Petoro - a driving force on the Norwegian continental shelf

SDFI and Petoro annual report 2013

Petoro AS - Notes

Note 1 - Government contribution and other income

The company recorded an operating contribution from the Norwegian government totalling NOK 260.7 million excluding VAT as income in 2013. For the group, the amount was NOK 265 million. The appropriation for the year, excluding VAT and additional funding for Johan Sverdrup, was NOK 232.6 million for Petoro AS and NOK 6 million for Petoro Iceland AS, giving a total amount of NOK 238.6 million for the group. The difference between the operating contribution recorded as income and the appropriation for the year reflects accruals between fiscal years. The invoiced contribution for Johan Sverdrup totalled NOK 21.6 million excluding VAT for 2013.

Other revenue primarily relates to invoicing of services provided to operators of joint ventures and other joint venture partners.


Note 2 - Deferred revenue

The change in deferred revenue recorded in the income statement comprises deferred revenue related to NOK 1.4 million in investment made during 2013 as well as NOK 2.7 million in depreciation of investments made during the year and in earlier years.


Note 3 - Payroll expenses, number of employees, benefits, etc

Payroll expenses   (all figures in NOK 1 000)




93 505

85 347

Payroll taxes

11 488

12 918

Pensions (note 11)

26 356

30 864

Other benefits

4 046

3 878


135 395

133 007







Employees at 31 Dec



Employees with a signed contract who had not started work at 31 Dec



Average number of work-years employed



Remuneration of senior executives (all figures in NOK 1 000)


Other benefits

Total benefits

Recorded pension






Kjell Pedersen, president until 11 Jun 13

2 223


2 318

3 284

Grethe Moen, president from 12 Jun 13

1 520


1 617


Rest of the management team (seven people)





Olav Boye Sivertsen

1 592


1 715


Marion Svihus

1 973


2 117


Tor Rasmus Skjærpe

2 411


2 557

1 373

Laurits Haga

2 100


2 241

1 194

Jan Rosnes

1 931


2 072


Roy Tore Ruså

2 010


2 153


Jan Terje Mathisen, from 12 Jun 13

1 071


1 141


Grethe Moen, to 12 Jun 13

1 265


1 337

(everything included above)






Recorded pension liabilities represent the current year's estimated cost of the overall pension liability for the president plus the rest of the management team. Pay includes payments from the credit balance in the loyalty scheme.

Breakdown of directors’ fees (all figures in NOK 1 000)

Directors’ fees

Gunnar Berge, chair


Hilde Myrberg, deputy chair


Nils-Henrik M von der Fehr, director


Per Arvid Schøyen, director


Gunn Wærsted, director from Sep


Mari Thjømøe, director until Sep


Ragnar Sandvik, director, elected by the employees


Anniken Gravem, director, elected by the employees


Tore Wiig Jonsbråten, director, elected by the employees, alternate


Back payment, employee-elected directors, 2012





Declaration on senior executive pay for Petoro AS

The declaration on remuneration for the president and other senior executives is in line with the provisions of the Norwegian Act on Public Limited Companies and the guidelines for state ownership, including the revised guidelines on conditions of employment for executives in state-owned undertakings and companies of 1 April 2011. These replaced the earlier guidelines for state ownership – attitude to executive pay, which dated from 2006.

Guidelines on remuneration
Petoro’s remuneration guidelines are entrenched in the company’s vision, goals and values. The relationship between the level of performance, demonstrated leadership/collegiality and reward will be predictable, motivational, clear and easy to communicate. Petoro has an integrated pay policy and system for the whole company, and aims to pay a competitive rate without being a pacesetter on remuneration in relation to the relevant market for the petroleum industry.

Decision-making process
The board determines compensation arrangements for the president, who in turn determines the compensation arrangements for the other members of the company’s senior management. The board has appointed a compensation sub-committee comprising the deputy chair and another director. The human resources manager provides the secretariat function for this committee, which prepares proposals and recommendations for the board on compensation issues.

Main principles for remuneration in the coming fiscal year
The compensation package for the president and the other senior executives will reflect the responsibilities and complexity of the role in question, the company’s values and culture, the relevant executive’s behaviour and performance, and the need to attract and retain key personnel. The arrangements are transparent and accord with the principles for good corporate governance.
Basic pay is the main component in Petoro’s compensation scheme. Senior executives are also entitled to benefits on the same lines as others in the company, including car allowance as well as pension and insurance benefits, but with a somewhat wider entitlement to communication allowance. Members of the management team other than the president also have a loyalty scheme which comprises an annual payment determined by the board. The scheme accords with the calendar year and was amended from 1 January 2013 to include other employees as well. The management team now participates in a new scheme, whereby a sum equivalent to five per cent of their annual pay at 1 January is allocated annually up to a maximum of 24 times the National Insurance base rate (G). The calculation is based on the value of G at 1 January.
One-third of the credit balance at 31 December is first paid out after a minimum qualifying period of three years. Payment will be made together with regular salary in January. Thereafter, one-third of the credit balance at any given time will be paid annually. The accumulated sum is lost if the person concerned resigns from the company or is under notice at the due date for payment. In the event of retirement, the credit balance will be paid in its entirety on departure. The sum paid is reported as a payroll expense.

Petoro does not have a bonus programme. Share programmes, options and other option-like arrangements are not used by the company.

Pay levels in a reference market comprising relevant companies in the upstream and supplies industries for oil and gas provide the basic guidelines for the company’s remuneration profile. Basic pay is primarily fixed on the basis of the responsibilities and complexity of the position. Basic pay is subject to an annual assessment.

Petoro has a defined benefit pension scheme. The new president took office on 12 June 2013. She has a retirement age of 67. Her employment contract stipulates a mutual six-month period of notice. Agreement has been entered into on a pay guarantee scheme of 12 months in addition to the period of notice. One member of the management team has the opportunity to retire on a full pension upon reaching the age of 62. Two members of the management team can opt to retire upon reaching the age of 65 on a reduced pension. The remaining executives retire at 67. The pension benefit is calculated as about 66 per cent of the pension basis, less an estimated National Insurance benefit. For competitive reasons, Petoro has an unfunded defined benefit plan for personnel earning more than 12 times G. This pension agreement was established before the revised guidelines on employment terms for senior executives in state-owned undertakings and companies came into force. It embraces all employees of the company earning more than 12G, and is not confined to senior executives.
Petoro has begun work on an overall review of the company’s pension schemes and has established a project to assess the options, taking account of the legal framework and the terms of union-management agreements, relevant pension projects available on the market and Petoro’s competitive position in the industry. New legislation on occupational and contributory pensions will occupy a key place in this work.

Remuneration principles and their implementation in the preceding year
The annual evaluation of the basic pay of the president and other senior executives is conducted with effect from 1 July. The new president took office in 12 June 2013 and had no new pay assessment during the year. The assessment of other senior executives for 2013 was carried out in the second quarter.


Note 4 - Tangible fixed assets

All figures in NOK 1 000   

Fixed fittings

Equipment, etc



Purchase cost 1 Jan 13

4 021

7 440

23 818

35 279

Addition fixed assets




1 344

Disposal/obsolescence fixed assets





Purchase cost 31 Dec 13

4 380

7 962

24 282

36 623






Accumulated depreciation 1 Jan 13

3 309

7 358

19 803

30 470

Reversed accumulated depreciation





Depreciation for the year



2 153

2 722

Accumulated depreciation 31 Dec 13

3 727

7 509

21 956

33 192






Book value at 31 Dec 13



2 326

3 432

Economic life

Until lease expires in 2014

3-5 years

3 years

Depreciation plan Linear Linear Linear  

Operational leasing contracts include the hire of a car as well as office equipment and machines. The initial hire period is three-five years.


Note 5 – Financial items

Financial items (all figures in NOK 1 000)



Financial income



Interest income

3 770

3 474

Currency gain



Other financial income



Financial expenses



Interest expenses



Currency loss



Other financial expenses



Net financial items Petoro AS

3 424

3 156

Net financial items Petoro Iceland AS



Net financial items group

3 489



Note 6 - Investment in subsidiary





Voting share

Equity 31 Dec

Profit 2013

Petoro Iceland AS 11 Dec 2012 Stavanger 100% 100% NOK 2 mill 65

Petoro AS received a contribution of NOK 2 million in 2012 which was earmarked as share capital for Petoro Iceland AS. This contribution has been offset against the acquisition price of the shares. For that reason, investment in Petoro Iceland has been recorded as NOK 0 in the balance sheet.

Petoro Iceland receives its own appropriations over the central government budget to fund its operations. It has also entered into an agreement with the parent company, Petoro AS, on an overdraft facility of NOK 3 million. This agreement has been established on the arm’s-length principle and is based on normal commercial terms and principles, and is thereby considered to accord with the pricing of corresponding financial services in the market.


Note 7 - Other debtors

Other debtors consist in their entirety of pre-paid costs relating primarily to rent, insurance, licences, subscriptions for market information and VAT credits. 


Note 8 - Bank deposits

Of consolidated bank deposits totalling NOK 177.9 million, Petoro AS accounts for NOK 171.4 million. That includes NOK 118 million in withheld tax and pension plan assets. 


Note 9 - Share capital and shareholder information

The share capital of the company at 31 December 2013 comprised 10 000 shares with a nominal value of NOK 1 000 each. All the shares are owned by the Ministry of Petroleum and Energy on behalf of the Norwegian government, and all have the same rights.


Note 10 - Equity


Petoro AS (All figures in NOK 1 000)    

Share capital

Other equity


Equity at 1 Jan 13

10 000

13 348

23 348

Change in equity for the year




Net income




Equity at 31 Dec 13

10 000

12 764

22 764


Group (All figures in NOK 1 000)    

Share capital   

Other equity


Equity at 1 Jan 13

10 000

15 348

25 348

Change in equity for the year




Net income




Equity at 31 Dec 13

10 000

14 829

24 829

Other equity at 1 January 2013 includes a contribution of NOK 2 million from the Norwegian government in connection with the establishment of Petoro Iceland AS.


Note 11 - Pension costs, assets and liabilities

The company is legally obliged to have an occupational pension plan pursuant to the Act on Mandatory Occupational Pensions. The company’s pension plan complies with the requirements of this Act.
The company has pension plans covering all its employees, which give the right to defined future benefits. These depend primarily on the number of years of pensionable earnings, the level of pay at retirement and the size of national insurance benefits. 

Net pension cost (Figures in NOK 1 000)



Present value of benefits earned during the year 

21 799

23 432

Interest expense on pension obligation

8 056

7 309

Return on pension plan assets 

(3 775)

(4 155)

Recorded change in estimates

(2 726)

1 023

Payroll tax

3 002

3 255

Net pension cost

26 356

30 864

Capitalised pension obligation



Estimated pension obligation at 31 Dec

203 561

179 553

Pension plan assets (market value)

(90 255)

(88 545)

Net pension obligations before payroll tax 

113 306

91 008

Unrecorded change in estimates

(22 374)

(9 585)

Payroll tax

12 954

11 481

Capitalised pension obligation 

103 886

92 904

The following financial assumptions have been applied in calculating net pension cost and obligation:




Discount rate 

4,1 %

4,2 %

Expected return on plan assets

4,4 %

4,0 %

Expected increase in pay

3,75 %

3,5 %

Expected increase in pensions

0,6 %

0,2 %

Expected change in NI base rate

3,5 %

3,25 %

The actuarial assumptions are based on common assumptions made in the insurance business for demographic factors.


Note 12 - Other current liabilities

Other current liabilities relate almost entirely to provision for costs incurred, pay outstanding and holiday pay.


Note 13 - Auditor’s fees

Erga Revisjon AS is the group’s elected auditor. Fees charged by Erga Revisjon to Petoro for external auditing in 2013 totalled NOK 0.37 million, while other assistance amounted to NOK 0.024 million for 2013. These figures were NOK 0.26 million and NOK 0.015 million respectively for Petoro AS. 

In accordance with the Act on Government Auditing of 7 May 2004, the Auditor General is the external auditor for the SDFI. Deloitte AS has also been engaged to conduct a financial audit of the SDFI as part of the company’s internal audit function. Deloitte charged NOK 1.7 million for this service in 2013. Deloitte has also executed internal audit projects and delivered services related to partner audits totalling NOK 2.1 million.


Note 14 - Business management agreements

The system of existing business management agreements was discontinued in 2013 when the contracts expired. Day-to-day administrative follow-up of these production licences has been taken over by the company itself. Prioritisation of its commitment in the various joint ventures is based on the significance of each joint venture to the overall value of the portfolio and risk assessments related to the various phases in a joint venture (exploration, development and production).


Note 15 - Leases

Petoro AS entered into a lease with Smedvig Eiendom AS for office premises in the autumn of 2003. The remaining term of the lease is one year, with options for a further two periods of five years each. Rent for the year was NOK 8.6 million, which included all management and shared expenses.


Note 16 - Significant contracts

Petoro has entered into an agreement with Upstream Accounting Excellence (Upax) on the delivery of accounting and associated ICT services related to the SDFI accounts. This five-year agreement was entered into in 2008, with delivery starting on 1 March 2009. Evry is the sub-contractor for ICT services. The contract for delivering accounting and associated ICT services for the SDFI was put out to tender anew in the market during 2013. This tendering process resulted in the award of a new contract to Upax for a further five-year period. Evry remains the sub-contractor for ICT services. The recorded accounting fee for Upax in 2013 was NOK 16.2 million. Other services purchased from the contractor totalled NOK 1 million.

Note 17 - Close associates

Statoil ASA and Petoro AS have the same owner in the Ministry of Petroleum and Energy, and are accordingly close associates. Petoro purchased services in 2013 relating to business management agreements, cost sharing for the audit of licence accounts, insurance services for the Norwegian Government Petroleum Insurance Fund and other minor services. NOK 0.9 million was recorded in 2013 for the purchase of services from Statoil ASA. These were purchased at market price on the basis of hours worked. NOK 3 million has been invoiced for services rendered to Statoil ASA under the arm��s-length principle, based on hours worked by Petoro personnel and contract staff.

Note 18 - Internal group transactions

Petoro Iceland AS has entered into a management agreement with Petoro AS. Its purpose is that Petoro AS will manage the operations of Petoro Iceland AS on the terms and conditions specified in the agreement. NOK 1.4 million was invoiced in 2013 for the purchase of hours and services, including NOK 0.08 million for travel. These services are purchased at market price, based on hours worked and the government’s scale for travel expenses. The amounts have been eliminated in the accounts.


Note 19 - Licences/interests group

The Icelandic government awarded two licences on 4 January 2013 for exploring for and producing hydrocarbons on the Icelandic continental shelf. The Norwegian government has resolved that Petoro Iceland AS, through its branch office in Iceland, will manage the Norwegian participatory interest of 25 per cent in these two licences. The work programme in the licences is divided into three phases, and the licensees can opt to relinquish the licences at the end of each phase. The first of these phases lasts until 31 December 2014 and 31 December 2016 respectively for the two licences. A third licence was also awarded in January 2014, again with a Norwegian participatory interest of 25 per cent managed by Petoro Iceland AS.


Note 20 - Tax

Tax expense for the year breaks down as


Tax payable


Change in deferred tax


Total tax expense




Calculation of tax base for the year


Profit before tax expense


Permanent differences


Change in temporary differences


Tax base for the year


Tax payable