong Aracruz in Brazil, scheduled for delivery from 2016 onwards. In July 2012 Odfjell Galvão entered into agreements for the construction, mobilisation and operation of the three drillships. All vessels have been designed and will be constructed in accordance with Petrobras requirements. They have all been contracted to Petrobras on 15 years contracts with five-year extension options. Drilling & Technology The Drilling & Technology business area is responsible for platform drilling, project management and engineering services. This business unit is a leading company in platform drilling in the North Sea region and is responsible for integrated drilling services on 20 fixed and floating production drilling platforms off the coast of Norway and the UK. The business area provides production drilling, completion, workovers, slot recovery, P&A and maintenance and modification. The business area is focusing on engineering services towards Mobile Drilling Units, fixed platforms, core business support services and project management. Drilling & Technology operates from offices in Bergen, Stavanger, Aberdeen and Stjørdal. B10

257 Total income in this business area decreased by USD 5.5 million to USD million in EBITDA declined by USD 13.1 million to USD 24.9 million, due to lower demand for engineering services, higher operating expenses and lower margins on both engineering services and platform drilling services in 2012 compared with The Drilling & Technology business area offers a broad range of project management and engineering services for both owners of mobile drilling units and drilling facilities on production facilities. The broad range of services provided for mobile drilling units include design, engineering, building supervision, classification, authorities compliance, yard stays, technical support, marine operations, lifting operations, subsea services, project support, supply chain management, maintenance systems, and drilling technology. The business area offers its services to both internal and external clients. In 2012, services related to the yard stays for Deepsea Bergen and Songa Trym represented the most important projects in the business area s portfolio. The business area provides engineering services for drilling facilities on production installations. The services include drilling modules, specific drilling support modules and associated drilling equipment, concept studies, FEED, detailed engineering, purchasing, construction, supervision, installation, commissioning (EPCI), operation/p&a, project support and maintenance systems. Several large scale projects were executed in 2012, with the EPCI on Veslefrikk and the Heidrun Well intervention unit being the most important. The Drilling & Technology business area currently runs platform drilling operations for Statoil, BP and Talisman Sinopec Energy on a total of 20 platforms in Norway and the UK. In 2012, Odfjell Drilling was awarded a four year contract with Statoil for eight platforms in Norway, with options for 3x2 years extensions. The new contract added two platforms to the previous contract arrangement, boosting the Group s already strong market position on the NCS. In 2012, Talisman Sinopec Energy UK exercised all remaining 3x1 years options for seven platforms in the UK sector and amended the contract with options for 2x1 years extensions. The contract with BP for five platforms on the UK sector runs until 2014, with options for 3x2 years extensions. Drilling & Technology hired over 100 new engineers in 2012 to deliver on existing contracts and to meet expected market growth. Recruiting and retaining technical expertise is crucial in relation to meeting the growing demand for the Group s services and it will still remain a focus area for the Group in Well Services Odfjell Well Services provides a wide range of services to the oil industry, including mooring services, drill tool rental, fishing services, well bore cleaning, tubular, casing and tubular running services. Total income in the Well Services business area increased by USD 15.3 million in 2012 to USD million, with the growth mainly due to higher demand in the market during 2012 compared with EBITDA increased by USD 4.8 million in 2012 to USD 95.3 million. Odfjell Well Services strategy is to become an international service provider with the safest and most efficient solutions for tubular running services and down-hole tools, while offering a service level that meets the highest quality standards in the oil and gas industry. B11

258 The business area aims at sustaining rapid growth through continuous improvement of existing service areas, expansion into new service areas and continued internationalisation. Odfjell Well Services has established operating bases in 11 countries in recent years and it operates in more than 25 countries worldwide. A high level of innovation and technology development will be crucial in relation to supporting both existing business activities and entry into new areas. Odfjell Well Services is a technology leader in the field of remotely-operated equipment that is designed to enhance both safety and efficiency. To further strengthen its technological competitiveness, Odfjell Well Services is currently building an in-house development department that will focus on new down-hole tools technology related to the core business. Organisation, health, safety and environment The Group s operational activities are carried out in a number of wholly or partially owned subsidiaries and joint ventures in Norway, the UK, the Netherlands, Brazil, UAE, Romania and the Philippines. Odfjell Drilling s vision is to become a recognised leader within the global offshore drilling market, aiming for leadership in QHSE, operational efficiency, technological achievements, and profitable growth. Odfjell Drilling had a total of 2,793 employees at the end of Working environment and personnel The working environment in Odfjell Drilling is considered to be good and sustaining a healthy working environment is seen as crucial to achieving continuous improvements in all aspects of the Group s operations. The Group has conducted annual working environment and organisational surveys since These surveys provide the Group with valuable information about the workings of the organisation and they are important tools for promoting and developing the working environment. Odfjell Drilling had a personnel turnover of 9 percent in 2012 which was a slight reduction from 10 percent in 2011, but still high compared to previous years. The high turnover can be explained partly by a generally tight labour market, in particular in the oil and gas industry. The Group also experienced reduced activity after the expiry of the management agreements for Songa Delta and Songa Trym in summer Measures are being taken to maintain a low sick absence rate. At Group level, sickness absence was reported at 3.5 percent in The absence rate compares well with the average sickness absence rate of 4.5 percent reported for industry workers in Norway in Odfjell Drilling is a competence-intensive company that is dependent on a high level of expertise and technological knowhow amongst its employees. The Group offers extensive training to ensure that this expertise is continuously updated and to promote career development for individual employees. During 2012, Odfjell Drilling also strengthened its focus on leadership training at all levels. Several programmes and courses were offered to managers both onshore and offshore, B12

259 including a Business Management program, local courses in different regions and the QHSE Safety Leadership Development programme. The latter is an internal self-development programme based on Odfjell Drilling s vision, culture, values, strategy and management principles that offers tailor-made training adjusted to the distinctive characteristics of each of the business areas. Measures to promote equality and prevent discrimination Odfjell Drilling emphasises that all activities, irrespective of country of operation, shall comply with the applicable legislation and the Group s Code of business conduct. Its Personnel policy states that the Odfjell Drilling Group shall recruit and develop staff based on merit and equal opportunities, regardless of ethnicity, religion, national origin, gender, age, sexual orientation, marital status, or disability. Equality is an integral part of the Group s Personnel Policy that ensures that all employees are given the same opportunities for employment, pay, as well as professional development in terms of training and promotion. The Group works actively and systematically through internal Governing documents, employee training and various other measures to prevent any form of discrimination. Such measures include recruitment policies and practise, salaryand working conditions, personal development opportunities, promotions and shelter against harassment. Although it is emphasised that equality and non-discrimination are ultimately the management s responsibility, all parties in the enterprise have a responsibility for ensuring and to safeguarding equality. All employees have access to the Group s governing documents through Odfjell Drilling's intranet, which includes information about the ethics and business culture in Odfjell Drilling, the Group s management system, managers guide, employee handbook etc. The governing documents also confirm the Group`s commitment to freedom of association and the right to collective bargaining, which is continuously followed up in all activities. The Group complies with internationally recognised labour standards covering areas such as wages, working hours, disciplinary practices, employment contracts and working conditions. The above requirements are also enforced in contracts with suppliers, business partners, agents etc. The Group employs people from a diverse range of ethnic backgrounds and 58 different nationalities. Odfjell Drilling s employees also have a wide age distribution, ranging from 19 to 67 years with an average age of 40.8 years. Of a total of 2,793 employees at the end of 2012, there were 2,434 male (91 percent) and 242 female (9 percent) employees, with an unchanged gender composition compared to the previous year. The onshore organisation employs 25 per cent females compared with 1 percent in the offshore organisation. Top management consists of ten persons, of whom one is female. Two of the five board members are female, including the Chair. There are elected employee representatives on the boards of five of the major management companies in the Group. The employees in these companies represent more than 70 per cent of the total number of employees in the Group. Health, Safety and Environment Odfjell Drilling strives continuously to improve health, safety and security towards a zero fault target and to minimize the impact of its activities on the environment. In 2012, Odfjell Drilling continued to focus on the following main QHSE topics: B13

260 Prevention of major accidents CMS improvements & simplification Safety leadership & compliance ISO 9001 certification Quality improvement of all key processes In recent years the level of risk in Odfjell Drilling has decreased and most HSE trends show a positive trend. Both the lost-time injury frequency and total recordable incident rate have improved steadily in 2012 as did the trend for high-potential incidents and reportable spills to sea. There were seven accidents, none of which caused serious personnel injuries. The injuries were four arm injuries, two finger injuries and one fractured wrist. The incidence rate relating to the dropping of objects remains too high and the Group has developed and implemented the DROPS programme to prevent such incidents. The Group s QHSE Safety Management Leadership programme covers a range of important topics, including HSE culture and management, compliance with procedure, HSE rules and the establishment of safety contracts and understanding of risk. The model is based on Odfjell Drilling s existing principles of continuous improvement at all levels and in all business areas. Odfjell Drilling has further strengthened the Safety Leadership Training concept in its global operations. The concept involves both offshore and onshore management, in the belief that the leadership behaviour of managers often has an important influence on risk management. Leadership and compliance are fundamental elements in building and maintaining a strong QHSE culture. In 2013, Odfjell Drilling s QHSE programme will focus on the following elements: Risk and change managements Quality improvements Groups exposed to risk Dropped objects Major accident risk Safety leadership & compliance ISO certification Environmental reporting Odfjell Drilling has a goal of zero environmentally hazardous discharges to sea. This includes eliminating or significantly reducing discharges of defined environmental toxins and substantially reducing the risk of harm from the use and discharge of chemicals. In 2012, Odfjell Drilling continued its efforts to influence employees' knowledge, attitudes and behaviour. Odfjell Drilling is in the process of certifying all business areas globally to the Environmental Management Standard ISO In 2012 we completed base line audits within all business areas and the certification process will take place in November Both the number and volume of reportable incidental spills to sea have been reduced in 2012 compared to Preventive actions have focused on identifying onboard processes where spills to sea are possible and on strengthening related barriers to prevent spills. In addition measures have been implemented to improve communication and interaction with supply vessels and to optimise related work procedures. R&D activities B14

261 The Group s activities are based on high competence and experience in offshore drilling activities. Odfjell Drilling shall develop and implement technological knowhow and solutions to achieve its strategic objective of becoming a leading and preferred drilling services contractor and engineering and well service provider. The Group s technology strategy for focuses on four core technological areas: Conceptual development Effective operations Availability of machinery Asset traceability The technology strategy also supports the zero fault objectives and aims to improve the HSE level of the Group s operations, as well as reducing the impact on the environment. Risk factors Operational and industrial risk factors Odfjell Drilling provides drilling and maintenance services for the oil and gas industry, which historically has been cyclical in its development. The level of activity in the offshore oil and gas industry will depend, among other things, on the general climate in the global economy, oil and gas prices, investment level for oil and gas exploration, production and drilling and regulatory issues relating to operational safety and environmental hazards. Financial performance will also depend on the balance of supply and demand for mobile drilling units. The Group seeks to mitigate these risks by securing long-term contracts, for its main assets and services, with reputable customers. However, all offshore contracts are associated with considerable risk and responsibilities, including technical, operational, commercial and political risks. The Group will take out the insurance coverage deemed adequate to limit these risks. The Group s activities also entail risks related to its new-builds, including construction risks, the risk of cost overruns, risk of delays, etc. These risks will be minimised through construction contracts, active participation plus monitoring and insurance. Financial risk factors The Group is exposed to currency risks, particularly since charter contracts are typically denominated in USD whereas operating expenses are primarily incurred in local currencies. The Group seeks to minimise these risks through currency hedging. The Group may also be exposed to currency risk relating to debt financing in foreign currencies and it may also seek to mitigate these risks through currency swaps, hedges or other derivatives. The Group is exposed to interest rate risk relating to its debt financing and its holding of interest bearing assets and cash and cash equivalents. None of the Group s borrowings are at fixed interest rates and interest rate risks are mitigated by using financial instruments such as interest rate swap agreements. The Group s commercial counterparts are primarily large international E&P companies, and the credit risk is limited. Provisions for bad debt amounted to 3.4 percent of accounts receivable in the balance sheet at year end Odfjell Drilling held cash and cash equivalents amounting to USD million at the end of 2012 and unused credit lines of USD 0. This is deemed to be sufficient funding for the Group s current activity levels and committed capital expenditures. The Group has scheduled instalment payments, on long-term borrowings, of USD million in Please refer to note 12 in the financial statements for an overview of borrowings and maturity profiles. B15

262 B16

263 Odfjell Drilling Ltd. Consolidated Income Statement USD thousands Note Operating revenue Total operating income Other gains/losses Share of profit from joint ventures Total other items Personnel expenses Depreciation and impairments 5, Other operating expenses Total operating expenses Operating profit (EBIT) Interest income Borrowing cost Other financial items Financial income / (expenses) Profit/(loss) before tax Income tax (expense) income Profit/(loss) for the period Of which attributable to the owners of the parent Of which attributable to non-controlling interests Basic earnings per share (USD) 19 0,07 0,08 Diluted earnings per share (USD) 19 0,07 0,08 B17

264 Odfjell Drilling Ltd. Consolidated Statement of Comprehensive Income USD thousands Note Profit for the year Other comprehensive income: Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on post employment benefit obligations Items that are or may be reclassified to profit or loss: Interest rate swaps, reclassified to profit or loss Forward foreign exchange contracts, reclassified to profit or loss Cash flow hegdes Currency translation differences Other comprehensive income, net of tax Total comprehensive income Attributable to: Owners of the parent Non- controlling interests Total comprehensive income for the period Items in the statement above are disclosed net of tax. The income tax relating to each item of other comprehensive income is disclosed in note 15 B18

265 B19

266 Consolidated Statement of Cash Flows USD thousands Cash flows from operating activities: Profit before income tax Adjustments for: Depreciation and impairment Unrealised loss on interest rate swaps Interest expense - net Borrowing cost Share of (profit)/loss from joint ventures Net (gain)/loss on sale of shares Net (gain)/loss on sale of tangible fixed assets Post-employment benefit expenses less post-employment benefit payments Foreign exchange losses/(gains) on operating activities Impairment of investments in shares Changes in working capital: Spare parts Trade receivables Trade payables Other accruals Cash generated from operations Interest paid Income tax paid Net cash generated from operating activities Cash flows from investing activities: Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Loans granted to employees Sub-ordinated loan to related parties Other long term receivables Purchase of shares incl. joint ventures Proceeds from sale of shares and bonds Net cash used in investing activities Cash flows from financing activities: Proceeds from debt to financial institutions Repayments of debt to financial institutions Dividends paid to owners of the parent Dividends paid to non-controlling interests Net cash from financing activities Net change in cash and cash equivalents Cash and cash equivalents Exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at B20

267 Odfjell Drilling Ltd. Consolidated Statement of Changes in Equity Attributable to owners of the parent USD thousands Share capital Other contributed capital Other reserves Retained earnings Total Noncontrolling interest Total equity Balance at 1 January Profit/(loss) for the period Other comprehensive income for the year Total comprehensive income for the year Dividends paid Transactions with owners Balance at 1 January Profit/(loss) for the period Other comprehensive income for the year Total comprehensive income for the year Equity contribution from owners Dividends paid Other contributions to owners Transactions with owners Balance at 31 December B21

268 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles General information Odfjell Drilling Ltd. and its subsidiaries (together 'the Group') operates mobile offshore drilling units in addition to well services and drilling & technology, and operates in Norway and around the world. Odfjell Drilling Ltd. is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. Basis of preparation The consolidated financial statements of Odfjell Drilling Ltd. for the year ended December 31, 2012, will be the first annual financial statements that comply with IFRS. In these financial statements, the term "Norwegian GAAP" refer to Norwegian GAAP in use before the adoption of IFRS. Subject to certain transition elections and exceptions disclosed in note 26, the Group has consistently applied the accounting policies used in the preparation of its opening IFRS statement of financial position at January 1, 2011 throughtout all periods presented, as if these policies had always been in effect. Note 26 discloses the impact of the transition to IFRS on the Group's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Group's consolidated financial statements for the year ended December 31, 2011 prepared under Norwegian GAAP. Going concern The Group has adopted the going concern basis in preparing its consolidated financial statements. When assessing this assumption, management has assessed all available information about the future. This comprises information about net cash flows from existing time charter contracts, drilling management contracts, other service contracts, debt service and obligations under existing newbuilding contracts. Forecasts take into consideration expected future net income from assets under construction. After making such assessments, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets and derivative instruments, which are measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving higher degree of judgement or complexity, or areas where the assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3. Standards effective after 1 January 2013 that have been early adopted by the Group IAS 19 (revised), effective for annual periods beginning on or after January 1, 2013 has been early adopted. The corridor approach was eliminated and all actuarial gains and losses recognised in OCI as they occur. All past service costs are recognised immediately and interest costs and expected return on plan assets are replaced with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The Group has early adopted IFRS 11, 'Joint arrangements', on January 1, Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Under IFRS 11, proportional consolidation of joint ventures is no longer allowed, and the Group's share of postacquisition profit or loss is recognised in the income statement, and its share of post-acquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. IFRS 10 "Consolidated financial statements" and IFRS 12 "Disclosures of interests in other entities" have been early adopted, whitout any material effects on the Financial Statements. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012 and not early adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after January 1, 2012 and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group, except the following set out: IFRS 9, Financial Instruments. IFRS 9 introduces new requirements for classifying and measuring financial assets. The standard is not applicable until January 1, 2013 but is available for early adaptation. However, the standard has not yet been endorsed by the EU, and IASB has made a suggestion to delay the implementation to period starting after January 1, Group is yet to assess IFRS 9 s full impact. IFRS 13 Fair value Measurement. The Group intend to adopt IFRS 13 from the accounting period beginning January 1, B22

269 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) Consolidation Subsidiaries are all entities over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the aquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquistion date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Goodwill is initially measured as the excess of the aggregate consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. Inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Joint ventures are accounted for using the equity method. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquistion. When the Group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recongised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may indicate that amounts previously recognised in other comprehensive income are reclassified to profit or loss. The Consolidated Financial Statements are presented on the basis of the following group structure: Odfjell Drilling Ltd (parent company) -Odfjell Offshore Ltd (100%) --Odfjell Invest Ltd (100%) -----Odfjell Invest I Ltd (100%) -----Odfjell Invest II Ltd (100%) -----Odfjell Invest AS (100%) --Odfjell Rig Ltd (100%) -----Odfjell Drilling Bergen AS (100%) -----Odfjell Rig AS (100%) -----KS AS Bergen Drillpart AS (72.375%) -----AS Bergen Drillpart (100%) -----Deep Sea Drilling Company AS (100%) -----Deep Sea Drilling Company II AS (100%) -----KS Deep Sea Drilling Company I (71.52%) -----KS Deep Sea Drilling Company II (71.52%) --Odfjell Rig II Ltd (100%) --Odfjell Rig III Ltd (100%) ---Odfjell Drilling Shetland Ltd (100%) -Odfjell Drilling Services Ltd. (100%) --Odfjell Drilling AS (100%) ---Deep Sea Management AS (100%) ---Odfjell Drilling Management AS (100%) ---Deep Sea Rig AS (100%) ---Odfjell Drilling (UK) Ltd (100%) ---Odfjell Drilling US AS (100%) --Odfjell Operations Ltd. (100%) B23

270 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) ---Deep Sea Management FZE Ltd. (100%) ----Odfjell Drilling Deep Sea Management DMCC (100%) ----Odfjell Services (Thailand) FLC (100%) ---Odfjell Arabia Drilling Services LLC (100%) --Odfjell Partners Invest Ltd. (100%) ---Odfjell Well Services Europe AS (100%) ---Odfjell Casing Services AS (100%) ---Odfjell Rental Services AS (100%) ---Deep Sea Mooring AS (100%) ---Odfjell Well Services Ltd. (100%) ---Odfjell Well Services II Ltd. (100%) --Odfjell Technology Ltd. (100%) ---Odfjell Technology AS (100%) ---Odfjell Technology Manila Corporation (100%) --Odfjell Drilling Cooperatief UA (100%) ---Odfjell Invest Holland BV (100%) ---Odfjell Well Services SRL (100%) ---Odfjell Perfuracoes e Servicos Ltda (100%) ---Odfjell Drilling Netherlands BV (100%) ----Odfjell Galvao II BV (100%) Segment reporting Operating segments are reported in a manner consistent with the internal financial reporting provided to the chief operating decisionmaker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board who makes the strategic decisions. Foreign currency translation currency (USD) are translated into the presentation currency as follows: - Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; - Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and - All resulting exchange differences are recognised in other comprehensive income. Fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Intangible assets Goodwill arises on the acquistion of subsidiaries and represents the excess of the consideration transferred over the Group's interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of non-controlling interst in the acquiree. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGUs), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level. (a) Functional and presentation currency Items included in the separate financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The Consolidated Financial Statements are presented in USD (in thousands), which is the Group s presentation currency. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange gains and losses are presented in the income statement within other financial items. (c) Group companies The results and financial position of all the Group's entities that have a functional currency different from the presentation Property, plant and equipment Property, plant and equipment comprise mainly mobile offshore drilling units and machinery and equipment. Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes its purchase price, any directly attributable costs of bringing the asset to working condition and borrowing costs. Subsequent costs for day-to-day repairs and maintenance are expensed as incurred. The cost of modernisation and rebuilding projects is included in the asset s carrying amount when it is probable that the Group will derive future financial benefits and the cost of the item can be measured reliably. B24

271 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) The carrying amount of the replaced part is derecognised. Modernisation and rebuilding projects are depreciated over the remaining useful life of the related assets. Depreciation is calculated on a straight-line basis over the useful life of the asset or component. Depreciable amount equals historical cost less residual value. Items of property, plant and equipment with components that have substantially different useful lives is treated separately for depreciation purposes. The useful lives of assets and the depreciation method are reviewed periodically in order to ensure that the method and period of depreciation are consistent with the expected pattern of financial benefits from the asset. When assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement as gain on sale of assets. Residual value for mobile offshore drilling units are determined based on the market prices for steel and second hand prices for drilling equipment. Any changes are accounted for prospectively as a change in the accounting estimate. The estimated useful life of the rig could change, resulting in different depreciation amounts in the future. Residual value for other property, plant and equipment are estimated to be 0. Rig and equipment are depreciated over a period of 5-30 years. Periodic maintenance is depreciated over the expected period to next docking, estimated to 5 years. Estimated useful life for machinery and equipment is 3-5 years. Newbuildings Newbuildings under construction are capitalised as fixed assets during the construction as installments are paid to the yard. Capitalised costs include contractual costs and costs related to the monitoring of the project during the construction period. Contractual costs include costs related to the project for the duration of the contract, i.e. from signing of the contract to final completion of the contractual work. Any costs incurred prior to the signing of the contract that relate to the procurement of the contract are regarded as a purchase of contractual assistance and are included in contractual costs. Impairment of non-financial assets All non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm s length transaction less costs associated with the disposal. Value in use represents the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the CGU. For mobile offshore drilling units, each unit is deemed to be a CGU. The value in use is determined on the basis of the total estimated discounted cash flow, excluding financing expenses and taxes. In determining impairment of mobile offshore drilling units and other fixed assets, the management must make judgements and estimates to determine whether the discounted cash flows generated by those assets are less than their carrying amount, including determining the appropriate discount rate to be used. The data necessary for the execution of the impairment test are based on management s estimates of future cash flows, which require estimates to be made for future day rates, utilisation rates and profit margins. The assumptions used in estimating these cash flows are consistent with internal forecasts. Market outlook and day rate considerations provided by an independent third party are used to support management s estimates. These considerations are mainly based on the oil price. Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. Financial assets The Group classify financial assets in the following categories: trading financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. Management determines the classification of financial assets at their initial recognition. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Derivatives are placed in this category unless designated as hedges. Assets in this category are classified as current. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period. Loans and receivables are non-derivative financial assets with fixed or determinable payments which are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. B25

272 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) Loans and receivables are recognised initially at their fair value plus transaction costs. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or are transferred, and the Group has transferred by and large all risks and rewards from the financial asset. Realised gains and losses are recognised in the income statement as finance income in the period they arise. Impairment of financial assets For assets carried at amortised cost, the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. For loans and receivables category, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the consolidated income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occuring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the consolidated income statement. For assets classified as available for sale the Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. A significant or prolonged decline in the fair value of an equity security below its cost is evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated income statement. Derivative financial instruments and hedging Derivatives are recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured on a continuous basis at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of highly probable forecast transactions (cash-flow hedges). At the date of the hedging transaction, the Group documents the relationship between hedging instruments and hedged items, as well as the object of its risk management and the strategy underlying the various hedge transactions. The Group also documents the extent to which the derivatives used are effective in smoothing the changes in fair value or cash flow associated with the hedge items. Such assessments are documented both initially and on an ongoing basis. The effective portion of changes in the fair value of derivatives designated as cash-flow hedges are recognised in other comprehensive income (net of tax). Gain and loss on the ineffective portion is recognised immediately in the income statement. Amounts recognised directly in other comprehensive income are reclassified as income or expense in the income statement in the period when the hedged liability or planned transaction will affect the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is reclassified when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within financial income/expenses. Current and deferred income tax, withholding tax The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. B26

273 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement. Trade receivables Trade receivables and other receivables, that have fixed or determinable payments that are not quoted in an active market are classified as receivables. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest method, less provision for impairment. Provision for impairment is made to specified receivable items when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the receivable, the estimated future cash flows of the investments have been affected. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is attributed using the first-in, first-out (FIFO) method. The costs of inventories comprise the purchase price, import duties and other taxes, transport and handling and other costs directly attributable to the acquisition of the goods. Trade discounts, rebates and other similar items are deducted in determing cost. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other current highly-liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown under borrowings in current liabilities in the balance sheet. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as noncurrent liabilities. Trade payables are recognised initially at fair value and subsequently measured at face value, due to short time to maturity. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Revenue is stated net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. The Group's revenues are derived from day-rate based drilling contracts and day-rates from management drilling contracts and other service contracts. Revenue from management drilling contracts and other service contracts is recognised when the services are performed and at the rates specified in the contracts. Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both day-rate based and lump sum fee revenues are recognised ratably over the contract B27

274 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 1 > Accounting Principles (cont.) period when services are rendered. Under some contracts, the Group is entitled to additional payments for exceeding performance targets. Such additional payments are recognised when any uncertainties are resolved or upon completion of the drilling program. Mobilisation costs incurred as part of a contract are capitalised as receivable and recognised as expense over the contract term, excluding option periods not exercised. Earnings per share Earnings per share is calculated based upon the weighted average number of oustanding shares in Odfjell Drilling Ltd. B28

275 Note 2 > Financial risk management Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Financial risk factors The Group is exposed to a range of financial risks: market risk (including currency risk, interest rate risk, and price risk), credit risk and liquidity risk. The financial risk management focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group s financial performance. To some extent, the Group uses derivative financial instruments to reduce certain risk exposures. Risk management is carried out on a Group level. The Group identifies, evaluates and hedges financial risks in close cooperation with the Group's operational units. The board of Odfjell Drilling Ltd Group has established written principles for risk management of foreign exchange risk, interest rate risk and use of derivative financial instruments. a) Market risk Market risk is the risk of change in market prices and demand, hereunder changes in currency exchange rates and interest levels. i) Foreign exchange risk The consolidated subsidaries' reporting and functional currency are USD, NOK, GBP, EUR, BRL, RON and PHP. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to USD and NOK. Foreign exchange risk arises when future commercial transactions or recognised assets or liabilities are denominated in a currency that is not the entity s functional currency. The group is exposed to risks due to fluctuations in exchange rates, especially as charter contracts are normally in USD while most of the operating expenses are in local currency. If USD is weakend by 10 % against other relevant currencies, on the balance-sheet date, we can expect the following effect on profit before tax in USD thousands: Current receivables Cash Current liabilities Net effect on profit before tax ii) Interest rate risk The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations at floating interest rates. The Group evaluates the share of interest rate hedging based on assessment of the Group s total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure. The Group had 11 interest rate swap agreements at December 31, Market inputs have been used to determine the fair value of the swap agreements at the end of the year. The fair value of the interest swap agreements is confirmed by the financial institution with which the company has entered into the agreements. During 2012 a gain from change in market value of interest rate swaps was recongised at USD 1.6 million in the income statement, as compared to the negative market value of USD 23.0 million during In addition, a loss of USD 0.1 million was classified as a component of the equity as of December 31, 2011 relating to interest rate swaps qualified for hedge accounting. In 2012 the loss of USD 1.7 million was classified as a component of the equity as of December 31, 2012 relating to interest rate swaps qualified for hedge accounting. The Group monitors its interest rate exposure on a dynamic basis. The Group calculates the impact on profit and loss of a defined interest rate shift. The result of the calculation on sensitivities returns the following expected values: - If interest is increased by 1.0 %, the effect will be an increase in financing costs of USD 8,5 million for 2012, compared to USD 8.4 million in b) Credit risk The Group operates in three core business areas: Mobile offshore drilling units (MODU), Drilling & Technology and Well Services (OWS). The market for the Group s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Group performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Group s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Group believes this risk is limited as the counterparties mainly have a high credit quality. The maximum exposure regarding trade receivables is the carrying amount of USD 242 million. c) Liquidity risk The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the Group's strategic plan. With regular forecasts and liquidity analysis updates, the Group will ensure sufficient available liquidity to fulfill its B29

276 Note 2 > Financial risk management (cont.) duties at loan maturity, without unacceptable loss or risk of damaging the Group s reputation. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available. The Group s cash flow forecasting is performed by Group finance. Group finance monitors rolling forecasts of the Group s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on it s undrawn committed borrowing facilities at all times, so that the Group does not breach borrowing limits or covenants on any of it s borrowing facilities. Such forecasting takes into consideration the Group s debt financing plans and covenant compliance. Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Group treasury. Group treasury invests surplus cash in interest bearing current accounts, time deposits, money market deposits and marketable debt securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined by the above-mentioned forecasts. At the reporting date December 31, 2012, the Group held time deposits of USD 4 million that are expected to generate cash inflows for managing liquidity risk, compared to USD million in Reference is made to note 12 on maturity of debt. Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) d) Other risks Rig rates The Group has signed long-term contracts for Deepsea Atlantic and Deepsea Bergen at fixed rates. The rate consists of a USD element and a NOK element; the latter is annually escalated to reflect the increased costs of staffing and maintenance. Both rigs are contracted to Statoil ASA. Deepsea Atlantic has a contract with fixed duration to August 2014 with years options, the first option with duration of 1 year and the second option with a duretion of 2 years. The drilling contract with Statoil for Deepsea Bergen expired in June 2012, and a new drilling contract of five years has been entered into with Statoil ASA, which commenced immediately after expiry of the previous contract. Statoil ASA declared the fixed period of the new contract to be 5 years. The drilling contract for the drillship Deepsea Metro I in the joint venture company Deep Sea Metro Ltd Group expires in June 2013, and the companies is currently seeking engagements with major oli companies. No drilling contract has been signed os of this date, but the company currently follows several leads for engagements. B30

277 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 2 > Financial risk management (cont.) The tables below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount. As the time horizon is due in short term, future cash flows are not discounted. The Group had the following financial instruments at each reporting period: Assets at Level 1 Level 2 Level 3 Total Available-for-sale financial assets - Other non-current assets Loans and receivables - Sub-ordinated loan to related parties Other non-current assets Trade receivables Other current receivables Cash and cash equivalents Total assets Liabilities at Level 1 Level 2 Level 3 Total Derivatives held at fair value through profit or loss - Other non-current liabilities Derivatives held as hedge instrument - Other non-current liabilities Financial liabilities at amortised cost - - Interest-bearing debt Other non-current liabilities Trade payables Other current liabilities Total liabilities Assets at Level 1 Level 2 Level 3 Total Available-for-sale financial assets - Other non-current assets Loans and receivables - - Other non-current assets Trade receivables Other current receivables Total assets Liabilities at Level 1 Level 2 Level 3 Total Derivatives held at fair value through profit or loss - Other non-current liabilities Derivatives held as hedge instrument - Other non-current liabilities Financial liabilities at amortised cost - Interest-bearing debt Other non-current liabilities Trade payables Other current liabilities Total liabilities B31

278 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 2 > Financial risk management (cont.) The Group had 11 interest rate swap agreements at December 31, Market values have been used to determine the fair value of the swap agreements at the end of the year. The Group has applied hedge accounting for three of the swap agreements entered into in The instrument were documented as cash flow hedges, and changes in fair value were recognised directly in equity. As of 2012, the reduction in loss from negative market value of the swaps was recognised at USD 1.6 million in the income statement. A loss of USD 1.7 million was classified as component of the equity Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges Interest rate swaps - cash flow hegdes under hedge accounting Total Less non-current portion Current portion As of Odfjell Drilling Ltd. held the following interest rate derivatives: Instrument Fixed rate Floating rate Notional amount Effective from Duration Market value Interest rate swaps 0,671%-2,890% USD-LIBOR-BBA years Interest rate swaps under hedge accounting 0,920%-1,565% USD-LIBOR-BBA BBA years Interest rate swaps 1,705%-2,89% USD-LIBOR-BBA years Interest rate swaps under hedge accounting 0,968 % USD-LIBOR-BBA /02/ years -110 B32

279 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 3 > Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecasted profitability over time, and expectations about external factors such as interest rates, foreign exchange rates and other which are outside the Group s control. The resulting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. Revenue The Group's revenues are derived from day rate based drilling contracts, management drilling contracts and other service contracts. Day-rate based drilling contracts may include lump sum fees for mobilisation and demobilisation. Both day rate based and lump sum fee revenues are recognized ratably over the contract period when services are rendered. Income tax The Group is subject to income tax in many jurisdictions. Various tax systems have required some use of judgement for certain countries in determining income tax for all countries taken together in the consolidated financial statements. The final tax liability for some transactions and calculations will be uncertain. The Group recognises tax liabilities associated with future decisions in tax cases/disputes, based on estimates of the likelihood that additional income tax will fall due. Should the final outcome of these cases vary from the amount of the original provision, this variance will affect the stated tax expense and provision for deferred tax in the period when the final outcome is determined. The parent company recognises tax liabilities when these are incurred. In other words, the tax expense is related to the accounting profit/loss before tax. The tax expense comprises tax payable and the change in net deferred tax. Reference is made to note 21 relating to disclosed information related to dispute with Norwegian Tax Authorities, and hence the classification of paid tax as long term receivable. Withholding tax is the tax withheld on border-crossing gross income, generated in Angola. Withholding tax is presented as tax expense in the income statement. Impairment of non-financial assets Assets that have an indefinite useful life, i.e. goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation, i.e. mobile drilling units, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. If available, estimated fair value of an asset is obtained externally. In addition, the Group has financial models which calculate and determine the value in use through a combination of actual and expected cash-flow generation discounted to present value. The expected future cash-flow generation and models are based on assumptions and estimates. The discount factor applied in the cash flow budgets is a pre-tax weighted average cost of capital. Beyond the period covered by the business plan, a growth factor which varies between 0 % and 5 % is applied, with an expectation that gross margins will not weaken substantially over time. B33

280 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 4 > Segment reporting The Group provides drilling and related services to the offshore oil and gas industry, and has three main business areas, the operation of mobile drilling units, drilling & technology and well services. The board is the Group's chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units (MODU), Drilling & Technology and Odfjell Well Services (OWS) has been determined as the operating segments. In accordance with the internal financial reporting, the Group's 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 7. Mobile Offshore Drilling Units Drilling & Technology Well services Income statement Total income EBITDA Depreciation and impairment EBIT Eliminations Total Group Income statement Total income EBITDA Depreciation and impairment EBIT B34

281 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 5 > Goodwill Goodwill Cost At 1 January Additions - Currency translation differences As at 31 December Accumulated impairment At 1 January Impairment charge - As at 31 December Net book value at 31 December Cost At 1 January Additions - Currency translation differences -629 As at 31 December Accumulated impairment At 1 January Impairment charge - As at 31 December Net book value at 31 December Impairment tests for goodwill Goodwill is monitored by the management at the operating segment level. The following is a summary of goodwill allocation for each operating segment: 2012 Opening Addition Disposal Impairment Other adjustments Closing Drilling & Technology Well Services Total Drilling & Technology Well Services Total B35

282 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 5 > Goodwill (cont.) The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The key assumptions used for value-in-use calculations in 2012 are as follows: Drilling & Technology Well Services EBIT margin 6,0 % 25.3% Growth rate 2.0% 2.0% Discount rate 6.3% 6.3% The key assumptions used for value-in-use calculations in 2011 are as follows: Drilling & Technology Well Services EBIT margin 8.8% 25.4% Growth rate 2.0% 2.0% Discount rate 6.3% 6.3% These assumptions have been used for the analysis of each CGU within the operating segment. Management determined budgeted EBIT margin based on past performance and its expectations of market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant operating segments. B36

283 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 6 > Tangible fixed assets Tangible fixed assets Mobile drilling units Periodic maintenance Construction in progress Machinery & equipment Total fixed assets 2012 Cost price Additions Disposals Currency translation differences Cost price Accumulated depreciation and impairment losses Depreciation Disposals Reclassifications and other items Currency translation differences Accumulated deprec. and impairm. losses Carrying amounts Cost price Additions Disposals Currency translation differences Cost price Accumulated depreciation and impairment losses Disposals Depreciation Currency translation differences Accumulated deprec. and impairm. losses Carrying amounts Useful lifetime 5-35 years 5 years 3-10 years Depreciation schedule Straight line Straight line Straight line B37

284 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 6 > Tangible fixed assets (cont.) Mobile drilling units The Group owns three mobile drilling units. Odfjell Drilling Group entered into a construction contract on February 24, 2006 with the shipyard DSME to design and build Deepsea Atlantic, a semi-submersible drilling rig of GVA 7500 design, and the delivery of the rig took place on February 6, The Group also entered into a building contract on February 27, 2006 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Atlantic was carried out at DSME before the said delivery took place from the shipyard. On February 24, 2007 Odfjell Offshore Group entered into a construction contract with the shipyard DSME to design and build Deepsea Stavanger, a semisubmersible drilling rig of GVA 7500 design, and the delivery of the rig took place on July 8, The Group also entered into a building contract on February 27, 2007 with NOV for a complete drilling package. The installation of the drilling package on Deepsea Stavanger was carried out at DSME before the said delivery took place from the shipyard. The Group has invested in additional 2,500m riser for Deepsea Stavanger. This additional riser will increase Deepsea Stavanger's flexibility in connection with possible operations in ultra-deep water. The paid installments, including initial project costs, project management cost under the Project Management Agreements, costs of variation orders, costs for preparations for operation and interest cost have been capitalised on the rigs. Deepsea Bergen is a semisubmersible drilling rig with Aker H-3.2 design, built in Deepsea Bergen has completed a 5 year classification in 2010 and got a renewal of the certificate Samsvarsuttalelse (SUT) from Norwegian Petroleum Directorate. Newbuildings The Group has signed a construction contract with Daewoo Shipbuilding & Marine Engineering Co. Ltd on November 12, 2011 for building of ultra semisubmursible deepwater rig Deepsea Aberdeen with expected delivery date in May Expected basis for depreciation/ allocation of expenditure Deepsea Atlantic was delivered from the shipyard DSME on February 6, 2009 and commenced on the contract with Statoil Petroleum AS on August 4, The total expenditures on the rig are decomposed into groups of components that have different expected useful lifetime. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetime.the main group of component is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion on August 4, When calculating depreciation, estimated residual value is taken into consideration. Deepsea Stavanger was delivered from the shipyard DSME on July 8, 2010 and commenced on the contract with Ophir Services Energy Ltd. on September 16, The total expenditures on the rig are decomposed into groups of components that have different expected useful lifetime. Periodic maintenance is one of the decomposed components. The different groups of components are depreciated over their expected useful lifetime. The main group of component is expected to have an economic useful lifetime of 30 years. The rig is depreciated using the straight line method as from the date of completion on September 16, When calculating depreciation, estimated residual value is taken into consideration. Deepsea Bergen was built in The rig is on a contract with Statoil. The contract commenced June 15, 2009 and has duration on three years. The group has also entered into a new contract commencing in June 2012 with duration of threefive years. The main group of component is expected to have an economic useful lifetime of 35 years. The rig is depreciated using the straight line method. When calculating depreciation, estimated residual value is taken into consideration. B38

285 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 7 > Investments in joint ventures 2012 Ross Holding Group AS Ross Holding Group AS Deep Sea Metro Ltd. Odfjell Galvão BV PSW Group AS Total Deep Sea Metro Ltd. PSW Group AS Total Book value of equity at Investments/ Aquisitions during the year Share of profits Share of OCI result Depreciation of excess value Impairment of excess value Other changes Currency deviations Book value of equity at The group s share of the results, aggregated assets and liabilities in its joint ventures, are as follows: 2012 Ross Holding Group AS Ross Holding Group AS Deep Sea Metro Ltd. Odfjell Galvão BV PSW Group AS Total Deep Sea Metro Ltd. PSW Group AS Total Assets Liabilities Revenues Profit Deep Sea Metro Ltd Group Deep Sea Metro Ltd Group is owned by Odfjell Offshore Ltd Group (40%) and Metro Exploration (60%) and managed by the joint venture agreement signed in Deep Sea Metro Ltd Group is incorporated in Bermuda. Of book value investment in joint venture Deep Sea Metro Ltd as per , excess value of USD is included. Excess value is derpreciated over life time of the drillships owned by the Deep Sea Metro Ltd Group. Depreciation of excess value in 2012 amount to 70 TUSD, and is included in the profit from joint ventures in the income statement. Petro Service West Group AS Petro Services West Group AS was incorporated in Norway in March 2010, and is owned by Odfjell Drilling Technology Ltd (50 %) and Dalseide & Fløysand AS (50 %). PSW Group's subsidiaries are PSW Consultants AS (former name Deep Fjord Consultants AS), PSW Property AS, Fedje Sikkerhetssenter AS and PSW Subsea & Drilling AS. At December the investment in the joint venture has been written down to USD 0, which is considered the lowest of share of equity and fair value of the investment as per The write down in 2011 relates to loss and negative fair value of the investment. There is no recognition of profit in the joint venture PSW Group AS in Ross Holding Group AS Ross Holding Group AS is owned by Odfjell Drilling Ltd Group (50 %) and Ross Offshore Invest AS (50 %). Ross Holding AS owns % of the shares in Ross Offshore AS. Ross Offshore AS owns 100 % of the shares in Ross Well Management AS (former Odfjell Well Management AS) and Ross Well Management Consultants AS (former Odfjell Well Management Consultants AS) as per December 31, Ross Holding AS Group is incorporated in Norway. Odfjell Galvão BV Odfjell Galvvão BV is owned by Odfjell Drilling Netherlands BV (50%) and Galvvão Oil & Gas Holding BV (50%). Odfjell Galvvão was a former subsidiary of Odfjell Drilling Cooperatief U.A. as per % of the shares in Odfjell Galvvo BV was sold to Galvvão Oil & Gas Holding BV in 2012 for EUR. Odfjell Galvvão BV owns shares in Siri Drilling (20%), Itaoca Drilling BV (20%) and Guarapiri Drilling BV (20%) as per B39

286 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 7 > Investments in joint ventures (cont.) Summarised financial information - according to the Group's ownership in DSM Ltd: For the investment in Deep Sea Metro Ltd, the figures according to ownership share (using the line-by-line method) are as follows: USD thousands Share of total income Share of operating expenses Share of net financial items Share of profit/(loss) before tax Share of taxes Share of profit/(loss) for the year USD thousands Share of non-current assets Share of cash Share of current assets Total assets Share of equity Share of profit/(loss) for the period Capital contribution Currency deviation Share of equity Share of non-current liabilities Share of current liabilities Total liabilities Total equity and liabilities B40

287 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 8 > Trade receivables and other receivables Trade receivables Trade receivables Earned, not yet invoiced operating revenues Provision for impairment of accounts receivable Trade receivables - net Other current receivables Reimbursable expenses Prepayments VAT- receivables Other short term receivables Total other current receivables Other non-current receivables Loans to employees Loans to related-parties Tax paid to norwegian tax authorities (disputed) Other non-current receivables Total other non-current receivables The fair value of trade receivables and other receivables are as follows: Trade receivables Other Receivables Total As the accounts receivables are due in short term, the value is approximately equal to the carrying amount, and the future cash flows are not discounted. The carrying amounts of the trade receivables are denominated in the following currencies: USD NOK Other Total The ageing of the trade receivables, past due but not impaired: to 3 months to 6 months Over 6 months Total The ageing of the trade receivables, past due and impaired: to 3 months to 6 months - - Over 6 months Total Movements on the provision for impairment of trade receivables are as follow: Pr This years change in provisions Pr B41

288 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 9 > Cash and cash equivalents Cash in bank Time deposits Restricted capital Total Restricted bank deposits regarding payroll tax: Restricted capital regarding advance from customers Total restricted capital Restricted capital regarded to advance from customers is restricted to management of rigs. B42

289 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 10 > Share Capital Odfjell Drilling Ltd was founded 16 November 2005 with a share capital of USD The company has shares pr with nominal value USD 0,00001 per share. The share capital in USD was originally recorded when the parent company had NOK as it's funtional currency. As per 1 January 2012 the parent company converted it's functional currency from NOK to USD. This explains the difference between the book value of share capital and nominal value of the share capital. Share capital and shareholders The share capital and information about shareholders: Number Nominal value Book value Shares USD 0, USD 0, All shares carry equal voting rights. Overview of shareholders as per : Shares Participating interests/ share of votes Odfjell Drilling Holding Ltd ,0 % Total number of shares ,0 % Helene Odfjell controls 69,67% of the shares, the Larine Trust (of which Marianne Odfjell is beneficiary) controls 25,9% of the shares, Elin Odfjell controls 3,96% of the shares, and the CEO controls 0,47% of the shares in Odfjell Drilling Holding Ltd. B43

290 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 11 > Other reserves Note Financial instruments Translation difference Total At 1 January Interest rate swap, previously under hedge accounting Forward foreign exchange contracts, used Cash flow hegdes Currency translation difference Group Currency translation difference joint ventures At 31 December Interest rate swap, under hedge accounting Currency translation difference Group Currency translation difference joint ventures At 31 December B44

291 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 12 > Interest-bearing debt The interest-bearing debt is a combination of secured debt, unsecured debt and bond loans. Interest rates are generally based on LIBORrates. Non-current interest-bearing debt Bank borrowings Transaction cost, unamortised Non-current interest-bearing debt Current interest-bearing debt Current portion of non-current interest bearing debt Accrued interest cost Total current interest-bearing debt Total interest-bearing debt Average interest rate for 2012 was 4,04 % (compared with 4.01 % for 2011), after the effect of interest rate hedging. The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting period to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows which includes expected interest payments. Repayment schedule for interest-bearing debt Subsequent Bank borrowings Total per Repayment schedule for interest-bearing debt Subsequent Bank borrowings Total per B45

292 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 12 > Interest-bearing debt (cont.) Liabilities secured by mortgage Current liabilities Non-current liabilities Total Carrying amount of mortgaged assets: Property, plant and equipment Receivables Bank deposits Total The exposure of the Group's borrowings to interest rate changes and the contractual repricing dates at the end of the reporting period are as follows: months or less months years - - Later than 5 years - - Total The carrying amounts of the Group's borrowings are denominated in the following currencies: USD Total The carrying amount and fair value of the non-current liabilities are as follows: Carrying amount Fair value Bank borrowings Total The fair value of non-current borrowings equals their carrying amount, as the loans has floating rate and credit margin has been stable from the loan raising. The Group has the following undrawn borrowing facilties: Floating rate: - Expiring within one year Expiring beyond one year - - Total - - The undrawn borrowing facilities have been arranged to help finance the construction of drillships and mobile drilling units. B46

293 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 12 > Interest-bearing debt (cont.) The borrowing facility in Odfjell Drilling Group includes the following financial covenants: Odfjell Invest Ltd USD 950 million facility The Odfjell Drilling Group has agreed to maintain, at all times, a minimum liquidity (cash and cash equivalents) requirement of USD 50,000,000 and minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling Group 12 months prior to delivery of any investment in excess of USD 100,000,000 has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100,000,000 in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling Group has agreed to maintain an equity ratio (equity to total assets) of minimum 30 per cent at all times until and including 30 September 2012, and thereafter minimum 35 per cent, at all times from 30 June 2012 to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that the ratio of current assets to current liabilities at all times being minimum 1.00:1.00. From the date that Odfjell Drilling Ltd. is released as guarantor under the facility agreement, the abovementioned financial covenants shall no longer apply to the Odfjell Drilling Group, but shall instead apply equally to the Odfjell Offshore Group. Deep Sea Drilling Company II KS USD 70 million facility The main restrictive covenants are i) a fair market value covenant in which the value of Deepsea Bergen shall at all times cover at least 250% of the outstanding amount under the loan, ii) a provision that the uncalled capital of DSDC II KS shall remain at at least NOK 100 million and iii) an ownership covenant under which DSDC II KS shall be owned with minimum 71.52% directly or indirectly by Odfjell Rig Ltd. Odfjell Rig Ltd. USD 170 million facility The main restrictive covenants are i) a fair market value covenant in which the value of Deepsea Bergen shall at all times cover at least 160% of the combined outstanding amount under the loan and the USD 70 million loan to DSDC II KS, ii) a minimum free cash requirement of USD 50 million and iii) total cash is minimum 5% of interest bearing debt at all times, of which the free cash requirement is subject to increase to USD 100 million in the event of any unfinanced capital expenditures in excess of USD 100 million 12 month prior to delivery of such investments, iv) the ratio of book equity to total book assets shall be minimum 35%, v) the ratio of EBITDA to net interest expenses shall not, from 30 June 2012, be less than 2.50, vi) dividend payments from the Company are restricted to maximum 50% of net income for each financial year (however, any amounts permitted to be distributed, but which are not distributed in one year may be carried forward and distributed in subsequent years). The Facility was amended and restated to a USD 170 million facility on 23 August Odfjell Drilling Services - USD 300 million The main restrictive covenants are i) free cash shall not fall below USD 50 million in the Odfjell Drilling Group or below USD 15 million in the Odfjell Drilling Services Group. In addition free cash shall at minimum be 5 % of total interest bearing debt for both groups, ii) equity ratio shall at all times during the period from and including September 30, 2012, up to, but excluding September 30, 2013, not fall below 30 % for the Odfjell Drilling Group and 35 % for the Odfjell Drilling Services Group, and thereafter not fall below 35 % for the Odfjell Drilling Group and 30 % for the Odfjell Drilling Services Group, iii) for the Odfjell Drilling Services Group, adjusted leverage ratio I (ratio of interest bearing debt plus undrawn and available amounts under the revolving facility, divided by EBITDA on a twelve-month rolling basis) shall not increase above 2.40 for USD less than 100 million, or above 3.00 for USD more than 100 million. Adjusted leverage ratio II (the same deifinition as adjusted leverage ratio I but divided by EBITDA less USD 40 million), shall not increase above 3.75 for USD less than 100 million, or above 4.50 for USD more than 100 million, iv) ratio of current assets to current liabilities in the Odfjell Drilling Services Group shall at all times be minimum 1.00, and v) equity for the Odfjell Drilling Group shall not fall below USD 750 million. For the financial years 2011 and 2012 the Group has not been in violation of the covenants. B47

294 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 13 > Post employment benefits The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. The pension plans are measured and presented according to IAS 19 (revised 2011). Pension obligations A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive upon retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognised immediately in income. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. Defined benefit pension plans The Group has a pension scheme covering a total of persons, of which 110 pensioners. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. The liabilities are covered through an insurance company (funded). The Group also has a contractual pension agreement (CPA) covering persons, of which 46 pensioners. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer's contribution to these amounts to 20 % of the pension paid. These liabilities are not covered through an insurance company (unfunded). A number of the Norwegian subsidiaries in the Group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act. Amounts recognised in the balance sheet: Present value of funded obligations Fair value of plan assets Deficit of funded plans Present value of unfunded obligations Total deficit of defined benefit pension plans B48

295 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 13 > Post employment benefits (cont) Movement in the net defined benefit obligation over the years: Present value of obligation Fair value of plan assets Total At 1 January Current service cost Interest expense/ (income) Pension expense Remeasurements: Return on plan assets, excluding amounts included in interest expense/(income) Total actuarial (gain)/loss Exchange differances Contributions: - Employers - Plan participants Payments from plans: - Benefit payments At 31 December Present value of obligation Fair value of plan assets Total At January Current service cost Interest expense/ (income) Pension expense Remeasurements: Return on plan assets, excluding amounts included in interest expense/(income) Total actuarial (gain)/loss Exchange differences Contributions: Employers Payments from plans: Benefit payments At 31 December The significant actuarial assumptions were as follows: Discount rate 3.8% 2.6% Salary growth rate 0% - 3.5% 3.5% Expected growth in G (base social security amount) 3.25% 3.75% Pension growth rate 0.2% % 0.1% B49

296 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 13 > Post employment benefits (cont) The sensitivity of the defined benefit obligation to changes in the weigthed principal assumptions is: Impact on defined benefit obligation Change in assumption Increase in assumption Decrease in assumption Discount rate 1 % Decrease by 17% Increase by 22% Salary growth rate 1 % Increase by 11% Decrease by 10% Pension growth rate 1 % Increase by 13% Decrease by 1%* *Assumption is here that pension growth rate is decreased from 0.1 % to 0 %. Total pension expenses (including defined benefit and defined contribution scheme) are splitted to the following: Pension expenses from defined benefit scheme Pension expenses from defined contribution scheme Total pension expense See also note 17 for further information regarded to personnel expenses. B50

297 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 14 > Other liabilities Other non-current liabilities Non-current liabilties under related-party agreement Other non-current liabilities Total other non-current liabilities Other current liabilities Prepayments from customers Deferred revenue Accrued salaries Holiday pay Employee bonus provisions Other accrued expenses Total other current liabilities B51

298 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 15 > Tax In USD thousands Specification of tax expenses for the year Withholding tax Payable tax, ordinary taxation Adjustments in respect of prior years Change in deferred tax Total tax Tax reconciliation Profit before tax Tax calculated at domestic tax rates applicable to profits in respective countries* Non-taxable income Taxes * Domestic tax rates applicable to the Group varies between 0 % and 28 % Effective tax rate 21,1 % 21,0 % The tax (charge)/credit relating to components of the comprehensive income is as follows: 2012 Before tax Tax (charge)/ credit After tax Actuarial loss on post employment benefit obligations (6 116) Cash flow hegdes Currency translation differences Other comprehensive income Current tax Deferred tax Before tax Tax (charge)/ credit After tax Actuarial loss on post employment benefit obligations Cash flow hegdes Currency translation differences Other comprehensive income Current tax Deferred tax B52

299 Note 15 > Tax (cont.) Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) In USD thousands The gross movement on the deferred tax account is as follows: Net deferred tax assets/(deferred tax liabilities) at Income statement charge Charged directly to equity Group contribution Currency translation differences Net deferred tax assets/(deferred tax liabilities) at Deferred tax assets Net pension liabilities Loss carried forward In USD thousands Current assets Total 2012 Opening balance Income statement charge Charged directly to equity Use of losses for the year Currency translation differences Opening balance Income statement charge Charged directly to equity Currency translation differences Deferred tax liabilities Share in limited partnership Deferred capital gains In USD thousands Fixed assets Total 2012 Opening balance Income statement charge Charged directly to equity Currency translation differences Opening balance Income statement charge Charged directly to equity Currency translation differences B53

300 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 16 > Combined items, income statement USD thousands Other gains and losses Gain on disposals of casing, mooring and rental equipment Disposal of subsidiary Gain on sale of other assets 67 - Gain on sale of assets Other operating expenses Consumption of purchased goods for resale Hired services, subcontractors and stand-in employees Hired casing, mooring and rental services Tools, fixtures and fittings, and working plant Repair and maintenance Insurance, guarantee and service costs Loss on disposal of machinery and bad debt Course expenses (fees. rent of premises etc.) Freight. transport and insurance Office rent and warehouses Fees for financial and legal assistance Inspection Travel expenses Other operating and administrative expenses Total other operating expenses Financial income/expenses Interest income Interest income Interest income from related parties Total interest income Borrowing cost Interest incurred Interest expenses to related parties Other borrowing expenses Total borrowing cost Other financial items Currency gain Other financial income Currency loss Gain/loss on interest rate swaps Other financial expenses Total other financial items B54

301 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 17 > Personnel expenses Personnel expenses Salaries and wages Employer`s national insurance contributions Pension expenses Other benefits Hired personnel Total personnel expenses No. of employees (annual average) Audit Audit (incl. technical assistance with financial statements) Other assurance services Tax advisory fee (incl. technical assistance with tax returns) Total audit fees The fees are net of VAT. B55

302 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 18 > Remuneration to the Board of Directors and key executive management 2012 Executive management: USD thousands Salary Bonus Pension premium Other remuneration Total Simen Lieungh (CEO in Odfjell Drilling AS) Atle Sæbø (CFO in Odfjell Drilling AS) Total remuneration executive management Board of non executive directors: Helene Odfjell Marianne Odfjell Kirk L. Davis Carl-Erik Haavaldsen Bengt Lie Hansen Total remuneration Board of non executive directors Executive management: USD thousands Salary Bonus Pension premium Other remuneration Total Simen Lieungh (CEO in Odfjell Drilling AS) Atle Sæbø (CFO in Odfjell Drilling AS) Total remuneration executive management Board of non executive directors: Helene Odfjell Marianne Odfjell Kirk L. Davis Carl-Erik Haavaldsen Bengt Lie Hansen Total remuneration Board of non executive directors B56

303 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 19 > Earnings per share The basic and diluted earnings per share are the same, as the Company has no convertible bond loan or stock option plan. Earnings per share is calculated as net result allocated to shareholders for the year divided by the weighted average number of outstanding shares Profit/ (Loss) attributable to equity holders of the company Weighted average number of ordinary shares in issue Earnings per share 0,07 0,08 B57

304 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 20 > Securities and mortgages Odfjell Invest Ltd. USD 950 million Facility Agreement As security for the loan, substantially all of the assets of Odfjell Invest Ltd. and its subsidiaries have been pledged in favour of the lenders. This includes the shares in Odfjell Invest I Ltd., Odfjell Invest II Ltd. and the charter company Odfjell Invest AS, mortgages over the semi-submersible drilling rigs "Deepsea Stavanger" and "Deepsea Atlantic" and assignment of rights to revenue, interest proceeds and bank accounts. In addition, the shares in Odfjell Invest Ltd. have been pledged by Odfjell Offshore Ltd. in favour of the lenders. Also, Odfjell Invest I Ltd., Odfjell Invest II Ltd., Odfjell Drilling Ltd. and Odfjell Offshore Ltd. have guaranteed as and for its own debt the due and punctual observance and performance of the obligors' obligations under the finance documents, however such that Odfjell Drilling Ltd. may be released as guarantor under the facility agreement upon the occurrence of either an initial public offering or a private placement of Odfjell Offshore Ltd. Deep Sea Drilling Company II KS. USD 70 million facility Deep Sea Drilling Company II KS entered into a facility with DNB Bank ASA as Agent on behalf of several banks on 26 April The assets of DSDC II KS, including Deepsea Bergen, DSDC II KS rights under a bareboat charter party and its bank accounts have been pledged as security for the loan, together with a sub-pledge of Deep Sea Drilling Company KS i) rights under the charter with Statoil and ii) bank accounts, and the Company has provided an unconditional and irrevocable on-demand guarantee for Odfjell Rig Ltd. s share of the uncalled capital of DSDC II KS. Odfjell Offshore Ltd has provided an uncalled capital guarantee towards Deep Sea Drilling Company II KS for Odfjell Rig Ltd's part of the uncalled capital requirement according to the loan agreement. Odfjell Offshore Ltd s liability under this guarantee is limited to NOK 71,520,000 plus interest and costs. In addition, shares in Deep Sea Drilling Company II KS are pledged as security for the facility. Odfjell Rig Ltd. USD 170 million facility As security, Odfjell Rig Ltd. pledges its shares in DSDC II KS and Odfjell Drilling Bergen AS and its bank accounts, and gives an assignment of intra-group receivables. Further, the Company has pledged all its shares in Odfjell Rig Ltd. The guarantee from Odfjell Drilling will be released following a private placement or listing of the Company. The Facility was amended and restatedto a USD 170 million facility on 23 August The company furnishes the following securities for the loan: account pledge over the company s bank accounts with DNB Bank ASA ; and pledge of the company s shares in Deep Sea Drilling Company II KS and Odfjell Drilling Bergen AS. In addition, the company's shares has been pledged in favour of DNB Bank ASA as Agent on behalf of the lenders in the USD 170 million loan agreement. Odfjell Drilling Services Ltd. USD 300 million facility USD 300 million term loan facility agreement entered into on 4 November 2011 with Odfjell Drilling Services Ltd as borrower and DNB Bank ASA and Danske Bank A/S as lenders. The liability of Odfjell Drilling Ltd hereunder shall be limited to USD 330 million plus any unpaid amount of interest, fees and expenses, and shall be reduced with amounts actually repaid (and prepaid, if any) under the loan agreement. B58

305 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 21 > Contingencies One of Odfjell Drilling Ltd s subsidiaries, Odfjell Rig Ltd, was notified by Norwegian Tax Authorities (Skatt Vest) late 2011 that income from its direct % participation in KS Deep Sea Drilling Company II (KS DSDC II) is deemed taxable in Norway for the income years In 2012 the Norwegian Tax Authorities also deemed Odfjell Rig Ltd taxable for the income year The Norwegian Tax Authorities have in 2012 taxed Odfjell Rig Ltd as if the company was taxable for the income years Total tax is classified as long term receivable due to the argumentation of Odfjell Rig Ltd of not beeing taxable for the income years Total paid taxes and interests on taxes for the income years are NOK , whereof NOK are interests on tax amount for all three income years. The receivable of USD is classified as long term receivable, hence the estimated duration of the trial. Due to not agreeing with Norwegian Tax Authorities' decision, Odfjell Rig Ltd in 2012 commenced proceedings against Norwegian Tax Authorities which relates to dispute of Odfjell Rig Ltd beeing taxable for the income years It is uncertain the time for start up of the trial. Odfjell Rig Ltd is arguing that the tax authorities assertion is based on wrong assumptions as to the factual circumstances in the case of its participation in KS DSDC II. Odfjell Rig Ltd considers that the probability of winning the trial is higher than loosing the trial in the final court. B59

306 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 22 > Commitments Capital Commitments The Group has signed a contract with Daewoo Shipbuilding & Marine Engineering (DSME) to build a new semi-submersible drilling rig DeepSea Aberdeen for the use in the UK's West of Shetland region under a future contract with BP. The commitments related to the newbuilding programme are summarised in the table below: USD thousands Due in year Due in year Due in year Value of new building commitments Capital expenditure other than newbuildings contracted for at the end of the reporting period but not yet incurred is as follows: Rental, casing and mooring equipment, due in 1 year Total Operating lease commitments - group company as lessee The Group leases various offices under non-cancellable operating lease arrangements. The lease terms are between 1 and 10 years, and the majority of the lease arrangements are renewable at the end of the lease period at market rates. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total B60

307 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 23 > Capital Disclosures Capital Management The primary objective of the Group`s capital management is to ensure that it maintains healthy capital ratios and liquidity available to take advantage of investment opportunities and generally support the business. Capital management should be such that the capital structure is sufficiently robust to withstand prolonged adverse conditions in significant risk factors, such as long-term down-cycles in our markets and unfavourable conditions in financial markets. Capital management also comprise securing the company to be in compliance with covenants on interest bearing debt. Reference is made to note 12 which disclose information about covenants on long term interest bearing liabilities. The Group will manage the capital structure and make adjustments to it, to maintain an optimal structure adapted to current economic conditions. In order to maintain or adjust the capital structure, the Group may adjust dividend payments, buy treasury shares, return capital to shareholders or issue new shares. Deposits / placements The liquidity management has four main objectives: - Matching of surplus funds against borrowing requirements. - Secure a high level of liquidity (a targeted minimum of two months cash flow) in order to meet future plans of the Odfjell Drilling. - Limitation of credit risks. - Maximise return on liquid assets. Accordingly, investments may only be made in securities with a rating of Investment grade, Baa (Moodys), BBB- (Standard and Poors and Fitch IBCA) or better. For companies not rated by international rating bureaus, investments may be made in accordance with DnB s rating BBB or better. A list of counter party exposure limits shall be established by the CFO, and be reported to the Board of Odfjell Drilling on a yearly basis. The following instruments are allowed for short term placements; - Deposits in banks - Loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt) - Certificates - Money-market funds - Equity Working Capital The company's policy is to have working capital corresponding to 2 months operating expenses. Interest Rate Risk The administration is authorised to hegde up to 50% of the interest payments of the external financing based on an approval from the Finance Committee (CEO, CFO and VP Finance). Status is to be reported to the Board on a yearly basis Equity Total assets Equity ratio 41 % 38 % Cash and cash equivalents Available drawing facilities - - Total available liquidity B61

308 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 24 > Transactions with related parties The Group is 100% controlled by Odfjell Drilling Holding Ltd. Odfjell Drilling Holding Ltd. is controlled by Odfjell Partners Ltd., which owns 69.67% of the company's shares. The remaining shares are owned by the Larine Trust (25.90%), Elin Odfjell (3.96%) and Simen Lieungh (0.47%). The following transactions were carried out with related parties: Sales of services: - Entities controlled by Odfjell Partners Ltd. (management services) Associates Total Operating expenses Associates Total Leases: - Entities controlled by Odfjell Partners Ltd. (office rent) Total Interest expenses: Odfjell Partners Ltd Interest income: - Deep Sea Metro Ltd Key management compensation Key management includes directors (executive and non-executive). The compensation paid or payable to key management for employee services is shown in Note 18 - Remuneration. Year-end balances arising from purchase of services Current receivables from related parties: Current receivables from related parties: Total Current liabilities to related parties: Current liabilities to related parties Current liabilities to parent company Total Non-current loans from related parties Non-current liability under related party agreement Total Non-current receivables from related parties Non-current receivable under related-party agreement Non-current receivable Odfjell Capital Ltd Total B62

309 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 24 > Transactions with related parties (cont.) Commitments The Group leases various offices under non-cancellable operating lease agreements. The lease terms are between 1 and 10 years, and the majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows: No later than 1 year Later than 1 year and no later than 5 years Later than 5 years Total B63

310 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 25 > Events after the reporting period There are not identified events after the reporting period with effect for the financial statement for B64

311 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 26 > First-time adoption of IFRS These financial statements are the Group's first annual financial statements prepared in accordance with IFRS. This note discloses the impact of the transition to IFRS on the Group's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Group's consolidated financial statements for the year ended December 31, 2011 prepared under Norwegian GAAP. Reconciliation of consolidated statement of financial position as previously reported under Norwegian GAAP to IFRS: Effect of transition to IFRS December 31, 2011 January 1, 2011 Note NGAAP Adjustments IFRS NGAAP Adjustments IFRS Assets Goodwill c Deferred income tax asset h Property, plant and equipment Investments in joint ventures a, d Available-for-sale financial assets Held-to-maturity financial assets Financial instruments f Other non-current assets Total non-current assets Spare parts Trade receivables Financial instruments f Other current receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities Share capital Other contributed capital Other reserves Retained earnings Total equity attributable to owners of the parent Non-controlling interests Total equity Borrowings Derivative financial instruments e, f Deferred income tax liability h Post-employment benefits b Other non-current liabilities Total non-current liabilites Borrowings i Trade payables Current income tax Social security and other taxes Other current liabilities Total current liabilities Total equity and liabilities B65

312 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 26 > First-time adoption of IFRS (cont.) Reconciliation of consolidated income statement as previously reported under Norwegian GAAP to IFRS: Effect of transition to IFRS 2011 Note NGAAP adjustments IFRS Revenues Operating revenue Total operating income Other gains/losses a Share of profit from joint ventures d Personnel expenses b Depreciation and impairments c Other operating expenses Total operating expenses Operating profit (EBIT) Interest income Borrowing cost Other financial items b Financial income / (expenses) Profit/(loss) before tax Income tax expense income Profit/(loss) for the period Attributable to: Owners of Odfjell Drilling Ltd Non-controlling interests Other comprehensive income (net of tax): Interest rate swap, previously under hedge accounting e Forward foreign exchange contracts, used f Change in fair value of cash flow hegdes f Post-employment benefits - actuarial gains and losses b Currency translation differences g Other comprehensive (loss) income for the period Total comprehensive income B66

313 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 26 > First-time adoption of IFRS (cont.) Reconciliation of comprehensive income as previously reported under Norwegian GAAP to IFRS: Note 2011 Comprehensive income as reported under Norwegian GAAP Increase (decrease) in net income for: Adjusted gain on sale of subsidiary a Post-employment benefits-adjustment on service cost b 642 Post-employment benefits-adjustment on interest cost b Reversal of amortisation on goodwill c Reversal of amortisation on goodwill relating to investment in joint venture d Increase (decrease) in other comprehensive income for: - Interest rate swap, previously under hedge accounting e Forward foreign exchange contracts, settled during the year e,f Change in fair value of cash flow hegdes f -110 Post-employment benefits - actuarial gains and losses b Currency translation differences g Total comprehensive income as reported under IFRS Reconciliation of equity as previously reported under Norwegian GAAP to IFRS: Note January 1, 2011 Note December 31, 2011 Total equity reported under NGAAP IFRS adjustments Financial instruments, forward foreign exchange contracts e,f Financial instruments, interest rate swaps e,f Reversal of amortisation on goodwill c Change in pension liability (net of tax) b Change in cost of investment in Ross Holding a Reclassification of currency translation g Total adjustments Total adjustments above were reclassified within equity g Total equity reported under IFRS B67

314 Odfjell Drilling Ltd. Notes to the consolidated Financial Statements (All amounts are in USD thousands unless otherwise stated) Note 26 > First-time adoption of IFRS (cont.) a) The Group disposed a subsidiary in 2011 with a consolidated gain under Norwegian GAAP of USD 40.8 million. Part of the consideration was shares in Ross Holding AS, which became a joint venture for the Group. Under Norwegian GAAP this gain was proportionately recognised as the Group retained ownership in the new joint venture. Under IFRS, the full gain were recognised in accordance with IAS 27.34d, and the gain increased to USD 43.2 million. b) The Group has early adopted IAS19 (revised) when accounting for employee benefits. Under IAS19 (revised) the corridor approach is eliminated and all actuarial gains and losses recognised in OCI as they occur. All past service costs are recognised and interest costs and expected return on plan assets are replaced with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). The interest expense has been reclassified as a finance item. As at 31 December this adjustment has increased the pension liability (net of tax) by USD 26.8 million. Service cost decreased by USD 0.6 million and interest cost related to future employee benefits increased with USD 1.9 million. g) As allowed by IFRS, the company reset its cumulative translation adjustment account to zero at January 1, The translation adjustment at December 31 classified as retained earnings under Norwegian GAAP, has under IFRS been reclassified to Other reserves through other comprehensive income. h) As a result of tax effect on IFRS adjustments, deferred income tax asset/liability has been changed. i) In accordance with IFRS, current portion of non-current interest bearing debt has been reclassified from non current to current liabilities. Adjustments to the statement of cash flows The transition from Norwegian GAAP to IFRS had no significant impact on the cash flow statement except for some reclassifications and specifications required under IFRS. In addition, IFRS adjustments to P&L and Statement of Financial position have been adjusted for in the Cash flow statement as there are no cash flow effects from the IFRS adjustments. c) Under Norwegian GAAP, goodwill is amortised over its estimated useful life. Under IFRS goodwill is not subject to amortisation. This resulted in a reversal of USD 3 million. d) Goodwill amortisation related to investment in joint venture is reversed due to the difference between Norwegian GAAP and IFRS as explained above. e) )The Group hdi had instruments t tht that were designated tdas cash flow hedges directly in equity until Q Due to refinancing of loans during second half of the year, it was concluded that hedge accounting no longer could be applied as the forecast transaction is no longer expected to occur. The cumulative loss in other comprehensive income was immediately reclassified from equity to profit or loss in accordance with IAS c. f) Under Norwegian GAAP, interest rate swaps were recognised at cost. Under IFRS interest rate swaps are recognised at fair value, and the change in fair value of cash flow hedges is recognised. This resulted in a loss of USD 0.11 million recognised in other comprehensive income. B68

315 B69

316 INCOME STATEMENT Odfjell Drilling Ltd. for the period 1 January to 31 December (All figures in USD) Notes OPERATING EXPENSES Other operating expenses Total operating expenses OPERATING PROFIT/LOSS FINANCIAL INCOME AND FINANCIAL EXPENSES Interest income Interest income from group companies 6, Other financial income group companies Other financial income 9, Share dividends Interest expenses Interest expenses from group companies 6, Interest expense from related parties Other financial expenses group companies Other financial expenses Net financial items ORDINARY PROFIT/LOSS BEFORE TAX Tax on ordinary result NET PROFIT/LOSS FOR THE YEAR Allocation: Transferred from/to other equity B70

317 B71

318 CASH FLOW STATEMENT Odfjell Drilling Ltd. for the year ended 31 December (All figures in USD) Profit/(loss) before tax Adjustments for: Decrease/(increase) in trade accounts receivable and other receivables Decrease/(increase) in trade accounts payable and other current liabilities Changes in net intercompany short-term liabilities and receivables Cash flows from operating activities Cash flows from investing activities Investments in group companies Investments in associated companies 0 0 Long term loan to group companies Decrease/increase in net intercompany short-term liabilities and receivables Subordinated loan Long-term bonds Long-term loan Other short-term investments 0 Net cash flow used in investing activities Cash flows from financing activities Long term debt Changes in long term debt group companies Short term loan Paid out dividende Net cash flow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period B72

319 Odfjell Drilling Services Ltd. Notes 2012 Note 1 Accounting principles The accounting information includes profit and loss statement, balance sheet statement, notes and cashflow statement. The accounts are prepared in accordance with Norwegian GAAP. Figures are reported in USD. The company is located at Bermuda. Recognition of income The company is a single purpose company with the only interest of owning its shares in subsidiaries. Any dividend received or other financial income are recognised as financial income. Classification of balance sheet items Assets identified as being permanently owned or used, are classified as fixed assets. Other assets are classified as current assets. Liabilities due more than one year after they are incurred are classified as long-term liabilities. First year instalment on long-term loans are classified as long-term liabilities. Liabilities due less than one year after being incurred are classified as short-term liabilities. Accounts receivable Trade debtors and other receivables are accounted for at net value after deductions for expected losses. Foreign currency Balance sheet items in foreign currencies are translated to USD at the currency rate at the balance date. Profit and loss transactions in other currencies, are translated to USD at the currency rate at the transaction day. Cash and bank deposits Cash and bank deposits also include other liquid investments with a period to maturity of 90 days or less from the date of issue. Impairment of asset The asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the income statement. The assets are tested annually for impairment at each reporting date. Cash flow statement The cash flow statement is prepared using the indirect method. Change of funtional and presentation currency As per 1 January 2012 the company changed its functional and presentation currency from NOK to USD. Balance sheet items and cash flow statement as per are converted from NOK to USD with exchange rate NOK/USD as per , which were 5,9927. Proit and loss statement items are converted from NOK to USD with average exchange rate NOK/USD for 2011 which were 5,6070. Difference between average exchange rate and year end exchange rate for 2011 profit is presented as currency difference in the equity reconciliation. B73

320 B74

321 Odfjell Drilling Ltd. Notes 2012 Note 5 Subsidiaries Acquisition/ Shares and percent Profit/loss 2012 in Equity as per Company formation date Registered office of votes Percent of votes Share capital USD USD in USD Book value Odfjell Offshore Ltd Hamilton, Bermuda 100 % 100 % ( ) Odfjell Drilling Services Ltd Hamilton, Bermuda 100 % 100 % Total The shares are recognised in the accounts according to the cost method. Note 6 Intercompany balances Long term: Receivables Liabilities Receivables Liabilities Interests Interests Odfjell Drilling AS 3 mnths Nibor + 3,5% margin 031 Odfjell Drilling Technology AS 3 mnths Nibor + 1,5% margin Odfjell Partners Invest Ltd 3 mnths Nibor + 1,5% margin Odfjell Invest Ltd 3 mnths Nibor + 1,5% margin Odfjell Casing Services AS 3 mnths Nibor + 1,5% margin Odfjell Rental Services AS 3 mnths Nibor + 1,5% margin Odfjell Rig Ltd 3 mnths Nibor + 1,5% margin Odfjell Drilling Bergen AS 3 mnths Nibor + 1,5% margin Odfjell Offshore Ltd Fixed annual interest rate of 6,95% Odfjell Drilling Services Ltd 3 mnths LIBOR + 3,63% margin Total long term Repayment and interest conditions: Loan from Odfjell Drilling Services Ltd : Final maturity date 9 November 2018, applicable interest is 3 months LIBOR + 3,63% margin Loan given to Odfjell Offshore Ltd: Final maturity date 9 May 2013, applicable interest is fixed annual 6,95% Short term: Receivables Liabilities Receivables Liabilities Odfjell Offshore Ltd Odfjell Drilling AS Odfjell Drilling Holding Ltd Odfjell Drilling Services Ltd Odfjell Rig Ltd Odfjell Drilling Technology Ltd Odfjell Invest Ltd Total short term The short term receivables have less than one year maturity. Note 7 Cash and bank deposits Current account NOK Current account USD Time Deposits Total Bank deposits are not restricted. Note 8 Short-term liabilities Provision for directors' fees Trade creditors Other short term debt Accrued interest 0 0 Total B75

322 Odfjell Drilling Ltd. Notes 2012 Note 9 Related parties transactions Revenue from related parties Type of transaction Related party Relation Amount 2012 Amaount 2011 Interest Odfjell Offshore Ltd Subsidiary Guarantee provision Odfjell Invest Ltd Subsidiary Guarantee provision Odfjell Rig AS Subsidiary Guarantee provision Odfjell Rig Ltd Subsidiary Guarantee provision Odfjell Drilling Services Ltd Subsidiary Sum Cost from related parties Type of transaction Related party Relation Amount 2012 Amount 2011 Management services Odfjell Drilling AS Subsidiary Interest Odfjell Drilling Services Ltd Subsidiary Sum Note 10 Financial income and expenses Other financial income: Foreign exchange profit Regulation bank balance Other financial income Gain on sale of bonds Total other financial income Other financial expenses: Interest expenses 0 Foreign exchange loss Regulation bank balance Bank charges 0 Other financial expenses Write down shares in subsidiaries Total other financial expenses B76

323 Odfjell Drilling Ltd. Notes 2012 Note 11 Guarantees and security Guarantee liabilities Parent company guarantee in relation to the subsidiaries' loan agreements; Loan agreement in Odfjell Drilling Services Ltd Loan agreement in Odfjell Invest Ltd Loan agreement in Odfjell Rig Ltd Total guarantee liabilities Book value of assets pledged as security The following assets are pledged as security by the parent company Odfjell Drilling Ltd Shares in Odfjell Offshore Ltd Shares in Odfjell Drilling Services Ltd Total book value of assets pledged as security Intra-group receivables (Odfjell Drilling group) Total book value of receivables pledged as security Note 12: Tax Note 13: Financial liabilities The table below summarises the maturity profile of the company's financial liabilities at 31 December 2012: Less than 3 months 3 to 12 months 1 to 5 years > 5 years Long term debt Long term loan from subsidiary Intercompany long term liabilities Intercompany short-term liabilities Total B77

324 Odfjell Drilling Ltd. Notes 2012 Note 14 Interest rate swap agreements As per a novation agreement entered into on 2 July 2010, two interest rate swaps were novated from Odfjell Capital (Bermuda) Ltd to Odfjell Drilling Ltd. Due to the agreed division of rights and obligations of the interest rate swaps between Odfjell Capital (Bermuda) Ltd and Odfjell Drilling Ltd., the principles of hedge accounting are not used in relation to the swaps. Market values have been used to determine the fair value of the interest rate swap agreements. At year end these interest rate swap agreements had a negative market value of USD 2,56 million. The market value has been posted as debt in the company's books at year end. The negative market value in addition to the net interest paid by Odfjell Drilling Ltd since 2 July 2010 in relation to the swaps are also posted as a receivable. Interest swap agreements at 31 December 2012: Fixed interest rate in % Due date Fair value Interest swap agreement, USD 165 million ( ) Interest swap agreement, USD 5 million (64 590) Total fair value pr ( ) B78

325 THE ODFJELL DRILLING GROUP Financial statements 2011 B79

326 B80

327 B81

328 B82

329 B83

330 B84

331 B85

332 B86

333 B87

334 B88

335 B89

336 B90

337 B91

338 B92

339 THE ODFJELL DRILLING GROUP Profit and loss statement - Group All figures in NOK OPERATING INCOME Note Operating income 20, Gain on sale of assets Total operating income OPERATING EXPENSES Personnel expenses 10,11, Depreciation and write-off Bad debts Other operating expenses Total operating expenses OPERATING PROFIT/LOSS FINANCIAL INCOME AND FINANCIAL EXPENSES Income from associates Interest income Other financial income Interest expenses to related parties Interest expenses Other financial expenses Net financial items ORDINARY PROFIT/LOSS BEFORE TAX Tax on ordinary result NET PROFIT FOR THE YEAR Minority share of profit for the year Majority share of profit for the year B93

340 THE ODFJELL DRILLING GROUP Assets - Group All figures in NOK FIXED ASSETS Note Intangible assets Goodwill Deferred tax asset Other intangible assets Total intangible assets Tangible fixed assets Periodic maintenance 4, Mobile drilling units 4, Machinery and equipment Total tangible fixed assets Financial fixed assets Pension funds Investments in associated companies Investments in shares Investments in bonds Other long-term receivables Total financial fixed assets Total fixed assets CURRENT ASSETS Spare parts Receivables Trade debtors Other receivables Total receivables Investments Other short-term investments Total investments Cash and bank deposits Total current assets TOTAL ASSETS B94

341 B95

342 THE ODFJELL DRILLING GROUP Cash flow statement - Group All figures in NOK Cash flow from activities Profit before tax Adjustments to reconcile profit before tax with net cash flow from operations: Depreciation Write off shares in limited partnership Loss on financial instruments Income from associates Net (gain)/loss on sale of shares Net (gain)/loss on sale of tangible fixed assets Changes in pension liabilities Changes in assets and liabilities: Accounts receivable Spare parts Tax payable Trade creditors Other accruals Net cash flow from operating activities Cash flow from investment activities: Investments in intangible and tangible fixed assets Investments in long-term receivables Repayment long-term receivables Investments in shares incl. associated companies Aquisition shares subsidiary Investments in bonds and other short term investments Devestments in bonds and other short term investments Sale of shares Sale of fixed assets Net cash flow from investment activities Cash flow from financing activities: Net changes in long-term liabilities Sale of shares - reduction of cash Dividends (paid) Capital paid to minorities Net cash flow from financing activities Net change in cash and cash equivalents for the year Cash and bank deposits as per Cash and bank deposits as per B96

343 The Odfjell Drilling Group ACCOUNTING PRINCIPLES General The accounting information presented here reflects the financial position of Odfjell Drilling Ltd. and its subsidiaries, which have been consolidated (group accounts). The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. Accounts for subgroups in the group are prepared for the subgroups Odfjell Offshore Ltd, Odfjell Drilling Services Ltd, Odfjell Invest Ltd, Odfjell Drilling AS and Odfjell Drilling Bergen AS. Accounts are not prepared for the other subgroups in the group, cf. the exception in the Norwegian Accounting Act section 3 7. Consolidation principles The consolidated accounts show the total financial result and the total financial position when the parent company Odfjell Drilling Ltd. and its controlling interests in other companies are presented as one financial unit. A controlling interest is normally obtained when the group owns more than 50% of the shares in the company and can exercise control over the company. Minority interests are included in the group s equity. Transactions between group companies have been eliminated in the consolidated financial statement. The consolidated financial statement has been prepared in accordance with the same accounting principles for both parent and subsidiary. The subsidiaries' accounts are incorporated into the consolidated accounts with effect from the date they were acquired. The cost price of the shares is eliminated against the equity of the respective subsidiaries using the acquisition method. Excess values over and above book values are recognised at gross value with provision being made for deferred tax, and any residual value is assigned to goodwill. Goodwill and permanent excess values relating to operating assets are depreciated over the expected useful life of the asset. An associate is an entity in which the group has a significant influence but does not control the management of its finances and operations (normally when the group owns 20%-50% of the company). The consolidated financial statements include the group s share of the profits/losses from associates, accounted for using the equity method, from the date when a significant influence is achieved and until the date when such influence ceases. When the group s share of a loss exceeds the group s investment in an associate, the amount carried in the group s balance sheet is reduced to zero and further losses are not recognised unless the Group has an obligation to cover any such loss. Investment in other companies than subsidiaries, associates and joint ventures are accounted for using the cost method. All companies that are defined as subsidiaries are included 100 per cent in the income statement and balance sheet. The minority interests' share of profit/loss and equity is specified. Group companies reporting in foreign currency are converted into NOK using the average currency rate on profit-and loss statement, and year end rates in the balance sheet. Currency differences related to consolidating the subsidiaries and the associates are adjusted against the group s equity. Through the elimination of internal accounts receivable and accounts payable, exchange rate differences are offset directly against equity. Recognition of income Most of the group's income is based on day rates from drilling contracts and other service contracts. The income is recognised in the income statement when the services are performed and at the rates specified in the contract. B97

344 The Odfjell Drilling Group ACCOUNTING PRINCIPLES Construction contracts Construction contracts are recognised in accordance with the percentage of completion method. The income is allocated in accordance with the progress of the contracts, if the outcome of the construction contracts can be estimated in a reliable manner. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts, when reliable estimates are available. When outcome of the contracts cannot be reliably estimated, only the income corresponding to the accrued costs will be entered as an income. In the period it is identified that a contract will give negative outcome, the estimated deficit on the contract will be fully allocated. Foreign currency Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Nonmonetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period. Financial risk - General The group's principal financial liabilities comprise bank loans, subordinated loan capital and trade payables. The main purpose of these financial liabilities is the financing of the group's operations. The group has financial assets such as cash, short-term investments and trade receivables. The group has also entered into derivative transactions, primarily currency forward contracts and interest rate swaps. The purpose is to manage the currency exposure arising from the group's operations and exposure of fluctuations in interest level. (I) Credit risk The market for the Company s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Company believes this risk is remote as the counterparties are of high credit quality parties. (II) Interest-rate risk The group's exposure to the risk of changes in market interest rates relates primarily to the group's long-term debt obligations at floating interest rates. The group evaluates the share of interest rate hedging based on assessment of the group s total interest rate risk.. (III) Liquidity risk The group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the group's strategic plan. The group monitors its liquidity risk using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets and projected cash flow from operations. (IV) Exchange-rate risk Most of the group's operating costs are in NOK, while investments and revenues are primarily in USD. The group has entered into forward currency contracts to manage the currency exposure arising from the group's operations. The group s main currency policy is that income in USD equivalent to the amount of all working expenses in NOK, are to be hedged in such manner that at all times minimum 50% of the total amount of income that cover the matching working expenses are hedged. B98

345 The Odfjell Drilling Group ACCOUNTING PRINCIPLES Capital management The group has adopted financial guidelines for the handling of deposits and placements. The objective of these guidelines is to reduce the risk of capital loss while maintaining maximum liquidity and availability of cash to fund the group's operations. The group shall at all times maintain a low risk profile, and shall maintain necessary funds in operating accounts or time deposits. The following instruments are allowed for short term placements: deposits in banks, loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt), certificates, money market funds. Use of estimates The management has used estimates and assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway. Classification of balance sheet items Assets identified as being permanently owned or used are fixed assets. Other assets are current assets. Liabilities which fall due more than one year after they are incurred are entered as long-term liabilities. Therefore, the first year's instalments on long-term loans are included in long-term liabilities. Liabilities which fall due for payment less than one year after being incurred are classified as shortterm liabilities. Tangible assets and goodwill Tangible assets and goodwill are entered in the accounts at acquisition cost minus accumulated depreciation and write-downs. Depreciation is linear over the expected useful life of the asset. Writedowns are done when fair value is lower than the book value and this is not expected to be temporary. The group's mobile units are expected to have a residual value at the end of their useful life. For other tangible assets no account has been taken of possible scrap value when calculating depreciation. When the market value of the assets increases above the book value, previous write-downs will be reversed according to the original depreciation plan. Periodic maintenance The group capitalises periodic maintenance on the group's mobile units and depreciates this until the next major planned maintenance. Spare parts Spare parts are recognised at the lower of cost price and market value. Spare parts are presented net after write-downs for obsolescence. Accounts receivable Trade debtors and other receivables are valued at net value after deductions for expected losses. Shares, bonds and money market funds Shares, bonds and money market funds are recognised at market value at year end. The group recognises losses during the period if market value is lower than book value. Cash and bank deposits Cash and bank deposits also include other liquid investments with a period to maturity of less than 90 days from the date of issue. Pensions Pension costs and pension liabilities are calculated on the basis of linear earnings based on assumptions regarding the discount rate, future wage increases, pensions and national insurance benefits, future returns on pension assets and actuarial assumptions about mortality, voluntary retirement etc. Pension assets are valued at fair value and deducted in net pension liabilities in the balance sheet. Changes in the liability that are due to changes in the pension plans are taken over the result with full effect in the B99

346 The Odfjell Drilling Group ACCOUNTING PRINCIPLES accounting year. When the accumulated effects of changes in estimates, changes in assumptions and deviation of actuarial assumptions are above 10 % of the larger gross pension liabilities and pension assets, the excess amount are recognized in the income statement over the estimated average remaining service period. A linear earning profile and expected salary on retirement are used in the accounts as the earnings basis. Leasing Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Cost of borrowings Costs in connection with borrowings are charged to income in the period during which the loan is drawn on, on a linear basis. Tax The tax expense in the accounts includes both tax payable for the period and change in deferred tax. Deferred tax is calculated at 28 per cent on the basis of the temporary differences that exist between accounting and tax values. Tax-increasing and tax-reducing temporary differences that are reversed or can be reversed in the same period are assessed and recognised at net value. Cash flow statement The cash flow statement is prepared using the indirect method. Events after the balance sheet date New information on the group's position on the balance sheet date is taken into account in the financial statements. Events after the balance sheet date that do not affect the group's position on the balance sheet date but which will affect the group's position in the future, are stated if they are significant. B100

347 The Odfjell Drilling Group NOTES 2011 Note 1 Receivables Trade debtors Other receivables Total The group receivables are all due within one year after the balance sheet date. Other receivables consist of the following main items: Reimbursables Other short-term receivables Pre-paid personnel insurance Other pre-payments VAT- receivables Accrued interest income Other current items Total Note 2 Cash and bank deposits / Short-term financial investments Cash and bank deposits Time deposits Restricted capital, advance from customer Restricted capital, tax deductions Total cash and bank deposits Other short-term investments Other short-term investments Note 3 Shareholders' equity Share capital Contributed capital Other equity Minorities Total Shareholders' equity as per Adjusted for error in earlier years` accounts Net result of the year Dividend Currency translation difference associates Currency translation difference subsidiaries Shareholders' equity as per B101

348 The Odfjell Drilling Group NOTES 2011 Note 4 Tangible and intangible assets Total assets Goodwill Other intangible assets, software Mobile drilling unit Periodic maintenance mobile drilling unit Machinery and equipment Total assets Acquisition cost as per Acquisition Disposals Currency deviations Acquisition cost as per Accumulated depreciation as per Disposals Ordinary depreciation Write-down - Currency deviations Accumulated depreciation as per Book value as per Useful life 5/20 years 3 years 35 years 5 years 3-12 years Depreciation plan Linear Linear Linear Linear Linear Leasing expenses operating assets The residual value of the rig Deepsea Bergen has been set at NOK 100 mill. at the end of the useful life. The recoverable amount for Deepsea Bergen are higher than carrying value. Goodwill relates to excess values in acquired subsidiaries. In accordance with NGAAP assumed financial life time is estimated to 5-20 years from acquisition date. The group is a leading company in the current business areas and is building the business activities in the future on the acquired experience. According to the group's long term business view, the main part of the goodwill are recognised on a straight-line basis over the useful life of 20 years Group Aquisition Aquisition Goodwill restructuring Drilltools AS Ntera Ltd. Total Book value as per Depreciation ( ) ( ) ( ) ( ) Write-down - Book value as per Useful life Depreciation plan Linear Linear Linear Mobile drilling units Year of construction Part as per Investments 2011 Depreciation 2011 Book value incl PM as per Deepsea Bergen* % Deepsea Atlantic % Deepsea Stavanger % TOTAL * The majority owns 71,526% of the rig. B102

349 The Odfjell Drilling Group NOTES 2011 Note 5 Share capital and shareholder information The share capital consists of No. of shares Nominal value Tot. book value Shares USD 0, Total USD 0, All shares carry equal voting rights. List of shareholders as per Shares Participating interests/ Share of votes Odfjell Drilling Holding Ltd % Total number of shares % Helene Odfjell controls 69% through Odfjell Partners Ltd. Marianne Odfjell family controls 25,9% of the shares in Odfjell Drilling Holding Ltd. Elin Odfjell controls 3,96% through the company ASEO Ltd and the CEO in Odfjell Drilling controls 0,47% personally. Note 6 Long-term liabilities Debt to credit institutions and other long-term liabilities Subordinated d loan capital Loans in USD presented in NOK Other long-term liabilities Total Loans in USD are stated at the year-end exchange rate. The group's interest-bearing loans from credit institutions have the following settlement structure: Year USD NOK Thereafter Total The Odfjell Drilling Group has repaid all external bank loans during 2011, and drawn up new loans of a total of MUSD B103

350 The Odfjell Drilling Group NOTES 2011 Note 7 Secured liabilities and partnership capital not called Secured liabilities Capitalized loan cost Net secured liabilities Book value of assets pledged as security Mobile drilling units Machinery and equipment Receivables Bank deposits Total Partnership capital not called As per , the group's share of non called-up limited partnership capital amounts to NOK 11,041,649. Note 8 Other short-term liabilities Other short-term liabilities Accrued other personnel expenses Other accrued expenses Advance payment from customer Advance payment from customer, construction contracts Accrued interest liability Other prepayments Total other short-term liabilities The group short -term liabilities are all due within one year after the balance sheet date. Construction contracts The Odfjell Drilling Group had in 2010 a few fixed price contruction contracts, and the revenue was recognised on the percentage of completion method. The stage of completion was measured by portion of costs incurred to date bear to the estimated total costs of the contracts. The fixed price construction contracts are presented as a net advance payment from customer, together with other short-term liabilities. Pr all construction contracts has been completed, and hence there are no advance payments from customer in the balance related to construction contracts Construction contracts under completion Advances received Net advance payment from customer B104

351 The Odfjell Drilling Group NOTES 2011 Note 9 Tax Tax expenses for the year are as follows: Tax payable Tax payable prior periods Change in deferred tax Total tax expenses The tax expenses 2011 are related to the legal entities in the Norwegian Tax regime. Deferred tax Deferred tax shows the effect of temporary differences that occur when assets and liabilities are valued for financial accounting and tax accounting purposes respectively. Deferred tax relates to the following main items Negative temporary differences Tax-related loss carryforward Receivables Current assets Net pension liabilities Net negative temporary differences Positive temporary differences Fixed assets Share in limited partnership Profit and loss account Net positive temporary differences Net temporary differences ( ) Deferred tax (+) / tax asset (-) ( ) Odfjell Rig Ltd, a wholly owned subsidiary of the Company incorporated in Bermuda, was notified by Norwegian Tax Authorities (Skatt Vest) late 2011 that income from its direct % participation in KS Deep Sea Drilling Company II (KS DSDC II) is deemed taxable in Norway for the income years KS DSDC II is the owner of the rig Deepsea Bergen, which has been leased to KS Deep Sea Drilling Company (KS DSDC) under a bareboat charter at a fixed dayrate of USD 171,557. KS DSDC has, in turn, entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the Norwegian Continental Shelf. Odfjell Rig Ltd has not received response to its reply to the tax authorities, arguing that the tax authorities assertion is based on wrong assumptions as to the factual circumstances in the case. There can be no assurances that the Norwegian Tax Authorities will accept the arguments set forth by Odfjell Rig Ltd and conclude that the company is not taxable in Norway for its participation in KS DSDC II. Hence, there is a risk that Odfjell Rig Ltd. will be deemed taxable in Norway for the income years (and/or subsequent years should the Norwegian Tax Authorities successfully challenge the company s tax treatment for these years). B105

352 The Odfjell Drilling Group NOTES 2011 Note 10 Pensions - defined benefit plans The group has a pension scheme covering a total of 1,665 persons, of which 105 pensioniers. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. These liabilities are covered through an insurance company (funded). The group also has a contractual pension agreement (CPA) covering 817 persons, of which 28 pensioniers. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer`s contribution to these benefits amounts to 20% of the pension paid. These liabilities are not covered through an insurance company (unfunded). A number of the Norwegian subsidiaries in the group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act. The defined benefit plans' pension expenses and liabilities are presented according to the Norwegian Accounting Standard no. 6 (NRS 6) unfunded funded unfunded funded Present value of pension entitlements Interest expenses on pension liabilities Anticipated return on pension funds Administrative expenses Periodised employer's national insurance contributions Effect of changes in estimates Net pension expenses Pension liabilities as per Pension funds (market value) as per Net pension liabilities as per Employer's national insurance contributions Changes in the estimates not recorded in the accounts Net pension liabilities (+) / assets (-) Pension liabilities Pension assets (pension funds) Net pension liabilities (+) / assets (-) Assumptions Discount rate 3,90 % 3,80 % Expected return on pension assets 4,80 % 4,60 % Expected wage adjustments 4,00 % 4,00 % Expected pension increase 0,70 % 3,75 % Expected increase in national insurance basic amount 3,75 % 3,75 % Early retirement acceptance rate 30,00 % 30,00 % Voluntary retirement by employees 4,00 % 4,00 % The actuarial assumptions are based on generally used assumptions in the insurance industry with respect to demographic factors and retirement. The above calculations are based on annual actuarial calculations. Defined pension contribution agreement In addition, the group has several defined pension contribution arrangement. By , these arrangements involve 607 employees. Employer's contribution 2011; NOK Weighted-average investment profile for plan assets at year end: Asset category Shares 9,2 % 20,9 % Bonds, short-dated 15,2 % 15,4 % Money market 22,3 % 11,5 % Bonds, long-dated 35,0 % 33,2 % Property 17,8 % 17,6 % Other 0,4 % 1,5 % 100,0 % 100,0 % The Group's pension schemes are with the life assurance company DNB Liv ASA. B106

353 The Odfjell Drilling Group NOTES 2011 Note 11 Payroll expenses Payroll expenses Salaries Employer`s national insurance contributions Pension expenses Other benefits Hired personnel Total No. of employees (annual average) Note 12 Remuneration of the board of directors, CEO and auditor Remuneration CEO Board of Directors Salary Bonus 0 Other benefits Pension costs Board of directors' fee No loans or guarantees have been given to the CEO, members of the Board or their related parties. Employee loans amount to a total of NOK pr Fee to the auditor: Statutory audit fee Assurance services Tax and legal advisory services Other services, not part of the auditing (ex. Legal consultancy) Total All fees to auditor presented above are without VAT. Note 13 Other financial income/expenses Realised exchange rate gains long term debt 0 0 Unrealised exchange rate gains long term debt Realised exchange rate gain other Unrealised exchange rate gain other Gain from sale of subsidiary Other financial income Total other financial income Realised exchange rate loss long term debt Unrealised exchange rate loss long term debt Realised exchange rate loss other Unrealised exchange rate loss other Other financial expenses Total other financial expenses Note 14 Spare parts Inventory of spare parts is carried at cost price and is written down when its assumed market value is lower than the cost price. Note 15 Hedging of income Some of the subsidiaries had forward contracts during As per , there are no active forward contracts since alle contracts were closed in January Normally profit/loss related to the forward contracts are booked in the same period as the income is earned when forward contracts qualify as hedging instruments. When forward contracts qualify as hedging instruments the contracts are not capitalised and not presented in the balance sheet. B107

354 The Odfjell Drilling Group NOTES 2011 Note 16 Group companies Companies Main office Voting and owning interest Subsidiaries Bergen Drillpart AS Bergen, Norway % Deep Sea Drilling Company AS Bergen, Norway % Deep Sea Drilling Company II AS Bergen, Norway % Deep Sea Management AS Bergen, Norway % Deep Sea Management Ltd. FZE UAE % Deep Sea Mooring AS Sola, Norway % Deep Sea Rig AS Bergen, Norway % Odfjell Casing Services AS Sola, Norway % Odfjell Drilling (UK) Ltd Aberdeen, UK % Odfjell Drilling AS Bergen, Norway % Odfjell Drilling Coöperatief U.A. Amsterdam, the Netherlands % Odfjell Drilling Management AS Bergen, Norway % Odfjell Drilling Shetland Ltd Aberdeen, UK % Odfjell Drilling Technology AS Bergen, Norway % Odfjell Drilling Technology Ltd Hamilton, Bermuda % Odfjell Invest AS Bergen, Norway % Odfjell Invest Holland BV Amsterdam, the Netherlands 100,00 % Odfjell Invest I Ltd Hamilton, Bermuda 100,00 % Odfjell Invest II Ltd Hamilton, Bermuda 100,00 % Odfjell Invest Ltd Hamilton, Bermuda 100,00 % Odfjell Operations Ltd Hamilton, Bermuda % Odfjell Partners Invest Ltd Hamilton, Bermuda % Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil 100,00 % Odfjell Rental Services AS Sola, Norway % Odfjell Rig AS Bergen, Norway % Odfjell Rig Ltd Hamilton, Bermuda % Odfjell Technology Manila Corporation Manila, Philippines % Odfjell Well Services Europe AS Bergen, Norway % Odfjell Well Services Ltd British Virgin Islands % Limited partnerships Deep Sea Drilling Company KS Bergen, Norway % Deep Sea Drilling Company II KS Bergen, Norway % KS AS Bergen Drillpart Oslo, Norway % The following group companies were acquired/established in 2011: Odfjell Arabia Drilling Services LLC Saudi Arabia % Odfjell Drilling Bergen AS Bergen, Norway % Odfjell Drilling Netherlands BV Amsterdam, the Netherlands % Odfjell Galvão BV Amsterdam, the Netherlands % Odfjell Offshore Ltd Hamilton, Bermuda % Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil % Odfjell Rig II Ltd Hamilton, Bermuda % Odfjell Rig III Ltd Hamilton, Bermuda % Odfjell Well Services II Ltd Hamilton, Bermuda % Odfjell Well Services SRL Bucharest, Romania % The following companies were sold in 2011: Odfjell Drilling Services LLC Saudi Arabia % Odfjell Invest Holland II BV Amsterdam, the Netherlands % Odfjell Well Management AS Bergen, Norway % Odfjell Well Management Consultants AS Bergen, Norway % B108

355 The Odfjell Drilling Group NOTES 2011 Note 17 Subordinated loan capital Subordinated loans including accrued interest Odfjell Partners Ltd. NOK Total NOK The loan from Odfjell Partners Ltd.was defined as a subordinated loan and was subordinated other secured liabilities. Interest for 2011 of NOK 1,447,941 was accumulated to the loan balance and paid at repayment of loan. Note 18 Guarantees and loans Odfjell Drilling Ltd. has furnished guarantees with joint and several liability for the outstanding loan amount in the group's loan agreements. Note 19 Minority interests Minority interests represent external shares in Odfjell Drilling subsidiaries. The minority's share of: Operating profit/loss Pre-tax profit/loss Tax income / expense The minority interests have developed as follows: Minority interests as per Minority interests' share of the year's profit/loss Capital payments to minority interests Currency differences Minority interests as per Note 20 Operating income By business area (in NOK '000) (in NOK '000) Operations, drilling units Well services Odfjell Drilling & Technology Other Operating income By geography (in NOK '000) (in NOK '000) Norway UK Denmark Europe, other countries Middle East Phillipines Africa Operating income B109

356 The Odfjell Drilling Group NOTES 2011 Note 21 Investment in associates Company Acquisition Registered office Share ownership Voting rights Petro Services West Group AS 2010 Bergen, Norway 50,00 % 50,00 % Ross Holding AS Group 2011 Stavanger, Norway 50,00 % 50,00 % Deep Sea Metro Ltd 2008 Hamilton, Bermuda 40,00 % 40,00 % The associated companies PSW Group AS, Ross Holding AS Group and Deep Sea Metro Ltd. are valued and presented by using the equity method in the consolidated financial statements. The 50% share in Ross Holding Group AS was acquired as a part of the sale of the subsidiary Odfjell Well Management AS in As a part of the payment from sale of Odfjell Well Management AS, Odfjell Drilling Group received 50% of the shares in Ross Holding AS Group PSW Group AS Ross Holding Group AS Deep Sea Metro Ltd Total PSW Group AS Deep Sea Metro Ltd Total Book value of equity at Investments/Aquisitions during the year Share of profits ( ) ( ) ( ) ( ) ( ) Currency translation effect NOK/USD ( ) Amortization of excess value ( ) ( ) ( ) ( ) ( ) Write down of excess value ( ) ( ) Book value of equity at Note 22 Investment in other companies Share ownership/ Financial fixed assets Acquisition/ formation date Registered office Percentage of votes Book value Meland Golfklubb Meland, Norway Westfal-Larsen Chemical Carriers I KS 2006 Bergen, Norway 7,14 % Total As per , the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS amounts to NOK B110

357 The Odfjell Drilling Group NOTES 2011 Note 23 Other operating expenses Other operating expenses Consumption of purchased goods for resale Hired services and subcontractors Hire machines, fixtures and fittings Tools, fixtures and fittings, and working plant Repair and maintenance Insurance, guarantee and service costs Loss Other operating and administrative expenses Total Note 24 Other long term receivables Other long term receivables Loan to employees Loan to associate Other long term accruals Total Note 25 Related parties transactions Management services Kokstad Invest AS Related parties Management services Kokstad Invest Holding AS Related parties Management services Kokstad Eiendom AS Related parties Management services Sandslimarka 185 AS Related parties Total Interest expenses Odfjell Partners Ltd Related party Office rent Kokstad Invest AS Related party Office rent Sandslimarka 185 AS Related party B111

358 B112

359 1 B113

360 B114

361 B115

362 B116

363 Odfjell Drilling Ltd. Notes 2011 Helene Odfjell controls 69,67% through Odfjell Partners Ltd, Marianne Odfjell controls 25,9% personally, Abraham Odfjell controls 3,96% though the company ASEAO Ltd and the CEO in Odfjell Drilling controls 0,47% personally. B117

364 Odfjell Drilling Ltd. Notes 2011 B118

365 Odfjell Drilling Ltd. Notes 2011 Interest Subsidiary Interest Subsidiary Interest Subsidiary Interest Subsidiary Interest Subsidiary Interest Odfjell Invest Ltd Subsidiary Interest Subsidiary Interest Subsidiary Management services Odfjell Drilling AS Subsidiary Interest Odfjell Rig Ltd Subsidiary Interest Odfjell Drilling Services Ltd Subsidiary B119

366 Odfjell Drilling Ltd. Notes 2011 Loan agreement in Odfjell Drilling Services Ltd Loan agreement in Odfjell Invest Ltd B120

367 THE ODFJELL DRILLING GROUP Financial statements 2010 B121

368 B122

369 B123

370 B124

371 B125

372 B126

373 B127

374 B128

375 B129

376 B130

377 B131

378 B132

379 THE ODFJELL DRILLING GROUP Profit and loss statement - Group OPERATING INCOME Note Operating income 20, Gain on sale of assets Other operating income 0 Total operating income OPERATING EXPENSES Personnel expenses 10,11, Depreciation and write-off Bareboat hire Bad debts Other operating expenses Total operating expenses OPERATING PROFIT/LOSS FINANCIAL INCOME AND FINANCIAL EXPENSES Income from associates Interest income Other financial income Interest expenses Other financial expenses Net financial items ORDINARY PROFIT/LOSS BEFORE TAX Tax on ordinary result NET PROFIT FOR THE YEAR Minority share of profit for the year Majority share of profit for the year B133

380 THE ODFJELL DRILLING GROUP Assets - Group FIXED ASSETS Note Intangible assets Goodwill Deferred tax asset Other intangible assets Total intangible assets Tangible fixed assets Periodic maintenance 4, Mobile drilling units 4, Machinery and equipment Total tangible fixed assets Financial fixed assets Pension funds Investments in associated companies Subordinated loan to associated companies Investments in shares Investments in bonds Other long-term receivables Total financial fixed assets Total fixed assets CURRENT ASSETS Spare parts Receivables Trade debtors Other receivables Total receivables Investments Other short-term investments Total investments Cash and bank deposits Total current assets TOTAL ASSETS B134

381 B135

382 THE ODFJELL DRILLING GROUP Cash flow statement - Group Cash flow from activities Profit before tax Adjustments to reconcile profit before tax with net cash flow from operations: Depreciation Recognition negative excess value Income from associates Net (gain)/loss on sale of tangible fixed assets Changes in pension liabilities Changes in assets and liabilities: Accounts receivables Spare parts Tax payable Trade creditors Other accruals Net cash flow from operating activities Cash flow from investment activities: Investments in intangible and tangible fixed assets Investments in long-term receivables Repayment long-term receivables Investments in shares incl. associated companies Aquisition shares subsidiary Investments in bonds and other short term investments Sale of shares Sale of fixed assets Net cash flow from investment activities Cash flow from financing activities: Changes in long-term liabilities Dividends (paid) Capital paid to minorities Net cash flow from financing activities Net change in cash and cash equivalents for the year Cash and bank deposits as per Cash and bank deposits as per B136

383 The Odfjell Drilling Group ACCOUNTING PRINCIPLES General The accounting information presented here reflects the financial position of Odfjell Drilling Ltd. and its subsidiaries, which have been consolidated (group accounts). The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. Accounts for subgroups in the group are only prepared for the subgroup Odfjell Drilling AS. Accounts are not prepared for the other subgroups in the group, cf. the exception in the Norwegian Accounting Act section 3 7. Consolidation principles The consolidated accounts show the total financial result and the total financial position when the parent company Odfjell Drilling Ltd. and its controlling interests in other companies are presented as one financial unit. A controlling interest is normally obtained when the group owns more than 50% of the shares in the company and can exercise control over the company. Minority interests are included in the group s equity. Transactions between group companies have been eliminated in the consolidated financial statement. The consolidated financial statement has been prepared in accordance with the same accounting principles for both parent and subsidiary. The subsidiaries' accounts are incorporated into the consolidated accounts with effect from the date they were acquired. The cost price of the shares is eliminated against the equity of the respective subsidiaries using the acquisition method. Excess values over and above book values are recognised at gross value with provision being made for deferred tax, and any residual value is assigned to goodwill. Goodwill and permanent excess values relating to operating assets are depreciated over the expected useful life of the asset. An associate is an entity in which the group has a significant influence but does not control the management of its finances and operations (normally when the group owns 20%-50% of the company). The consolidated financial statements include the group s share of the profits/losses from associates, accounted for using the equity method, from the date when a significant influence is achieved and until the date when such influence ceases. When the group s share of a loss exceeds the group s investment in an associate, the amount carried in the group s balance sheet is reduced to zero and further losses are not recognised unless the Group has an obligation to cover any such loss. Investment in other companies than subsidiaries, associates and joint ventures are accounted for using the cost method. All companies that are defined as subsidiaries are included 100 per cent in the income statement and balancesheet. The minority interests' share of profit/loss and equity is specified. Group companies reporting in foreign currency are converted into NOK using the average currency rate on profit-and loss statement, and year end rates in the balance sheet. Currency differences related to consolidating the subsidiaries and the associates are adjusted against the group s equity. Through the elimination of internal accounts receivable and accounts payable, exchange rate differences are offset directly against equity. Recognition of income Most of the group's income is based on day rates from drilling contracts and other service contracts. The income is recognised in the income statement when the services are performed and at the rates specified in the contract. B137

384 The Odfjell Drilling Group ACCOUNTING PRINCIPLES Construction contracts Construction contracts are recognised in accordance with the percentage of completion method. The income is allocated in accordance with the progress of the contracts, if the outcome of the construction contracts can be estimated in a reliable manner. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts, when reliable estimates are available. When outcome of the contracts cannot be reliably estimated, only the income corresponding to the accrued costs will be entered as an income. In the period it is identified that a contract will give negative outcome, the estimated deficit on the contract will be fully allocated. Foreign currency Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Nonmonetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period. Financial risk - General The group's principal financial liabilities comprise bank loans, subordinated loan capital and trade payables. The main purpose of these financial liabilities is the financing of the group's operations. The group has financial assets such as cash, short-term investments and trade receivables. The group has also entered into derivative transactions, primarily currency forward contracts. The purpose is to manage the currency exposure arising from the group's operations. (I) Credit risk The market for the Company s services is the offshore oil and gas industry, and the customers consist primarily of major integrated oil companies, independent oil and gas producers and government-owned oil companies. The Company performs ongoing credit evaluations of the customers and generally do not require material collateral. Reserves for potential credit losses are maintained when necessary. With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents, marketable securities, other receivables and certain derivatives instruments receivable amount, the Company's exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. However, the Company believes this risk is remote as the counterparties are of high credit quality parties. (II) Interest-rate risk The group's exposure to the risk of changes in market interest rates relates primarily to the group's long-term debt obligations at floating interest rates. The group evaluates the share of interest rate hedging based on assessment of the group s total interest rate risk.. (III) Liquidity risk The group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the group's strategic plan. The group monitors its liquidity risk using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets and projected cash flow from operations. (IV) Exchange-rate risk Most of the group's operating costs are in NOK, while investments and revenues are primarily in USD. The group has entered into forward currency contracts to manage the currency exposure arising from the group's operations. The group s main currency policy is that income in USD equivalent to the amount of all working expenses in NOK, are to be hedged in such manner that at all times minimum 50% of the total amount of income that cover the matching working expenses are hedged. B138

385 The Odfjell Drilling Group ACCOUNTING PRINCIPLES Capital management The group has adopted financial guidelines for the handling of deposits and placements. The objective of these guidelines is to reduce the risk of capital loss while maintaining maximum liquidity and availability of cash to fund the group's operations. The group shall at all times maintain a low risk profile, and shall maintain necessary funds in operating accounts or time deposits. The following instruments are allowed for short term placements: deposits in banks, loans to companies/institutions/funds (like fixed or floating rate bonds, senior or subordinated debt), certificates, money market funds. Use of estimates The management has used estimates and assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway. Classification of balance sheet items Assets identified as being permanently owned or used are fixed assets. Other assets are current assets. Liabilities which fall due more than one year after they are incurred are entered as long-term liabilities. Therefore, the first year's instalments on long-term loans are included in long-term liabilities. Liabilities which fall due for payment less than one year after being incurred are classified as shortterm liabilities. Tangible assets and goodwill Tangible assets and goodwill are entered in the accounts at acquisition cost minus accumulated depreciation and write-downs. Depreciation is linear over the expected useful life of the asset. Writedowns are done when fair value is lower than the book value and this is not expected to be temporary. The group's mobile units are expected to have a residual value at the end of their useful life. For other tangible assets no account has been taken of possible scrap value when calculating depreciation. When the market value of the assets increases above the book value, previous write-downs will be reversed according to the original depreciation plan. Periodic maintenance The group capitalises periodic maintenance on the group's mobile units and depreciates this until the next major planned maintenance. Spare parts Spare parts are recognised at the lower of cost price and market value. Spare parts are presented net after write-downs for obsolescence. Accounts receivable Trade debtors and other receivables are valued at net value after deductions for expected losses. Shares, bonds and money market funds Shares, bonds and money market funds are recognised at market value at year end. The group recognises losses during the period if market value is lower than book value. Cash and bank deposits Cash and bank deposits also include other liquid investments with a period to maturity of less than 90 days from the date of issue. Pensions Pension costs and pension liabilities are calculated on the basis of linear earnings based on assumptions regarding the discount rate, future wage increases, pensions and national insurance benefits, future returns on pension assets and actuarial assumptions about mortality, voluntary retirement etc. Pension assets are valued at fair value and deducted in net pension liabilities in the balance sheet. Changes in B139

386 The Odfjell Drilling Group ACCOUNTING PRINCIPLES the liability that are due to changes in the pension plans are taken over the result with full effect in the accounting year. When the accumulated effects of changes in estimates, changes in assumptions and deviation of actuarial assumptions are above 10 % of the larger gross pension liabilities and pension assets, the excess amount are recognized in the income statement over the estimated average remaining service period. A linear earning profile and expected salary on retirement are used in the accounts as the earnings basis. Leasing Operating lease payments are recognised as an expense in the income statement on a straight line basis over the lease term. Cost of borrowings Costs in connection with borrowings are charged to income in the period during which the loan is drawn on, on a linear basis. Tax The tax expense in the accounts includes both tax payable for the period and change in deferred tax. Deferred tax is calculated at 28 per cent on the basis of the temporary differences that exist between accounting and tax values. Tax-increasing and tax-reducing temporary differences that are reversed or can be reversed in the same period are assessed and recognised at net value. Cash flow statement The cash flow statement is prepared using the indirect method. Events after the balance sheet date New information on the group's position on the balance sheet date is taken into account in the financial statements. Events after the balance sheet date that do not affect the group's position on the balance sheet date but which will affect the group's position in the future, are stated if they are significant. B140

387 The Odfjell Drilling Group NOTES 2010 Note 1 Receivables Trade debtors Other receivables Total The trade debtors are primarily major national and international oil and gas companies. At year end there were provisons for bad debts in total of MNOK 42,7. Of these, MNOK 8,3 are related to Odfjell Drilling Technology AS and MNOK 26,8 are related to Odfjell Well Services Ltd. The group expensed bad debts of MNOK 673,6 in 2010, mostly related to receivables that Odfjell Invest AS had towards Statoil ASA. The group receivables are all due within one year after the balance sheet date. Other receivables consist of the following main items: Reimbursables Other short-term receivables Pre-paid personnel insurance Other pre-payments VAT- receivables Accrued interest income Other current items Total Note 2 Cash and bank deposits / Short-term financial investments Cash and bank deposits Time deposits Restricted capital, advance from customer Restricted capital, tax deductions Total cash and bank deposits Bonds Shares for trading Other short-term investments Other short-term investments Note 3 Shareholders' equity Share capital Contributed capital Other equity Minorities Total Shareholders' equity as per Capital increase Repayment of capital contributions to minorities Adjusted for error in earlier years` accounts Net result of the year Dividend Currency difference associates Currency difference subsidiaries Shareholders' equity as per B141

388 The Odfjell Drilling Group NOTES 2010 Note 4 Tangible and intangible assets Total assets Goodwill Other intangible assets, software Mobile drilling unit Periodic maintenance mobile drilling unit Machinery and equipment Total assets Acquisition cost as per Acquisition Disposals Currency deviations Acquisition cost as per Accumulated depreciation as per Disposals Ordinary depreciation Write-down Currency deviations Accumulated depreciation as per Book value as per Useful life 5/20 years 3 years 35 years 5 years 3-12 years Depreciation plan Linear Linear Linear Linear Linear Leasing expenses operating assets The residual value of the rig Deepsea Bergen has been set at NOK 100 mill. at the end of the useful life. The recoverable amount for Deepsea Bergen are higher than carrying value. The residual value of the rig Deepsea Atlantic has been set at 100 MUSD at the end of the useful life. The recoverable amount for Deepsea Atlantic are higher than carrying value. The residual value of the rig Deepsea Stavanger has been set at 100 MUSD at the end of the useful life. The recoverable amount for Deepsea Stavanger are higher than carrying value. Goodwill relates to excess values in acquired subsidiaries. In accordance with NGAAP assumed financial life time is estimated to 5-20 years from acquisition date. The group is a leading company in the current business areas and is building the business activities in the future on the acquired experience. According to the group's long term business view, the main part of the goodwill are recognised on a straight-line basis over the useful life of 20 years. Goodwill 2002 Group restructuring 2004 Acquisition Drilltools AS 2005 Acquisition Ntera Ltd. Total Book value as per Depreciation ( ) ( ) ( ) ( ) Write-down - Book value as per Useful life Depreciation plan Linear Linear Linear Mobile drilling units Year of construction Part as per Investments 2010 Depreciation 2010 Book value incl PM as per Deepsea Bergen* % Deepsea Atlantic % Deepsea Stavanger % TOTAL * The majority owns 71,526% of the rig. The Odfjell Drilling Group has a lease and management agreement with Songa Offshore regarding Songa Delta (former Deepsea Delta) which has been effective throughout the year The mobile drilling unit Deepsea Trym was sold to Songa Offshore ASA in 2007, and was bareboat chartered by the owners to Group company Deep Sea Rig AS until ending the curent StatoilHydro contract the 2 February The mobile unit changed name to Songa Trym during 1Q B142

389 The Odfjell Drilling Group NOTES 2010 Note 5 Share capital and shareholder information The share capital consists of No. of shares Nominal value Tot. book value Shares USD 0, Total USD 0, All shares carry equal voting rights. List of shareholders as per Outstanding shares Participating interests/ Share of votes Odfjell Drilling Holding Ltd % Total number of shares % Helene Odfjell controls 69,67% through Odfjell Partners Ltd, Marianne Odfjell controls 25,9% personally, Abraham Odfjell controls 3,96% though the company ASEAO Ltd and the CEO in Odfjell Drilling controls 0,47% personally. Note 6 Long-term liabilities Debt to credit institutions and other long-term liabilities Subordinated loan capital Loans in USD in NOK Other long-term liabilities Total Loans in USD are stated at the year-end exchange rate. The group's interest-bearing loans from credit institutions have the following settlement structure: Year USD NOK Thereafter Total Approx. MNOK 66 of other long-term liabilities consists of negative fair market values on two interest swaps agreement entered into by Odfjell Drilling Ltd. B143

390 Note 7 Secured liabilities and partnership capital not called The Odfjell Drilling Group NOTES Secured liabilities Book value of assets pledged as security Mobile drilling units Receivables Bank deposits Total Partnership capital not called As per , the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS to NOK 11,471,429. Note 8 Other short-term liabilities Earned, not invoiced income Other short-term liabilities Accrued other personnel expenses Accrued interest liability Other accrued expenses Advance payment from customer Advance payment from customer, construction contracts Short-term loans 0 Total other short-term liabilities The group short -term liabilities are all due within one year after the balance sheet date. Construction contracts The Odfjell Drilling Group has a few fixed price construction contracts, and the revenue is recognised on the percentage of completion method. The stage of completion is measured by portion of costs incurred to date bear to the estimated total costs of the contracts. The fixed price construction contracts are presented as a net advance payment from customer, together with other Construction contracts under completion Advances received Net advance payment from customer The stage of completion per 31 Dec 2010 : 51% B144

391 Note 9 Tax The Odfjell Drilling Group NOTES 2010 Tax expenses for the year are as follows: Tax payable Tax payable prior periods Tax expenses prior periods Adjustment from prior periods Change in deferred tax Total tax income/expenses (-/+) The tax income in 2010 are related to the legal entities in the Norwegian Tax regime. Deferred tax Deferred tax shows the effect of temporary differences that occur when assets and liabilities are valued for financial accounting and tax accounting purposes respectively. Deferred tax relates to the following main items Negative temporary differences Tax-related loss carryforward Long term liabilities in foreign currency Provisions in accordance with NGAAP Current assets Net pension liabilities Net negative temporary differences Positive temporary differences Fixed assets Current assets Share in limited partnership Profit and loss account Net positive temporary differences Net temporary differences ( ) Deferred tax asset/ deferred tax liability ( ) B145

392 The Odfjell Drilling Group NOTES 2010 Note 10 Pensions - defined benefit plans The group has a pension scheme covering a total of 1,650 persons, of which 106 pensioniers. The scheme entitles staff to defined future benefits. These are mainly dependent on the number of years of service, the salary level at pensionable age and the size of benefits paid by the national insurance. These liabilities are covered through an insurance company (funded). The group also has a contractual pension agreement (CPA) covering 1,442 persons, of which 38 pensioniers. The agreement entitles staff to benefits from the age of 62 until they are eligible for a national insurance pension when reaching the age of 67. The employer`s contribution to these benefits amounts to 20% of the pension paid. These liabilities are not covered through an insurance company (unfunded). A number of the Norwegian subsidiaries in the group are required to have a civil service pension scheme according to the Norwegian Act relating to mandatory occupational pensions. These subsidiaries have pension schemes in accordance with the requirements in this Act. The defined benefit plans' pension expenses and liabilities are presented according to the Norwegian Accounting Standard no. 6 (NRS 6) unfunded funded unfunded funded Present value of pension entitlements Interest expenses on pension liabilities Anticipated return on pension funds Administrative expenses Periodised employer's national insurance contributions Effect of changes in estimates Net pension expenses Pension liabilities as per Pension funds (market value) as per Net pension liabilities as per Employer's national insurance contributions Changes in the estimates not recorded in the accounts Net pension liabilities (+) / assets (-) Pension liabilities Pension assets (pension funds) Net pension liabilities (+) / assets (-) Assumptions Discount rate 3,80 % 5,40 % Expected return on pension assets 4,60 % 5,60 % Expected wage adjustments 4,00 % 4,25 % Expected pension increase 3,75 % 4,00 % Expected increase in national insurance basic amount 3,75 % 4,00 % Early retirement acceptance rate 30,00 % 30,00 % Voluntary retirement by employees 4,00 % 4,00 % The actuarial assumptions are based on generally used assumptions in the insurance industry with respect to demographic factors and retirement. The above calculations are based on annual actuarial calculations. Defined pension contribution agreement In addition, the group has several defined pension contribution arrangement. By , these arrangements involve 409 employees. Employer's contribution 2010; NOK Weighted-average investment profile for plan assets at year end: Asset category Shares 20,9 % 13,5 % Bonds, short-dated 15,4 % 23,3 % Money market 11,5 % 8,5 % Bonds, long-dated 33,2 % 35,7 % Property 17,6 % 16,6 % Other 1,5 % 2,4 % 100,0 % 100,0 % The Group's pension schemes are with the life assurance company Vital Forsikring ASA. B146

393 The Odfjell Drilling Group NOTES 2010 Note 11 Payroll expenses Payroll expenses Salaries Employer`s national insurance contributions Pension expenses Other benefits Total No. of employees (annual average) Note 12 Remuneration of the board of directors, CEO and auditor Remuneration CEO Board of Directors Salary Bonus Other benefits Pension costs Board of directors' fee No loans or guarantees have been given to the CEO, members of the Board or their related parties. Employee loans amount to a total of NOK Fee to the auditor: Statutory audit fee ex VAT Assurance services ex VAT Tax and legal advisory services ex VAT Note 13 Other financial income/expenses Realised exchange rate gains long term debt Unrealised exchange rate gains long term debt Realised exchange rate gain other Unrealised exchange rate gain other - - Other financial income Total other financial income Realised exchange rate loss long term debt Unrealised exchange rate loss long term debt - - Realised exchange rate loss other Unrealised exchange rate loss other Change in value market based short term financial investments - - Other financial expenses Write off shares in limited partnership - - Total other financial expenses Note 14 Spare parts Inventory of spare parts is carried at cost price and is written down when its assumed market value is lower then the cost price. Note 15 Hedging of income Some of the subsidiaries have signed forward contracts on part of the income in USD against NOK. As per , the amount of the income sold was USD 31.5 mill. at an average exchange rate of USD/NOK 7.2. The signed contracts mature between 15 January 2011 and 15 July Unrealised gain related to the forward contracts amounts to MNOK 38 at year end Profit/loss related to the forward contracts are booked in the same period as the income is earned. The signed forward contrcats are not capialised and presented in the balace sheet. B147

394 The Odfjell Drilling Group NOTES 2010 Note 16 Group companies Companies Main office Voting and owning interest Subsidiaries Bergen Drillpart AS Bergen, Norway % Deep Sea Drilling Company AS Bergen, Norway % Deep Sea Drilling Company II AS Bergen, Norway % Deep Sea Management AS Bergen, Norway % Deep Sea Management Ltd. FZE UAE % Deep Sea Mooring AS Sola, Norway % Deep Sea Rig AS Bergen, Norway % Odfjell Casing Services AS Sola, Norway % Odfjell Drilling AS Bergen, Norway % Odfjell Drilling Management AS Bergen, Norway % Odfjell Drilling Services LLC Saudi Arabia % Odfjell Drilling Technology AS Bergen, Norway % Odfjell Drilling Technology Ltd Hamilton, Bermuda % Odfjell Drilling (UK) Ltd Aberdeen, UK % Odfjell Operations Ltd Hamilton, Bermuda % Odfjell Partners Invest Ltd Hamilton, Bermuda % Odfjell Rental Services AS Sola, Norway % Odfjell Rig AS Bergen, Norway % Odfjell Rig Ltd Hamilton, Bermuda % Odfjell Technology Manila Corporation Manila, Philippines % Odfjell Well Management AS Bergen, Norway % Odfjell Well Services Ltd British Virgin Islands % Odfjell Well Services Europe AS Bergen, Norway % Limited partnerships Deep Sea Drilling Company KS Bergen, Norway 71,52 % Deep Sea Drilling Company II KS Bergen, Norway 71,52 % KS AS Bergen Drillpart Oslo, Norway % The following companies were established in 2010: Odfjell Consulting AS Bergen, Norway % Odfjell Drilling Caspian Ltd. Aberdeen, UK 100,00 % Odfjell Drilling Coöperative U.A. Coevorden, the Netherlands 100,00 % Odfjell Perfurações e Serviços Ltda Rio de Janeiro, Brazil 100,00 % Odfjell Well Management Consultants AS Bergen, Norway % The following company was sold in 2010: Odfjell Consulting AS Bergen, Norway 100,00 % The following companies were bought in 2010: Odfjell Invest Ltd Hamilton, Bermuda 100,00 % Odfjell Invest I Ltd Hamilton, Bermuda 100,00 % Odfjell Invest II Ltd Hamilton, Bermuda 100,00 % Odfjell Invest Holland BV Coevorden, the Netherlands 100,00 % Odfjell Invest Holland II BV Coevorden, the Netherlands 100,00 % PSW Group AS Bergen, Norway 50,00 % B148

395 The Odfjell Drilling Group NOTES 2010 Note 17 Subordinated loan capital Subordinated loans including accrued interest Odfjell Partners Ltd. NOK Total NOK The loan from Odfjell Partners Ltd.was defined as a subordinated loan and was subordinated other secured liabilities. Interest for 2010 of NOK was accumulated to the loan balance and paid at repayment of loan. Note 18 Guarantees and loans Odfjell Drilling Ltd. has furnished guarantees with joint and several liability for the outstanding loan amount in the group's loan agreements. Note 19 Minority interests Minority interests represent external shares in Odfjell Drilling subsidiaries. The minority's share of: Operating profit/loss Pre-tax profit/loss Tax income / expense The minority interests have developed as follows: Minority interests as per Changes in minotity interests Minority interests' share of the year's profit/loss Capital payments to minority interests Currency differences 0 Minority interests as per Note 20 Operating income By business area (in NOK '000) (in NOK '000) Operations, drilling units Well services Technology Other Operating income By geography (in NOK '000) (in NOK '000) Norway UK Denmark Europe, other countries Middle East Phillipines Tanzania Operating income B149

396 The Odfjell Drilling Group NOTES 2010 Note 21 Investment in associates Company Acquisition Registered office Share ownership Voting rights Petro Services West Group AS 2010 Bergen, Norway 50,00 % 50,00 % Deep Sea Metro Ltd 2008 Hamilton, Bermuda 40,00 % 40,00 % The associated companies Deep Sea Metro Ltd. and PSW Group AS are valued and presented by using the equity method in the consolidated financial statements PSW Group AS Deep Sea Metro Ltd Total Odfjell Invest Ltd Deep Sea Metro Ltd Total Book value of equity at Investments/Aquisitions during the year Share of profits Convertion from IFRS to NGAAP Currency translation effect NOK/USD Amortization of excess value Book value of equity at Odfjell Invest Ltd Odfjell Drilling Ltd aquired 70,754% of the shares in Odfjell Invest Ltd pr 1st of July Pr Odfjell Invest Ltd is a 100% owned subsidiary of Odfjell Drilling Ltd. Odfjell Invest Group was incorporated in the Odfjell Drilling group pr Negative excess value on NOK is related to the uncertainty of the outcome of the dispute between Odfjell Invest AS and Statoil ASA. Since the dispute is solved pr , the negative excess value has been taken as income in The share of profits related to Odfjell Invest Ltd as an associated company for first half of 2010 is NOK. Share of profits for first half of 2010 has been taken as income in the financial statement for Petro Service West Group AS PSW Group AS was incorporated in March 2010, and is owned by Odfjell Drilling Technology Ltd (50%) and Dalseide & Fløysand AS (50%). PSW Group's subsidiaries are PSW Consultants AS, PSW Property AS, Fedje Sikkerhetssenter AS and PSW Subsea & Drilling AS. Former subsiduary of Odfjell Drilling Technology Ltd, Deep Fjord Consultants AS has changed name to PSW Consultants AS. At 31st of December 2010, excess value amounts to NOK. Excess value is amortized over 5 years from aquisition of the shares in PSW Group AS pr March The amortization of excess value for 2010 amounts to NOK. Aquisition cost of the shares in PSW Group AS was 16,6 MNOK. The equity in PSW Group AS pr (aquisition date) was 16,1 MNOK. Deep Sea Metro Ltd. Deep Sea Metro Ltd was incorporated in September 2008, and is own by Odfjell Drilling Ltd (40%) and Metro Exploration Holding Corp., Liberia (60%). Deep Sea Metro's subsidiaries Golden Close Maritime Corp. Ltd and Chloe Maritime Corporation Ltd has entered into shipbuilding contracts for one drillship each, with Hyundai Heavy Industries Co., South Korea. The two ultradeepwater drillships are to be delivered in 2nd and 4th quarter At 31 December 2010, excess value amounts to NOK 14,751,727. Excess value is not amortized in 2008, 2009 or Amortization will start when Deep Sea Metro's drillships are in operation. The shareholders have invested MUSD 210,6 in the company during 2010, which of MUSD 84,3 by Odfjell Drilling Ltd. (40%). Note 22 Investment in other companies h Financial fixed assets Acquisition/ formation date Registered office a r Book value Meland Golfklubb Meland, Norway Westfal-Larsen Chemical Carriers I KS 2006 Bergen, Norway Total As per , the group's share of non called-up limited partnership capital in Westfal-Larsen Chemical Carriers I KS amounts to NOK 11,471,429. B150

397 The Odfjell Drilling Group NOTES 2010 Note 23 Other operating expenses Other operating expenses Consumption of purchased goods for resale Hired services and subcontractors Hire machines, fixtures and fittings Tools, fixtures and fittings, and working plant Repair and maintenance Insurance, guarantee and service costs Loss Other operating and administrative expenses Total Note 24 Subordinated loan to associated company Odfjell Invest Ltd Subordinated loan to Odfjell Invest Ltd. including accrued interest Total This is no longer treated as subordinated loan to Odfjell Invest Ltd. as Odfjell Drilling Ltd now controls 100% of the borrower. Note 25 Investments in bonds, long term Currency Market value USD Book value NOK Interest rate Term to maturity Date of payment Description Bonds USD % Fixed Call Note 26 Other long term receivables Other long term receivables Loan to employees Capitalised expenses regarding loan raising Other long term accruals Total B151

398 B152

399 1 B153

400 B154

401 B155

402 B156

403 Odfjell Drilling Ltd. Notes 2010 All shares carry equal voting rights. Helene Odfjell controls 69,67% through Odfjell Partners Ltd, Marianne Odfjell controls 25,9% personally, Abraham Odfjell controls 3,96% though the company ASEAO Ltd and the CEO in Odfjell Drilling controls 0,47% personally. B157

404 Odfjell Drilling Ltd. Notes 2010 B158

405 Odfjell Drilling Ltd. Notes 2010 B159

406 Odfjell Drilling Ltd. Notes 2010 B160

407 Appendix C Interim financial information for the three and six month periods ended 30 June 2013 and 2012 C1

408 C2

409 C3

410 C4

411 C5

412 C6

413 C7

414 C8

415 C9

416 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Condensed Consolidated Income Statement Note Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Operating revenue Other gains and losses Share of profit/(loss) from joint ventures 8 (2 277) (1 678) (4 640) (3 296) (13 399) Personnel expenses ( ) ( ) ( ) ( ) ( ) Other operating expenses (62 374) (61 035) ( ) ( ) ( ) EBITDA Depreciation and impairment 4 (36 078) (35 847) (73 718) (72 294) ( ) Operating profit (EBIT) Net financial items 13 (15 451) (24 691) (38 666) (26 935) (35 650) Profit/(loss) before tax Income taxes 10 (70 933) (7 255) (77 208) (16 356) (31 176) Profit/(loss) for the period (9 210) Condensed Consolidated Statement of Comprehensive Income: Note Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Profit/(loss) for the period (9 210) Items that will not be reclassified to profit or loss: Actuarial gain/(loss) on post employment benefit obligations Total Items that are or may be reclassified to profit or loss: Cash flow hedges (503) (1 707) Currency translation differences (4 736) (4 640) (14 434) Total (1 069) (4 559) (10 255) Total other comprehensive income, net of tax (1 069) (1 091) (10 255) Comprehensive income for the period (10 279) Profit or loss for the period attributable to Non-controlling interests Owners of Odfjell Drilling Ltd. (9 210) Comprehensive income for the period attributable to Non-controlling interests Owners of Odfjell Drilling Ltd. (10 279) Earnings per share (USD) Basic earnings per share 7-0,01 0,01 0,01 0,03 0,07 Diluted earnings per share 7-0,01 0,01 0,01 0,03 0,07 Unaudited C10

417 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Condensed Consolidated Statement of Financial Position Note Assets Intangible assets Property, plant and equipment Financial fixed assets Total non-current assets Spare parts Trade receivables Other current assets Cash and cash equivalents Total current assets Total assets Equity and liabilities Total paid-in capital Other equity Non-controlling interests Total equity Borrowings Post-employment benefits Deferred tax liability Other non-current liabilities Total non-current liabilites Borrowings Trade payables Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Unaudited C11

418 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Condensed Consolidated Statement of Changes in Equity Attributable to owners of the parent Share Other contributed Other Retained Noncontrolling capital capital reserves earnings Total interest Total equity Balance at 1 January (35 982) Profit/(loss) for the period Other comprehensive income for the period 1 (7 301) (48) Total comprehensive income for the period 1 (7 301) Dividends paid (5 959) (5 959) Transactions with owners (5 959) (5 959) Balance at 30 June (35 797) Total comprehensive income for the period Q3-Q Transactions with owners for the period Q3-Q (7 943) (7 943) (2 739) (10 681) Balance at 1 January (30 896) Profit/(loss) for the period Other comprehensive income for the period - - (9 879) - (9 879) (376) (10 255) Total comprehensive income for the period (9 879) Acquisition minority shares - - (34 496) - (34 496) (29 764) (64 259) Dividends paid (8 561) (8 561) - (8 561) Transactions with owners - - (34 496) (8 561) (43 057) (29 764) (72 820) Balance at 30 June (75 270) Reference is made to Note 9 regarding acquisition of minority shares in Deepsea Bergen. Unaudited C12

419 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Condensed Consolidated Statement of Cash Flows Note Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Cash flows from operating activities: Profit before income tax Adjustments for: Depreciation and impairment Unrealised (gain)/loss on interest rate swaps (4 358) 226 (7 016) (148) (1 616) Interest expense - net Borrowing cost Share of (profit)/loss from joint ventures Net (gain)/loss on sale of shares (3 112) - (3 112) - - Net (gain)/loss on sale of tangible fixed assets (17 990) (687) (18 299) (1 178) (2 629) Post-employment benefit expenses less post-employment benefit payments - (3 058) (1 374) (6 336) (6 518) Foreign exchange losses/(gains) on operating activities (1 997) (2 733) (21 907) Profit earned during period by disposed subsidary Impairment of investments in shares Changes in working capital (excluding the effect of acquisition and exchange differences on consolidation): Spare parts (1 354) 453 (1 307) Trade receivables (1 146) Trade payables (3 565) Other accruals (10 687) (24 539) (20 956) (35 382) (5 230) Cash generated from operations Interest paid (14 539) (13 152) (28 004) (24 738) (55 672) Income tax paid (3 145) (820) (16 710) (2 803) (14 476) Net cash generated from operating activities Cash flows from investing activities: Purchase of property, plant and equipment (22 061) (75 892) (38 825) ( ) ( ) Proceeds from sale of property, plant and equipment (1 257) Loans granted to employees 23 (222) 52 (129) 118 Sub-ordinated loan to related parties (12 183) (78 400) (12 183) (78 400) (80 000) Other long term receivables (4 713) 740 (8 239) (1 906) (21 244) Purchase of shares incl. joint ventures (3 354) - (4 083) - - Proceeds from sale of shares and bonds Net cash used in investing activities ( ) ( ) ( ) Cash flows from financing activities: Proceeds from debt to financial institutions Repayments of debt to financial institutions (51 667) (43 750) ( ) (43 750) (99 928) Acquisition shares non-controlling interests - - (64 259) - - Dividends paid to owners of the parent (8 561) - (14 847) - (1 765) Dividends paid to non-controlling interests - (5 959) - (5 959) (8 698) Net cash from financing activities (60 228) (49 709) (78 009) (49 709) (60 983) Net change in cash and cash equivalents ( ) ( ) (99 688) Cash and cash equivalents at beginning of period Exchange gains/(losses) on cash and cash equivalents (1 593) (2 813) Cash and cash equivalents at period end Unaudited C13

420 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 1 Accounting Principles General information Odfjell Drilling Ltd. ('the Company') and its subsidiaries (together 'the Group') operate mobile offshore drilling units in addition to providing well services and engineering services, in Norway and around the world. Odfjell Drilling Ltd. is incorporated and domiciled in Bermuda. The address of its registered office is Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. There has not been any significant changes in the Group structure since year end, except for acquisition of minority shares in Deepsea Bergen and that the Group sold their subsidiary Deep Sea Mooring AS including mooring equipment in May Reference is made to note 9 and 12 respectively. These condensed interim financial statements were approved by the Board of Directors for issue on 19 August 2013 and have been reviewed, not audited. Basis for preparation These condensed interim financial statements for the three and six month periods ended 30 June 2013 have been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed interim financial statements should be read in conjunction with the annual audited financial statements for the year ended 31 December 2012, which have been prepared in accordance with IFRS. Going concern The Group has adopted the going concern basis in preparing its interim financial statements. When using this assumption, management has assessed all available information about the future. This comprises information about net cash flows from existing contracts, debt service and obligations under existing new building contracts. Forecasts also take into consideration expected future net income from assets under construction. After making such assessments, management has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future. Accounting principles The accounting policies adopted are consistent with those of the previous financial year except that income tax expense is recognised in each interim period using the expected weighted average annual income tax rate for the full financial year. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss. The following new standards have been adopted from 1 January 2013: - IFRS 13 "Fair value measurement" are applicable for the December 2013 year end. The adoption of IFRS 13 did not have an material impact on the Groups results. The Group has included the disclosures required by IAS 34 para 16A(j). See Note 2. Use of estimates The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2012, except for income taxes and post-employment benefits. Income tax expense and deferred income tax liability is calculated by applying a weighted average of the expected effective tax rates across jurisdictions, in addition to specific accruals for the gain incurred by the internal restructuring of the ownership in Deepsea Bergen, while in annual financial statements income tax expense and deferred income tax liability is calculated by applying the tax rate for each individual jurisdiction to measures of income for each jurisdiction. When accounting for uncertain tax positions, the company applies the general measurement principles in IAS 12. Under IAS 12, uncertain tax positions (whether assets or liabilities) are reflected at the amount expected to be recovered from or paid to the taxation authorities. The amount expected to be paid, is calculated by using the single best estimate of the most likely outcome. A change in estimate is recognized in the period when new information occurs. Where an entity has paid more than the amount it believes is payable under the relevant tax legislation, it will estimate the recovery of a tax asset. Present value of defined benefit obligations and the fair value of plan assets at the end of each interim reporting period is estimated by extrapolation of the latest actuarial valuation, while in the annual financial statements this estimate is based on an updated actuarial valuation. Unaudited C14

421 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 2 Financial risk management and Financial instruments Financial risk factors The Group's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures required in the annual financial statements; consequently they should be read in conjunction with the Group's annual audited financial statements as at 31 December There are no material changes compared to the description in the year-end financial statements. Calculation of the Group s sensitivity to interest rate fluctuations showed that the effect of an increase in interest rates by one percentage point (e.g. from 4.0% to 5.0%) was approx. USD 8.5 million for 2012, including interest rate swaps. There is no material change in the Group s interest rate sensitivity compared to year-end. Liquidity risk Compared to year end, there was no material change in the contractual undiscounted cash out flows for financial liabilities, except changes in non-current liabilities disclosed in note 9. Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). For short term assets and liabilities at level 3, the value is approximately equal to the carrying amount. As the time horizon is due in short term, future cash flows are not discounted. The Group had the following financial instruments that are measured at fair value as at 30 June 2013: Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets Derivatives used for hedging Total assets Liabilities Derivatives held at fair value through profit or loss Derivatives used for hedging Total liabilities During the quarter there have been no transfers between levels of the fair value hierarchy. The Group had the following financial instruments that are measured at fair value as at 30 June 2012: Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets Total assets Liabilities Derivatives held at fair value through profit or loss Derivatives used for hedging Total liabilities The Group had the following financial instruments that are measured at fair value as at 31 December 2012: Level 1 Level 2 Level 3 Total Assets Available-for-sale financial assets Total assets Liabilities Derivatives held at fair value through profit or loss Derivatives used for hedging Total liabilities Unaudited C15

422 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Valuation techniques used to derive Level 2 fair values Level 2 derivatives held at fair value through profit or loss and hedging derivatives comprise interest rate swaps. Interest rate swaps are fair valued using forward interest rates extracted from observable yield curves. The effects of discounting are generally insignificant for Level 2 derivatives. Fair value of financial assets and liabilities measured at amortised cost The fair value of borrowings are as follows: Non-current Current Total The fair value of the following financial assets and liabilities approximate their carrying amount: - Trade and other receivables - Other current financial assets - Cash and cash equivalents (excluding bank overdrafts) - Trade and other payables Unaudited C16

423 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 3 Segment summary The Group provides drilling and related services to the offshore oil and gas industry, and has three main business areas; the operation of mobile drilling units, drilling & technology and well services. The Board is the Group's chief operating decision maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. Mobile Offshore Drilling Units (MODU), Drilling & Technology and Odfjell Well Services (OWS) have been determined as the operating segments. In accordance with the internal financial reporting, the Group's 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 8. - Mobile Offshore Drilling Units (MODU): In the MODU segment, the Group operates drilling units owned by the Group and by third parties. The MODU segment also offers management services to other owners of semisubmersibles, drillships and jack-ups; mainly operational management, management of regulatory requirements, marketing, contract negotiations and client relations, preparations for operation and mobilisation. - Platform Drilling & Engineering (OD&T): Within the Drilling & Technology segment, the Platform Drilling business area provides integrated drilling and maintenance services for fixed platform drilling rigs in the North Sea. The Technology business area offers engineering services, including design, project management and operation and support. - Well Services (OWS): The Well Services segment provides casing and tubular running services as well as drilling tool and tubular rental services both for exploration wells and for production purposes. The Group's internal reporting is prepared accordring to Norwegian GAAP. This gives nature to differences between the measurements of segment disclosures and comparable items disclosed in this financial report. Such differences are identified and reconciled in the tables below. In accordance with the internal financial reporting, the Group s 40% interest in Deep Sea Metro Ltd Group has been presented in the MODU segment using the line-by-line proportionate method. See more information regarding this joint venture arrangement in note 8. Mobile Offshore Drilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated Q2 13 Q2 12 Q2 13 Q2 12 Q2 13 Q2 12 Q2 13 Q2 12 Q2 13 Q2 12 External segment revenue Inter segment revenue (15 794) (23 441) - - Deep Sea Metro Ltd Group revenue (33 713) (20 254) - - Total revenue (39 595) (29 546) EBITDA (689) (12 082) Depreciation and impairment (33 212) (29 039) (1 551) (1 380) (9 570) (10 508) (36 078) (35 847) EBIT (7 002) Mobile Offshore Drilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated YTD 13 YTD 12 YTD 13 YTD 12 YTD 13 YTD 12 YTD 13 YTD 12 YTD 13 YTD 12 External segment revenue Inter segment revenue (34 214) (43 574) - - Deep Sea Metro Ltd Group revenue (66 451) (38 548) - - Total revenue (77 832) (59 330) EBITDA (25 819) (25 886) Depreciation and impairment (66 177) (57 147) (2 687) (2 793) (20 842) (20 952) (73 718) (72 294) EBIT (9 832) (17 287) Mobile Offshore Drilling Units Drilling & Technology Well Services Corporate / Eliminations Consolidated FY12 FY12 FY12 FY 12 FY 12 External segment revenue Inter segment revenue ( ) - Deep Sea Metro Ltd Group revenue (98 551) - Total revenue ( ) EBITDA (74 190) Depreciation and impairment ( ) (5 874) (42 610) ( ) EBIT (50 283) Reconciliations: Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Total EBIT for reportable segments Corporate / Eliminations (2 665) (5 121) (9 364) (9 208) (23 258) Gain from sale of Mooring business unit incl. equipment % share of EBIT DSM Ltd. Group (8 657) (3 264) (17 522) (10 915) (23 528) Share of profit from JV (2 277) (1 678) (4 640) (3 296) (13 399) Accounting differences EBIT Total Group Net financial items (15 451) (24 691) (38 666) (26 935) (35 650) Profit before tax Group Unaudited C17

424 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 4 Tangible fixed assets Mobile drilling units Periodic maintenance Construction in progress Well Services equipment Machinery & equipment Total fixed assets Six months ended 30 June 2013 Opening net book amount as at 1 January Additions Disposals (2 914) (616) (3 530) Disposal - Mooring business area (Note 12) (41 560) - (41 560) Depreciation and amortisation (38 635) (11 703) - (20 545) (2 836) (73 718) Currency translation differences (2 085) (40) - (11 176) (3 217) (16 518) Closing net book amount as at 30 June Six months ended 30 June 2012 Opening net book amount as at 1 January Additions Disposals (2 019) Depreciation and amortisation (36 732) (10 969) - (20 622) (3 972) (72 294) Currency translation differences 45 (7) - (276) (168) (407) Closing net book amount as at 30 June Useful lifetime 5-35 years 5 years 3-10 years 3-10 years Depreciation schedule Straight line Straight line Straight line Straight line Unaudited C18

425 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 5 Commitments The Group has signed a contract with Daewoo Shipbuilding & Marine Engineering (DSME) to build a new semi-submersible drilling rig named Deepsea Aberdeen, for use in the UK's West of Shetland region under contract with BP. Expected delivery from the yard is May The commitments related to the new building programme are summarised in the table below: Due in year Due in year Total Capital expenditure other than new buildings contracted for at the end of the reporting period but not yet incurred was as follows: Well Services equipment, due in 1 year Total Unaudited C19

426 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 6 Paid dividends The group has paid out dividends of USD 14.8 million in 2013, of which USD 6.3 million was resolved in 2012 and distributed in Note 7 Earnings per share Earnings per share is based on the issued number of shares in Odfjell Drilling Ltd., which were shares as at June 30, Unaudited C20

427 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 8 Financial fixed assets Investment in joint ventures Subordinated loan to joint venture Long term receivable related parties Other long term receivables Investments in shares Total financial fixed assets The group has maintained its ownership interests in joint ventures during the interim period Opening net book amount as at beginning of the period Investments/ Aquisitions during the year Share of profits (4 597) (3 296) (13 329) Share of OCI result 152 (146) (114) Depreciation of excess value (43) - (70) Other changes - - (547) Currency translation differences (1 795) (56) Closing net book amount as at end of period Deep Sea Metro Ltd. The Group's most significant joint venture investment is in the Deep Sea Metro Ltd Group, which is owned 40% by Odfjell Offshore Ltd., and 60% by Metro Exploration. The investment is accounted for using the equity method of accounting, while in the segment figures as reported in note 3 the Group's share of revenue, EBITDA, depreciation and EBIT from Deep Sea Metro are included in the MODU segment using the line-by-line method. The Group's share of profit and loss using the line-by-line method is as follows: Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Share of total income Share of operating expenses (25 056) (16 990) (48 929) (27 633) (75 022) Share of net financial items (9 651) (7 364) (18 903) (13 744) (33 407) Share of profit/(loss) before tax (994) (4 100) (1 381) (2 830) (9 879) Share of taxes (2 347) (1 320) (4 574) (2 619) (7 702) Share of profit/(loss) for the year (3 340) (5 420) (5 955) (5 449) (17 581) The Group's share of assets and liabilities in Deep Sea Metro Ltd. using the line-by-line method is as follows: Share of non-current assets Share of cash Share of current assets Total assets Share of equity Share of profit/(loss) for the period (5 955) (5 430) (17 581) Capital contribution Currency deviation (44) (155) (123) Share of equity Share of non-current liabilities Share of current liabilities Total liabilities Total equity and liabilities Unaudited C21

428 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 9 Borrowings Non-current Current Total Movements in non current borrowings are analysed as follows: Six months ended 30 June 2013 Opening amount as at 1 January New bank loan raised Repayment bank loan ( ) Reclassified to current portion of non current borrowings Change in transaction cost, unamortised Closing amount as at 30 June Six months ended 30 June 2012 Opening amount as at 1 January Repayment bank loan (43 750) Reclassified to current portion of non current borrowings (25 000) Change in transaction cost, unamortised Closing amount as at 30 June The Group has the following undrawn borrowing facilities: Floating rate: expiring beyond one year The undrawn borrowing facility of USD 530 million will be available at the time of delivery of the mobile drilling unit, Deepsea Aberdeen, in New and repaid bank loans in 2013 For the purpose of completing the group's acquisition of the minority shares, Odfjell Offshore Ltd. entered into a short-term facility agreement of USD 80 million with DNB Bank ASA on 24 January The facility was repaid on 20 February 2013 together with Odfjell Rig Ltd. s USD million loan balance and Deep Sea Drilling Company II KS USD 57.5 million loan balance. These repayments were effected after the drawdown of a new long-term senior secured loan agreement of USD 270 million entered into by Odfjell Rig II Ltd. as borrower, Odfjell Drilling Ltd. and Odfjell Offshore Ltd. as guarantors and DNB Bank ASA, ABN AMRO Bank N.V., SpareBank 1 SR-Bank ASA and Swedbank AB (publ) as mandated lead arrangers on 15 February The facility shall be repaid by August 2018, latest. Covenants for USD 270,000,000 Senior Secured Term Loan Facility The Odfjell Drilling group has agreed to maintain, at all times, a minimum liquidity (cash and cash equivalents) requirement of USD 50 million and a minimum 5 per cent of interest bearing debt (on consolidated basis) (if the Odfjell Drilling group 12 months prior to delivery of any investment in excess of USD 100 million has any unfinanced capital expenditure related to such investment, the minimum liquidity requirement will increase to USD 100 million in addition to 5 per cent of interest bearing debt). Further, the Odfjell Drilling group has agreed to maintain an equity ratio (equity to total assets) of a minimum 35 per cent at all times, to maintain a leverage ratio (interest bearing debt to EBITDA) not exceeding 5.00:1.00 and likewise to ensure that the ratio of current assets to current liabilities at all times being not less then 1.00:1.00. From the date that Odfjell Drilling Ltd. is released as guarantor under the facility agreement, the above mentioned financial covenants shall no longer apply to the Odfjell Drilling group, but shall instead apply equally to the Odfjell Offshore group. For the financial year 2012 and the interim period ended 30 June 2013, The Group has not been in violation of any covenants related to borrowing agreements. Unaudited C22

429 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 10 Income taxes Income tax expense is recognised based on management's estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for the year to date 30 June 2013 is 16%, excluding disputed payable from tax previous years. Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Withholding tax, ordinary taxation (1 846) (1 184) (3 803) (2 803) (7 453) Payable tax, ordinary taxation (6 163) (5 798) (13 264) (12 958) (26 075) Change in deferred tax, ordinary taxation (23) (273) (594) Total tax expense current year items (8 032) (7 255) (14 307) (16 355) (31 496) Estimated average annual tax rate 13 % 36 % 16 % 26 % 21 % Payable tax prior years, disputed (24 597) - (24 597) Change in deferred tax, disputed (38 304) - (38 304) - - Total tax expense (70 933) (7 255) (77 208) (16 355) (31 176) Tax rate for the period 75 % 36 % 59 % 26 % 21 % Payable tax prior years, disputed, is tax paid by Odfjell Rig Ltd. for it's participation in Deep Sea Drilling Company II KS for the years 2009, 2010 and Due to negative outcome of trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities, the Group has changed their estimate regarding the expected amount to be paid in this case. It is now assessed that the most likely outcome will be to pay the full amount that is disputed, and as a result the tax receivable booked at is expensed. Odfjell Rig Ltd. still disputes the Norwegian Tax Authorities view that Odfjell Rig Ltd. is taxable for its participation in Deep Sea Drilling Company II KS. The case will be appealed through the court system. Change in deferred tax, disputed, is recognised as tax expense due to the outcome of trial between Odfjell Rig Ltd. and the Norwegian Tax Authorities mentioned above. The change in deferred tax expense relates to Odfjell Rig Ltd.'s ownership in Deep Sea Drilling Company II KS, and the remaining gain and loss account generated from the sale of the drilling unit Deepsea Bergen by Deep Sea Drilling Company II KS to Odfjell Rig II Ltd. in January TAX COURT CASE Odfjell Rig Ltd. is a company incorporated in Bermuda, and the sole shareholder is Odfjell Drilling Ltd. During the years Odfjell Rig Ltd. was the owner (limited partner) of % of Deep Sea Drilling Company II KS (DSDCII), which in turn was the owner of the rig Deepsea Bergen. The general partner of DSDCII was Deep Sea Drilling Company II AS, and additionally there were two other limited partners. The rig Deepsea Bergen has operated on the Norwegian Continental Shelf since spring 2006 under a bareboat charter with Deep Sea Drilling Company KS. All main decisions pertaining to the rig (purchase, sale, financing etc) are made by partnership meeting of DSDCII. The company Odfjell Drilling AS resident in Norway has been contracted to carry out the day-to-day operations/management o a age e t of the bareboat charter. The dispute between Odfjell Rig Ltd. and the Norwegian tax authorities is whether Odfjell Rig Ltd. has a limited tax liability to Norway as a result of its ownership in DSDCII. The tax authorities made their decision for the years on 29 June 2012, and later also for The case for was brought before the Norwegian courts by Odfjell Rig Ltd. pursuant to a writ of summons on 20 December 2012, and the district court made its decision on 12 July For all three income years, the dispute amount (before-tax income) is approximately NOK 387,000,000. The district court concluded that the bareboat charter business of DSDCII was carried out from Norway, and thus a limited tax liability exists for the owner Odfjell Rig Ltd. on the basis of the Norwegian Tax Act section 2-3 para. 1, letter b. The district court came to this conclusion inter alia on the basis that the dayto-day management of the bareboat charter by Odfjell Drilling AS in Bergen involves considerable activity in Norway on behalf of DSDCII, and also that the rig Deepsea Bergen had been deployed within Norwegian jurisdiction (i.e. on the Norwegian Continental Shelf). Furthermore, the district court concluded that a tax exemption in the Norwegian Tax Act section 2-34 was not applicable as this only relates to international business which in the court s opinion is not the case as long as the rig is operated on the Norwegian Continental Shelf. TAX AUDIT CASE Odfjell Invest I Ltd. (Odfjell Invest I), a wholly-owned subsidiary of the Group incorporated in Bermuda, is the owner of the rig Deepsea Atlantic, which has been leased to Odfjell Invest AS under a bareboat charter at a fixed day rate of USD 300,000. Odfjell Invest AS has in turn entered into a drilling contract with Statoil for the provision of drilling services to Statoil on the Norwegian Continental Shelf. Soon after commencement of drilling services under the drilling contract, Statoil stopped paying the operating rate based on the contention that Odfjell Invest AS was not able to provide the drilling services as contemplated by the drilling contract. Odfjell Invest AS challenged Statoil s decision to stop payment of the operating rate and instigated legal proceedings to recover lost income. Odfjell Invest AS lost the court case in the first instance. As part of a settlement with Statoil, Odfjell Invest AS decided not to appeal the decision. Odfjell Invest AS has taken the position that it had no legal basis for stopping payment of bareboat hire to Odfjell Invest I under the bareboat charter during the period of non-payment of the operating rate by Statoil under the drilling contract. The tax authorities have notified that they do not consider Odfjell Invest AS as entitled to a tax deduction under the Norwegian Tax Act section 6-1, resulting in an increase of the taxable income for 2009 with NOK 103,305,720 and for 2010 with NOK 520,607,220. Following the tax audit (report dated 5 July 2013) the notice of reassessment also relates to the omission of taking a payment of hire from Statoil as income, resulting in an increase of the income for 2010 with NOK 6,552,467. Furthermore, the tax authorities have notified that they do not consider the bareboat charter between Odfjell Invest AS and Odfjell Invest I in accordance with the arm's length principle. This results in a reduction of bareboat hire for the years with in total NOK 209,434,800. Note that the above notifications from the tax authorities have not yet resulted in any decision of reassessment. The potential tax exposure amounts to USD 39.0 million excluding interest cost. Calculated potential interest cost amounts to USD 8.0 milion. Odfjell Invest AS will dispute any assessment based on the notification, and hence no tax expense is recognised in the financial statements pr , as the Company's best estimate of the amount it will ultimately pay is zero. Odfjell Invest AS will revert within the deadline for response. For the first half year of 2013, there is an additional tax exposure of USD 2.0 million related to to the transfer pricing issue of Deepsea Atlantic as described above. Unaudited C23

430 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 11 Contingencies Contingencies related to income tax are disclosed in note 10 Tax. There are no other contingencies to be disclosed as per 30 June Note 12 Disposal of Deep Sea Mooring On 16 April 2013, the Group agreed to sell it's Mooring business unit, including shares in Deep Sea Mooring AS and property, plant and equipment related to the operations of the unit, which consist of well services and rental of mooring equipment. The transaction was completed on 16 May 2013 with a total net gain of USD 20.6 million. The business is not presented in this interim financial information as a discontinued operation, as it does not represent a separate major line of business. Financial information relating to the mooring business area is set out below: Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Operating revenue Other gains/(losses) Personnel expenses (102) (842) (1 162) (1 858) (3 655) Other operating expenses (241) (523) (800) (1 060) (2 620) EBITDA Depreciation and impairment (692) (1 955) (2 770) (3 875) (7 745) Operating profit Net financial items (4) Profit/(loss) before tax Property, plant and equipment Unaudited C24

431 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 13 Net financial items Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Interest income Interest income from related parties Interest expense (14 370) (14 738) (28 875) (29 350) (57 639) Other borrowing expenses (1 347) (1 314) (6 011) (2 685) (6 315) Gain/(loss) on interest rate swaps (277) Currency gains Currency losses (12 153) (22 659) (30 633) (34 025) (20 449) Other financial items (322) (458) (387) (3 433) Net financial items (15 451) (24 691) (38 666) (26 935) (35 650) Unaudited C25

432 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 14 Related-parties transactions The Group is 70.00% owned by Odfjell Partners Ltd., controlled by Helene Odfjell. The remaining % of the shares are owned by the Larine Trust of which Marianne Odfjell is beneficiary. The Group had the following material transactions with related parties: Q2 13 Q2 12 YTD 13 YTD 12 FY 12 Sales of services: - Entities controlled by Odfjell Partners Ltd Associates Total Operating expenses: - Associates Operating lease expenses: - Entities controlled by Odfjell Partners Ltd Interest income - Associates Unaudited C26

433 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Note 15 - Important events occurring after the reporting period There have not been any important events after the end of the second quarter which affects the financial statements for the second quarter By 1 August 2013, Statoil ASA had exercised a one year option for hire of the mobile drilling unit Deepsea Atlantic. The option period is from 5 August 2014 to 4 August As per 5 July 2013 Odfjell Drilling Ltd. has increased the share capital with USD The number of shares issued in Odfjell Drilling Ltd. as per 5 July 2013 is with par value of USD Unaudited C27

434 Odfjell Drilling Ltd. Condensed Consolidated Financial Statements for the three and six months ended June 30, 2013 (All amounts are in USD thousands unless otherwise stated) Responsibility statement We confirm, to the best of our knowledge, that the condensed set of consolidated financial statements for the period 1 January to 30 June 2013 has been prepared in accordance with IAS 34 Interim Financial Reporting, and gives a true and fair view of the Group's assets, liabilities, financial position and profit or loss as a whole. We also confirm, to the best of our knowledge, that the interim management report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of consolidated financial statements, a description of the principal risks and uncertainties for the remaining six months of the financial year, and major related parties transactions. Bermuda, 19 August 2013 Board of Directors of Odfjell Drilling Ltd. Helene Odfjell Marianne Odfjell Kirk L. Davis Chairman Director Director (Sign.) (Sign.) (Sign.) Carl-Erik Haavaldsen Director (Sign.) Bengt Lie Hansen Director (Sign.) Unaudited C28

435 C29

436 Appendix D Application form for the Retail Offering D1

437 APPLICATION FORM FOR THE RETAIL OFFERING General information: The terms and conditions for the Retail Offering are set out in the prospectus dated 13 September 2013 (the Prospectus ), which has been issued by Odfjell Drilling Ltd (the Company ) in connection with the secondary sale of shares in the Company by BCB Paragon Trust Limited, as trustee of the Larine Trust (the Selling Shareholder ) and the listing of the Company s Shares on the Oslo Stock Exchange. All capitalised terms not defined herein shall have the meaning as assigned to them in the Prospectus. Application procedure: Applicants in the Retail Offering who are residents of Norway with a Norwegian personal identification number may apply for Offer Shares by using the following internet pages: and Applications in the Retail Offering can also be made by using this Retail Application Form (see definition in Section 18.4 of the Prospectus). Retail Application Forms must be correctly completed and submitted by the applicable deadline to one of the following application offices (the Application Offices ): ABG Sundal Collier Munkedamsveien 45E, Vika Atrium P.O. Box 1444 Vika N-0115 OSLO Norway Tel: Fax: DNB Markets Dronning Eufemias gate 30 P.O. Box 1600 Sentrum N-0021 OSLO Norway Tel: Fax: Arctic Securities Haakon VII s gate 5 P.O. Box 1833 Vika N-0123 OSLO Norway Tel: Fax: Danske Bank Markets Stortingsgaten 6 P.O. Box 1170 Sentrum N-0161 OSLO Norway Tel: Fax: Swedbank First Securities Filipstad Brygge 1 P.O. Box 1441 Vika N-0115 OSLO Norway Tel: Fax: The applicant is responsible for the correctness of the information filled in on this Retail Application Form. Retail Application Forms that are incomplete or incorrectly completed, electronically or physically, or that are received after expiry of the Application Period, and any application that may be unlawful, may be disregarded without further notice to the applicant. Subject to any shortening or extension of the Application Period, applications made through the VPS online application system must be duly registered by 12:00 hours (CET) on 27 September 2013, while applications made on Retail Application Forms must be received by one of the Application Offices by the same time. None of the Company, the Selling Shareholder or any of the Managers may be held responsible for postal delays, unavailable fax lines, internet lines or servers or other logistical or technical matters that may result in applications not being received in time or at all by any of the Application Offices. All applications made in the Retail Offering will be irrevocable and binding, and cannot be withdrawn, cancelled or modified by the applicant upon registration of the application in the VPS online application system, or in the case of applications on Retail Application Forms, receipt of a duly completed Retail Application Form by an Application Office (the Registration ), irrespective of any shortening or extension of the Application Period. Price of Offer Shares: The indicative price range (the Indicative Price Range ) for the Offering is from NOK 37 to NOK 48 per Offer Share. The Selling Shareholder will, in consultation with the Company and the Joint Bookrunners, determine the final Offer Price on the basis of orders received and not withdrawn in the Institutional Offering during the bookbuilding process and the number of applications received in the Retail Offering. The Offer Price will be determined on or about 27 September The Offer Price may be set below or above the Indicative Price Range. Each applicant in the Retail Offering will be permitted, but not required, to indicate in the VPS online application system or on the Retail Application Form that the applicant does not wish to be allocated Offer Shares should the Offer Price be set higher than the highest price in the Indicative Price Range. If the applicant does not expressly stipulate such reservation in the VPS online application system or on the Retail Application Form, the application will be binding regardless of whether the Offer Price is set within or above (or below) the Indicative Price Range. Investors in the Retail Offering will receive a discount of NOK 1,000 on their aggregate amount payable for the Offer Shares allocated to such investors. Allocation, payment and delivery of Offer Shares: DNB Markets, acting as settlement agent for the Retail Offering, expects to issue notifications of allocation of Offer Shares in the Retail Offering on or about 30 September 2013 by issuing allocation notes to the applicants by mail or otherwise. Any applicant wishing to know the precise number of Offer Shares allocated to it may contact one of the Application Offices from on or about 30 September 2013 during business hours. Applicants who have access to investor services through an institution that operates the applicant s VPS account should be able to see the number of Offer Shares they have been allocated from on or about 30 September In registering an application through the VPS online application system or by completing and submitting a Retail Application Form, each applicant in the Retail Offering will authorise DNB Markets (on behalf of the Managers) to debit the applicant s Norwegian bank account for the total amount due for the Offer Shares allocated to the applicant. Accounts will be debited on or about 2 October 2013 (the Payment Date ), and there must be sufficient funds in the stated bank account from and including 1 October Applicants who do not have a Norwegian bank account must ensure that payment for the allocated Offer Shares is made on or before the Payment Date. Further details and instructions will be set out in the allocation notes to the applicant to be issued on or about 30 September 2013, or can be obtained by contacting DNB Markets at DNB Markets (on behalf of the Managers) is only authorised to debit each account once, but reserves the right (but has no obligation) to make up to three debit attempts through 8 October 2013 if there are insufficient funds on the account on the Payment Date. Should any applicant have insufficient funds on its account, or should payment be delayed for any reason, or if it is not possible to debit the account, overdue interest will accrue and other terms will apply as set out under the heading Overdue and missing payment below. Subject to timely payment by the applicant, delivery of the Offer Shares allocated in the Retail Offering is expected to take place on or about 2 October 2013 (or such later date upon the successful debit of the relevant account). Guidelines for the applicant: Please refer to the second page of this Retail Application Form for further application guidelines. Applicant s VPS-account (12 digits): I/we apply for shares for a total of NOK (minimum NOK 10,500 and maximum NOK 2,499,999) Applicant s bank account to be debited (11 digits): OFFER PRICE: My/our application is conditional upon the final Offer Price not being set above the upper end of the Indicative Price Range (insert cross) (must only be completed if the application is conditional upon the final Offer Price not being set above the upper end of the Indicative Price Range): I/we hereby irrevocably (i) apply for the number of Offer Shares allocated to me/us, at the Offer Price, up to the aggregate application amount as specified above subject to the terms and conditions set out in this Retail Application Form and in the Prospectus, (ii) authorise and instruct each of the Managers (or someone appointed by any of them) acting jointly or severally to take all actions required to transfer the Offer Shares allocated to me/us and ensure delivery of such Offer Shares to me/us in the VPS, on my/our behalf, (iii) authorise DNB Markets to debit my/our bank account as set out in this Retail Application Form for the amount payable for the Offer Shares allotted to me/us, and (iv) confirm and warrant to have read the Prospectus and that I/we are eligible to apply for and purchase Offer Shares under the terms set forth therein. Date and place*: Binding signature**: * Must be dated during the Application Period. ** The applicant must be of legal age. If the Retail Application Form is signed by a proxy, documentary evidence of authority to sign must be attached in the form of a Power of Attorney or Company Registration Certificate. DETAILS OF THE APPLICANT ALL FIELDS MUST BE COMPLETED First name Surname/Family name/company name Home address (for companies: registered business address) Zip code and town Identity number (11 digits) / business registration number (9 digits) Nationality Telephone number (daytime) address D2

438 GUIDELINES FOR THE APPLICANT THIS RETAIL APPLICATION FORM IS NOT FOR DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL. OTHER RESTRICTIONS ARE APPLICABLE. PLEASE SEE SELLING RESTRICTIONS BELOW. Regulatory issues: Legislation passed throughout the EEA pursuant to the Markets and Financial Instruments Directive ( MiFID ) implemented in the Norwegian Securities Trading Act, imposes requirements in relation to business investment. In this respect the Managers must categorise all new clients in one of three categories: Eligible counterparties, Professional and Non-professional clients. All applicants applying for Offer Shares in the Offering who/which are not existing clients of one of the Managers will be categorised as Non-professional clients. The applicant can by written request to the Managers ask to be categorised as a Professional client if the applicant fulfils the provisions of the Norwegian Securities Trading Act. For further information about the categorisation the applicant may contact the Managers. The applicant represents that it has sufficient knowledge, sophistication and experience in financial and business matters to be capable of evaluating the merits and risks of an investment decision to invest in the Company by applying for Offer Shares, and the applicant is able to bear the economic risk, and to withstand a complete loss of an investment in the Company. Execution only: As the Managers are not in the position to determine whether the application for Offer Shares is suitable for the applicant, the Managers will treat the application as an execution only instruction from the applicant to apply for Offer Shares in the Offering. Hence, the applicant will not benefit from the corresponding protection of the relevant conduct of business rules in accordance with the Norwegian Securities Trading Act. Information barriers: The Managers are securities firms, offering a broad range of investment services. In order to ensure that assignments undertaken in the Managers corporate finance departments are kept confidential, the Managers other activities, including analysis and stock broking, are separated from their corporate finance departments by information barriers known as Chinese walls. The applicant acknowledges that the Managers analysis and stock broking activity may act in conflict with the applicant s interests with regard to transactions in the Offer Shares as a consequence of such Chinese walls. VPS account and anti-money laundering procedures: The Offering is subject to applicable anti-money laundering legislation, including the Norwegian Money Laundering Act No. 11 of 6 March 2009 and the Norwegian Money Laundering Regulation No. 302 of 13 March 2009 (collectively the Anti-Money Laundering Legislation ). Applicants who are not registered as existing customers of one of the Managers must verify their identity to one of the Managers in accordance with requirements of the Anti-Money Laundering Legislation, unless an exemption is available. Applicants who have designated an existing Norwegian bank account and an existing VPS account on the Retail Application Form are exempted, unless verification of identity is requested by a Manager. Applicants who have not completed the required verification of identity prior to the expiry of the Application Period will not be allocated Offer Shares. Participation in the Offering is conditional upon the applicant holding a VPS account. The VPS account number must be stated in the Retail Application Form. VPS accounts can be established with authorised VPS registrars, who can be Norwegian banks, authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA. Establishment of a VPS account requires verification of identity to the VPS registrar in accordance with the Anti-Money Laundering Legislation. However, non-norwegian investors may use nominee VPS accounts registered in the name of a nominee. The nominee must be authorised by the Norwegian FSA. Selling restrictions: The Offering is subject to specific legal or regulatory restrictions in certain jurisdictions, see Section 19 Selling and transfer restrictions in the Prospectus. Neither the Company nor the Selling Shareholder assumes any responsibility in the event there is a violation by any person of such restrictions. The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the U.S. Securities Act ) or under any securities laws of any state or other jurisdiction of the United States and may not be taken up, offered, sold, resold, transferred, delivered or distributed, directly or indirectly, within, into or from the United States except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with the securities laws of any state or other jurisdiction of the United States. There will be no public offer in the United States. The Offer Shares will, and may, not be offered, sold, resold, transferred, delivered or distributed, directly or indirectly, within, into or from any jurisdiction where the offer or sale of the Offer Shares is not permitted, or to, or for the account or benefit of, any person with a registered address in, or who is resident or ordinarily resident in, or a citizen of, any jurisdiction where the offer or sale is not permitted, except pursuant to an applicable exemption. In the Retail Offering, the Offer Shares are being offered and sold to certain persons outside the United States in offshore transactions within the meaning of and in compliance with Rule 903 of Regulation S under the U.S. Securities Act. The Company has not authorised any offer to the public of its securities in any Member State of the EEA other than Norway. With respect to each Member State of the EEA other than Norway and which has implemented the EU Prospectus Directive (each, a Relevant Member State ), no action has been undertaken or will be undertaken to make an offer to the public of the Offer Shares requiring a publication of a prospectus in any Relevant Member State. Any offers outside Norway will only be made in circumstances where there is no obligation to produce a prospectus. Stabilisation: In connection with the Offering, DNB Markets (as the Stabilisation Manager ) (or persons acting on behalf of the Stabilisation Manager) may over-allot shares or effect transactions with a view to supporting the market price of the shares at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilisation Manager (or persons acting on behalf of the Stabilisation Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the final price of the Offer Shares is made and, if begun, may be ended at any time, but it must end no later than 30 days after allotment of the Offer Shares. Investment decisions based on full Prospectus: Investors must neither accept any offer for, nor acquire any Offer Shares, on any other basis than on the complete Prospectus. Terms and conditions for payment by direct debiting - securities trading: Payment by direct debiting is a service provided by cooperating banks in Norway. In the relationship between the payer and the payer s bank the following standard terms and conditions apply. 1. The service Payment by direct debiting securities trading is supplemented by the account agreement between the payer and the payer s bank, in particular Section C of the account agreement, General terms and conditions for deposit and payment instructions. 2. Costs related to the use of Payment by direct debiting securities trading appear from the bank s prevailing price list, account information and/or information is given by other appropriate manner. The bank will charge the indicated account for incurred costs. 3. The authorisation for direct debiting is signed by the payer and delivered to the beneficiary. The beneficiary will deliver the instructions to its bank who in turn will charge the payer s bank account. 4. In case of withdrawal of the authorisation for direct debiting the payer shall address this issue with the beneficiary. Pursuant to the Financial Contracts Act, the payer s bank shall assist if payer withdraws a payment instruction which has not been completed. Such withdrawal may be regarded as a breach of the agreement between the payer and the beneficiary. 5. The payer cannot authorise for payment a higher amount than the funds available at the payer s account at the time of payment. The payer s bank will normally perform a verification of available funds prior to the account being charged. If the account has been charged with an amount higher than the funds available, the difference shall be covered by the payer immediately. 6. The payer s account will be charged on the indicated date of payment. If the date of payment has not been indicated in the authorisation for direct debiting, the account will be charged as soon as possible after the beneficiary has delivered the instructions to its bank. The charge will not, however, take place after the authorisation has expired as indicated above. Payment will normally be credited the beneficiary s account between one and three working days after the indicated date of payment/delivery. 7. If the payer s account is wrongfully charged after direct debiting, the payer s right to repayment of the charged amount will be governed by the account agreement and the Financial Contracts Act. Overdue and missing payments: Overdue payments will be charged with interest at the applicable rate under the Norwegian Act on Interest on Overdue Payments of 17 December 1976, No. 100, which at the date of the Prospectus is 9.50% per annum. Should payment not be made when due, the Offer Shares allocated will not be delivered to the applicant, and the Managers reserve the right, at the risk and cost of the applicant, to cancel at any time thereafter the application and to re-allot or otherwise dispose of the allocated Offer Shares, on such terms and in such manner as the Managers may decide (and that the applicant will not be entitled to any profit therefrom). The original applicant will remain liable for payment of the Offer Price for the Offer Shares allocated to the applicant, together with any interest, costs, charges and expenses accrued, and the Selling Shareholder and/or the Managers may enforce payment of any such amount outstanding. D3

439 Appendix E Application form for the Retail Offering in Norwegian E1

440 BESTILLINGSBLANKETT FOR DET OFFENTLIGE TILBUDET Generell informasjon: Vilkårene og betingelsene for det Offentlige Tilbudet fremgår av prospektet datert 13. september 2013 ( Prospektet ), som er utarbeidet av Odfjell Drilling Ltd ( Selskapet ) i forbindelse med BCB Paragon Trust Limiteds, som forvalter for Larine Trust, ( Selgende Aksjonær ) salg av aksjer og noteringen av Selskapets Aksjer på Oslo Børs. Prospektet inneholder også et norsk sammendrag. Alle definerte ord og uttrykk (angitt med stor bokstav) som ikke er definert i denne bestillingsblanketten, skal ha samme innhold som i Prospektet. Bestillingsprosedyre: Bestillere i det Offentlige Tilbudet som er norske statsborgere med et norsk personnummer kan foreta bestilling av Tilbudsaksjer gjennom følgende internettsider: og Bestillinger i det Offentlige Tilbudet kan også foretas ved å bruke denne bestillingsblanketten som er vedlagt Prospektet som Appendix E (Application Form for the Retail Offering in Norwegian) eller Appendix D (Application form for the Retail Offering). Korrekt utfylt bestillingsblankett må være mottatt av en av de følgende bestillingskontorer før utløpet av den relevante fristen ( Bestillingskontorene ): ABG Sundal Collier Munkedamsveien 45E, Vika Atrium Postboks 1444 Vika N-0115 OSLO Norge Tel: Faks: DNB Markets Dronning Eufemias gate 30 Postboks 1600 Sentrum N-0021 OSLO Norge Tel: Faks: Arctic Securities Haakon VII s gate 5 Postboks 1833 Vika N-0123 OSLO Norge Tel: Faks: Danske Bank Markets Stortingsgaten 6 Postboks 1170 Sentrum N-0161 OSLO Norge Tel: Faks: Swedbank First Securities Filipstad Brygge 1 Postboks 1441 Vika N-0115 OSLO Norge Tel: Faks: Bestilleren er ansvarlig for riktigheten av informasjonen som er fylt inn i bestillingsblanketten. Bestillingsblanketter som er ufullstendige eller uriktig utfylt, elektronisk eller på papir, eller som mottas etter utløpet av Bestillingsperioden, og enhver bestilling som kan være ulovlig, kan bli avvist uten nærmere varsel til bestilleren. Bestillinger som gjøres gjennom det VPS nettbaserte bestillingssystemet må være registrert, og bestillinger som gjøres på bestillingsblanketter må være mottatt av en av Bestillingskontorene, innen kl norsk tid den 27. september 2013, med mindre Bestillingsperioden forkortes eller forlenges. Verken Selskapet, Selgende Aksjonær eller noen av Tilretteleggerne kan holdes ansvarlig for forsinkelser i postgang, utilgjengelige fakslinjer, internettlinjer eller servere eller andre logistikk- eller tekniske problemer som kan resultere i at bestillinger ikke blir mottatt i tide, eller i det hele tatt, av noen av Bestillingskontorene. Alle bestillinger i det Offentlige Tilbudet er ugjenkallelige og bindende og kan ikke trekkes, kanselleres eller endres av bestilleren etter at bestillingen er registrert i VPS nettbaserte bestillingssystem eller hvis bestilling gjøres på bestillingsblankett, når komplett utfylt bestillingsblankett er mottatt av et av Bestillingskontorene ( Registreringen ), uavhengig av en eventuell forkortelse eller forlengelse av Bestillingsperioden. Pris på Tilbudsaksjene: Det indikative prisintervallet (det Indikative Prisintervallet ) i Tilbudet er fra NOK 37 til NOK 48 per Tilbudsaksje. Den endelige prisen per Tilbudsaksje vil bli fastsatt av Selgende Aksjonær, i samråd med Selskapet og Tilretteleggerne, på basis av ordre som mottas og ikke trekkes tilbake i det Institusjonelle Tilbudet gjennom bookbuilding-prosessen og antallet bestillinger mottatt i det Offentlige Tilbudet. Tilbudsprisen vil fastsettes rundt den 27. september Prisen per Tilbudsaksje kan fastsettes over eller under det Indikative Prisintervallet. Hver bestiller i det Offentlige Tilbudet kan, men må ikke, indikere i VPS nettbaserte bestillingssystem eller på bestillingsblanketten at bestilleren ikke ønsker å bli tildelt Tilbudsaksjer dersom prisen per Tilbudsaksje blir fastsatt høyere enn den høyeste prisen i det Indikative Prisintervallet. Dersom bestilleren ikke uttrykkelig gir uttrykk for en slik reservasjon i VPS nettbaserte bestillingssystem eller på bestillingsblanketten, vil bestillingen være bindende uavhengig av om prisen per Tilbudsaksje fastsettes innenfor eller over (eller under) det Indikative Prisintervallet. Investorer i det Offentlige Tilbudet vil få en rabatt på NOK på den samlede kjøpesummen for Tilbudsaksjene tildelt slike investorer. Allokering, betaling og levering av Tilbudsaksjer: DNB Markets, som oppgjørsagent for det Offentlige Tilbudet, forventer å gi beskjed om tildeling av Tilbudsaksjer i det Offentlige Tilbudet rundt 30. september 2013 per post eller på annen måte. Bestillere som ønsker å få opplyst det eksakte antallet Tilbudsaksjer som denne er tildelt, kan kontakte et av Bestillingskontorene fra rundt den 30. september 2013 innenfor ordinær åpningstid. Bestillere som har tilgang til investorservice gjennom en institusjon som er kontofører for bestillerens VPS-konto, skal fra rundt den 30. september 2013 kunne se antall Tilbudsaksjer de er tildelt. Ved å registrere en bestilling i VPS nettbaserte bestillingssystem eller ved å fylle ut og sende inn en bestillingsblankett, gir hver bestiller i det Offentlige Tilbudet fullmakt til DNB Markets (på vegne av Tilretteleggerne) til å debitere bestillerens norske bankkonto for et beløp som tilsvarer den samlede kjøpesummen for de Tilbudsaksjene som bestilleren blir tildelt. Bankkontoen vil debiteres på eller rundt den 2. oktober 2013 ( Betalingsdatoen ), og det må være tilstrekkelige innestående på den aktuelle kontoen fra og med 1. oktober Bestillere som ikke har en norsk bankkonto må forsikre seg om at betaling for tildelte Aksjer foretas senest på Betalingsdatoen. Ytterligere betalingsdetaljer og instruksjoner vil fremgå av tildelingsbrevet som sendes ut rundt den 30. september 2013, og kan også fås ved å kontakte DNB Markets på DnB Markets (på vegne av Tilretteleggerne) er bare berettiget til å belaste kontoen én gang, men forbeholder seg retten (men har ingen forpliktelse) til å gjøre inntil tre debiteringsforsøk frem til og med 8. oktober 2013 dersom det er utilstrekkelig med midler på kontoen på Betalingsdatoen. Dersom en bestiller ikke har tilstrekkelig innestående på den aktuelle bankkontoen, eller betaling er forsinket av en eller annen årsak, eller dersom det ikke er mulig å debitere kontoen, vil det påløpe forsinkelsesrente og andre vilkår vil gjelde som fastsatt under overskriften Forsinket og manglende betaling under. Dersom betaling for tildelte Tilbudsaksjer er mottatt rettidig, vil levering av tildelte Tilbudsaksjer i det Offentlige Tilbudet foretas rundt den 2. oktober 2013 (eller på slik senere dato ved vellykket debitering av den relevante kontoen). Retningslinjer for bestilleren: Vennligst se side 2 av denne bestillingsblanketten for ytterligere retningslinjer for bestillingen. Bestillerens VPS-konto (12 siffer): Jeg/vi bestiller herved aksjer for totalt NOK (minimum NOK og maksimum NOK ): Bestillerens bankkonto som skal debiteres (11 siffer): TILBUDSPRISEN: Min/vår bestilling er betinget av at den endelige prisen for Tilbudsaksjene ikke fastsettes over det øvre nivået i det Indikative Prisintervallet (kryss av) (Dette feltet skal kun fylles ut dersom bestillingen er betinget av at den endelige Tilbudsprisen ikke fastsettes over den øvre prisen i det Indikative Prisintervallet): Herved (i) foretar jeg/vi, i henhold til vilkårene og betingelsene som fremgår av denne bestillingsblanketten og av Prospektet, en ugjenkallelig bestilling av det antall Tilbudsaksjer tildelt meg/oss til Tilbudsprisen, opp til det samlede bestillingsbeløpet angitt ovenfor, (ii) gir jeg/vi hver av Tilretteleggerne (eller noen utpekt av dem) ugjenkallelig fullmakt og instruerer hver av dem til, sammen eller hver for seg, å gjennomføre enhver handling som er nødvendig for å overføre Tilbudsaksjene som tildeles meg/oss og sikre levering av disse Tilbudsaksjene i VPS på mine/våre vegne, (iii) gir jeg/vi DNB Market ugjenkallelig fullmakt til å debitere min/vår bankkonto som angitt i bestillingsblanketten for den samlede kjøpesummen for de Tilbudsaksjene som jeg/vi får tildelt, og (iv) bekrefter og garanterer jeg/vi ugjenkallelig å ha lest Prospektet og at jeg/vi er kvalifiserte til å bestille og kjøpe Tilbudsaksjer på de vilkår som der fremgår. Dato og sted*: Bindende signatur**: * Må være datert i Bestillingsperioden. **Undertegneren må være myndig. Dersom bestillingsblanketten undertegnes på vegne av bestilleren, må det vedlegges dokumentasjon i form av firmaattest eller fullmakt for at undertegner har slik kompetanse. INFORMASJON OM BESTILLEREN ALLE FELT MÅ FYLLES UT Fornavn Etternavn/Foretaksnavn Adresse (for foretak: registrert forretningsadresse) Postnummer og sted Fødselsnummer (11 siffer) / organisasjonsnummer (9 siffer) Nasjonalitet Telefonnr (dagtid) E-postadresse E2

441 RETNINGSLINJER FOR BESTILLEREN DENNE BESTILLINGSBLANKETTEN SKAL IKKE DISTRIBUERES ELLER OFFENTLIGGJØRES, VERKEN DIREKTE ELLER INDIREKTE, I ELLER TIL USA, CANADA, AUSTRALIA ELLER JAPAN ELLER NOEN ANNEN JURISDIKSJON DER SLIK DISTRIBUSJON ELLER OFFENTLIGGJØRING VIL VÆRE ULOVLIG. ANDRE RESTRIKSJONER GJELDER OGSÅ, SE PUNKTET SALGSRESTRIKSJONER NEDENFOR. Regulatoriske forhold: I overensstemmelse med EU-direktivet Markets in Financial Instruments ( MiFID ), oppstiller lov 29. juni 2007 nr 75 om verdipapirhandel ( Verdipapirhandelloven ) med tilhørende forskrifter, krav relatert til finansielle investeringer. I den forbindelse må Tilretteleggerne kategorisere alle nye kunder i en av tre kategorier; kvalifiserte motparter, profesjonelle og ikke-profesjonelle kunder. Alle bestillere som bestiller Tilbudsaksjer i det Offentlige Tilbudet og som ikke allerede er kunde hos en av Tilretteleggerne, vil bli kategorisert som ikke-profesjonell kunde. Bestilleren kan ved skriftlig henvendelse til Tilretteleggerne anmode om å bli kategorisert som profesjonell kunde dersom Verdipapirhandellovens vilkår for dette er oppfylt. For ytterligere informasjon om kundekategorisering kan bestilleren kontakte Tilretteleggerne. Bestilleren bekrefter herved å inneha tilstrekkelig kunnskap og erfaring om finansielle og forretningsmessige forhold for å kunne evaluere risikoen ved å investere i Selskapet gjennom å bestille Tilbudsaksjer i det Offentlige Tilbudet, og bestilleren bekrefter å være i stand til å ta den økonomiske risikoen og tåle et fullstendig tap av sin investering i Selskapet. Kun ordreutførelse: Tilretteleggerne vil behandle bestillingen av Tilbudsaksjer som en instruksjon om utførelse av ordre ( execution only ) fra bestilleren, ettersom Tilretteleggerne ikke vil være i stand til å avgjøre om bestillingen er hensiktsmessig for bestilleren. Bestilleren vil derfor ikke kunne påberope seg Verdipapirhandellovens regler om investorbeskyttelse. Informasjonsbarrierer: Tilretteleggerne er verdipapirforetak som tilbyr et bredt spekter av investeringstjenester. For å sikre at oppdrag som gjennomføres av Tilretteleggernes corporate finance -avdelinger holdes konfidensielle, er disse avdelingene adskilt fra Tilretteleggernes andre avdelinger, herunder avdelinger for analyse og aksjemegling, gjennom bruk av informasjonsbarrierer også kjent som chinese walls. Bestilleren erkjenner at som en konsekvens av dette kan Tilretteleggernes analyse- og aksjemeglingsavdelinger komme til å opptre i strid med bestillerens interesser i forbindelse med transaksjoner i Aksjene. VPS-konto og pålagte hvitvaskingingsprosedyrer: Det Offentlige Tilbudet er underlagt gjeldende hvitvaskingslovgivning, herunder kravene i lov 6. mars 2009 nr 11 om tiltak mot hvitvasking og terrorfinansiering samt hvitvaskingsforskriften av 13. mars 2009 nr. 302 ( Hvitvaskingslovgivningen ). Bestillere som ikke er registrert som kunde hos en av Tilretteleggerne må bekrefte sin identitet til en av Tilretteleggerne, i samsvar med Hvitvaskingslovgivningen, med mindre det gjelder spesielle unntak. Bestillere som har oppgitt en eksisterende norsk bankkonto og en eksisterende VPS-konto på bestillingsblanketten er unntatt med mindre verifikasjon av bestillerens identitet blir krevet av en av Tilretteleggerne. Bestillere som ikke har gjennomført tilstrekkelig verifikasjon av identitet før utløpet av Bestillingsperioden vil ikke bli tildelt Tilbudsaksjer. Deltakelse i Tilbudet er beting av at bestilleren har en VPS konto. VPS kontonummeret må være angitt i bestillingsblanketten. En VPS- konto kan etableres ved en autorisert VPS-kontofører som kan være en norsk bank, autorisert verdipapirforetak i Norge og norske avdelinger av finansinstitusjoner i EØS. Etablering av en VPS-konto krever bekreftelse på identitet overfor kontoføreren i henhold til Hvitvaskingslovgivningen. Utlandske investorer kan imidlertid benytte en forvalterkonto registrert i VPS i forvalterens navn. Forvalteren må være autorisert av Finanstilsynet. Salgsrestriksjoner: Tilbudet er underlagt salgsrestriksjoner i enkelte jurisdiksjoner, se kapittel 19 Selling and transfer restrictions i Prospektet. Verken Selgende Aksjonær eller Selskapet påtar seg noe ansvar dersom noen bryter disse restriksjonene. Tilbudsaksjene har ikke vært, og vil ikke bli, registrert i henhold til United States Securities Act av 1933 som endret ( U.S. Securities Act ) eller i henhold til noen verdipapirlovgivning i noen stat eller annen jurisdiksjon i USA og kan ikke tas opp, tilbys, selges, videreselges, overføres, leveres eller distribueres, verken direkte eller indirekte, innenfor, til eller fra USA bortsett fra i henhold til et gjeldende unntak fra, eller i en transaksjon som ikke er underlagt, registreringsbestemmelsene i U.S. Securities Act og i overensstemmelse med verdipapirlovgivningen i enhver stat eller annen jurisdiksjon i USA. Det vil ikke forekomme noe offentlig tilbud i USA. Tilbudsaksjene vil, og kan ikke, tilbys, selges, videreselges, overføres, leveres eller distribueres, verken direkte eller indirekte, innenfor, til eller fra noen jurisdiksjon der tilbud eller salg av Tilbudsaksjer ikke er tillatt, eller til, eller på vegne av eller til fordel for, enhver person med registrert adresse i, eller som bor eller vanligvis bor i, eller er innbygger i, noen jurisdiksjon der tilbud eller salg ikke er tillatt, bortsatt fra i henhold til et gjeldende unntak. I det Offentlige Tilbudet tilbys og selges Tilbudsaksjene til enkelte personer utenfor USA i offshore transactions innenfor betydningen av og i overensstemmelse med Rule 903 i Regulation S i U.S. Securities Act. Selskapet har ikke gitt tillatelse til noe offentlig tilbud av dets verdipapirer i noe medlemsland av EØS bortsett fra Norge. Når det gjelder andre medlemsland i EØS enn Norge som har implementert Prospektdirektivet ( Aktuelle Medlemsland ), har det og vil det ikke bli gjort noe for å fremsette et offentlig tilbud av Tilbudsaksjene som krever publisering av et prospekt i noen Aktuelle Medlemsland. Alle tilbud utenfor Norge vil derfor skje i henhold til unntak fra krav om prospekt. Stabilisering: I forbindelse med Tilbudet kan DNB Markets (som Stabiliserende Tilrettelegger ) (eller personer som opptrer på vegne av Stabiliserende Tilrettelegger) overtildele aksjer eller utføre transaksjoner med tanke på å støtte markedskursen på aksjene til et høyere nivå enn det som ellers kan tenkes å ville gjelde. Det er imidlertid ingen sikkerhet for at Stabiliserende Tilrettelegger (eller personer som opptrer på vegne av Stabiliserende Tilrettelegger) vil foreta stabiliserende handlinger. Stabilisering kan begynne på eller etter datoen for når informasjon om den endelige tilbudsprisen er tilfredsstillende offentliggjort og, hvis stabilisering begynner, kan den avsluttes når som helst, men senest innen 30 dager fra allokering av Tilbudsaksjene. Investeringsbeslutninger må baseres på Prospektet: Investorer må verken akseptere noe tilbud om, eller erverv av, verdipapirer i Selskapet på annet grunnlag enn det fullstendige Prospektet. Vilkår for betaling med engangsfullmakt verdipapirhandel: Betaling med engangsfullmakt er en banktjeneste tilbudt av samarbeidende banker i Norge. I forholdet mellom betaler og betalers bank gjelder følgende standard vilkår: 1. Tjenesten Betaling med engangsfullmakt verdipapirhandel suppleres av kontoavtalen mellom betaler og betalers bank, se særlig kontoavtalen del C, Generelle vilkår for innskudd og betalingsoppdrag. 2. Kostnader ved å bruke Betaling med engangsfullmakt verdipapirhandel fremgår av bankens gjeldende prisliste, kontoinformasjon og/eller opplyses på annen egnet måte. Banken vil belaste oppgitt konto for påløpte kostnader. 3. Engangsfullmakten signeres av betaler og leveres til betalingsmottaker. Betalingsmottaker vil levere belastningsoppdraget til sin bank som igjen kan belaste betalers bank. 4. Ved et eventuelt tilbakekall av engangsfullmakten skal betaler først ta forholdet opp med betalingsmottaker. Etter finansavtaleloven skal betalers bank medvirke hvis betaler tilbakekaller et betalingsoppdrag som ikke er gjennomført. Slikt tilbakekall kan imidlertid anses som brudd på avtalen mellom betaler og betalingsmottaker. 5. Betaler kan ikke angi et større beløp på engangsfullmakten enn det som på belastningstidspunktet er disponibelt på konto. Betalers bank vil normalt gjennomføre dekningskontroll før belastning. Belastning ut over disponibelt beløp skal betaler dekke inn umiddelbart. 6. Betalers konto vil bli belastet på angitt belastningsdag. Dersom belastningsdag ikke er angitt i engangsfullmakten vil kontobelastning skje snarest mulig etter at betalingsmottaker har levert oppdraget til sin bank. Belastningen vil likevel ikke skje etter engangsfullmaktens gyldighetsperiode som er angitt foran. Betaling vil normalt være godskrevet betalingsmottaker én til tre virkedager etter angitt belastningsdag/innleveringsdag. 7. Dersom betalers konto blir urettmessig belastet på grunnlag av en engangsfullmakt, vil betalers rett til tilbakeføring av belastet beløp bli regulert av kontoavtalen og finansavtaleloven. Forsinket og manglende betaling: Forsinket betaling belastes med gjeldende forsinkelsesrente i henhold til forsinkelsesrenteloven av 17. desember 1976 nr. 100, som per dato for Prospektet er 9,50 % p.a. Dersom betaling ikke skjer ved forfall, vil Tilbudsaksjene ikke bli levert til bestilleren, og Tilretteleggerne forbeholder seg retten til å, for tegnerens regning og risiko, når som helst kansellere og reallokere eller på annen måte disponere over de allokerte Tilbudsaksjene, på de vilkår og på den måten Tilretteleggerne bestemmer (og bestilleren ikke vil være berettiget til noe overskudd derfra). Den opprinnelige bestilleren vil fortsette å være ansvarlig for betaling av Tilbudsprisen for Tilbudsaksjene tildelt bestilleren, sammen med enhver rente, kostnader, gebyrer og utgifter påløpt, og Selgende Aksjonær og/eller Tilretteleggerne kan inndrive betaling for alle utestående beløp. E3

442 Odfjell Drilling Ltd Clarendon House 2 Church Street Hamilton HM11 Bermuda Joint Global Coordinators and Joint Bookrunners ABG Sundal Collier Munkedamsveien 45 E, Vika Atrium P.O. Box 1444 Vika N-0115 OSLO Norway DNB Markets Dronning Eufemias gate 30 P.O. Box 1600 Sentrum N-0021 OSLO Norway Goldman Sachs International Peterborough Court, 133 Fleet Street London EC4A 2BB United Kingdom Co-Lead Managers Arctic Securities Haakon VII s gate 5 P.O. Box 1833 Vika N-0123 OSLO Norway Danske Bank Markets Stortingsgaten 6 P.O. Box 1170 Sentrum N-0161 OSLO Norway Swedbank First Securities Filipstad Brygge 1 P.O. Box 1441 Vika N-0115 OSLO Norway Legal Adviser to the Company (as to Norwegian law) Advokatfirmaet Thommessen AS Haakon VII s gate 10 N-0161 OSLO Norway Legal Adviser to the Joint Global Coordinators and Joint Bookrunners (as to Norwegian law) Advokatfirmaet BA-HR DA Tjuvholmen allé 16 N-0117 OSLO Norway Legal Adviser to the Company (as to US and English law) Linklaters LLP One Silk Street London EC2Y 8HQ United Kingdom Legal Adviser to the Joint Global Coordinators and Joint Bookrunners (as to US and English law) Cleary Gottlieb Steen & Hamilton LLP City Place House 55 Basinghall Street London EC2V 5EH United Kingdom Legal Adviser to the Company (as to Bermuda law) Conyers Dill & Pearman Limited Clarendon House 2 Church Street Hamilton HM11 Bermuda Legal Adviser to the Selling Shareholder (as to Norwegian law) Advokatfirmaet Wiersholm AS Ruseløkkveien 26 N-0251 OSLO Norway