SDFI and Petoro annual report 2013

Directors’ report 2013

Petoro AS – share capital and shareholder

The company’s share capital at 31 December 2013 was NOK 10 million, divided between 10 000 shares. All the shares are owned by the Ministry of Petroleum and Energy on behalf of the Norwegian government. Petoro’s business office is in Stavanger.
 

Petoro Iceland AS

Petoro Iceland’s purpose is to participate in petroleum operations on that part of the Icelandic continental shelf which falls within the joint Icelandic-Norwegian collaboration area. The company was established in December 2012 as a wholly owned subsidiary of Petoro AS. Its share capital at 31 December 2013 comprised NOK 2 million, divided between 2 000 shares. Petoro Iceland participated during 2013 with 25 per cent interests in two licences, and secured a participatory interest in a third licence on 22 January 2014. The company has no employees and has entered into a management agreement with Petoro, which will handle day-to-day operation of Petoro Iceland’s activities and take care of all administrative functions. An agreement on technical support has also been entered into with the Norwegian Petroleum Directorate.
    
The budget covers management costs for Petoro AS, which is responsible for daily operation and handles all administrative functions, as well as Petoro’s share of licence costs in the two first production licences.
 

Petoro AS and group – net income and allocations

Petoro AS administers the SDFI portfolio in accordance with the accounting regulations for the government. The company maintains separate accounts for all transactions relating to the participatory interests, so that revenue and expenses for the portfolio are kept apart from operation of the company. Cash flows from the portfolio are transferred to the central government’s own accounts with the Bank of Norway. The company prepares separate annual accounts for the SDFI, with an overview of the participatory interests managed by Petoro and associated resource accounting. Accounts for the portfolio are presented both on the cash basis used by the government and in accordance with the Norwegian Accounting Act and Norwegian generally-accepted accounting principles (NGAAP). All amounts cited in this directors’ report are based on NGAAP.
    
The consolidated accounts embrace the parent company and Petoro Iceland AS. A management agreement has been entered into between the two companies. Amounts related to internal transactions are eliminated in the consolidated accounts. No consolidated accounts were prepared for 2012.
    
Funds for operating Petoro AS and Petoro Iceland AS are provided by the government, which is directly liable for the commitments accepted by the companies. The government contribution for ordinary operation of Petoro AS in 2013 was NOK 290.7 million, compared with NOK 281.2 million the year before. Since this sum includes VAT, disposable revenue exclusive of VAT was NOK 232.6 million as against NOK 225 million in 2012. Petoro received an additional appropriation of NOK 28.1 million exclusive of VAT in 2013 to meet costs related to unitisation work for the Johan Sverdrup field. Consolidated recorded operating income for 2013 was NOK 267.7 million and the net financial results was NOK 3.5 million. 
    
 
Operating expenses for the parent company in 2013 were NOK 270.4 million, compared with NOK 256.7 million the year before. Consolidated operating expenses totalled NOK 271.7 million in 2013. These expenses related primarily to payroll and administration expenses and to the purchase of external services. The purchase of leading-edge expertise relating to supervision of joint ventures in the SDFI portfolio accounts for a substantial proportion of the company’s operating expenses. The company gave priority to devoting substantial resources and study funds to mature fields and the work on Johan Sverdrup. This boosted costs for studies and leading-edge expertise by NOK 13.6 million from 2012. 
    
The board again devoted attention in 2013 to the company’s overall resource position, and has followed up the organisational and management changes made in order to equip Petoro even better to tackle the challenges and opportunities faced in managing the SDFI portfolio. The business manager arrangement was not renewed when contracts expired in the autumn of 2013, and Petoro included follow-up of fields during 2013 which were previously handled by business managers. Priority will be given by Petoro to directing resources at the three main topics specified in its strategy. The company’s commitment to the strategically important priority areas of mature fields and Johan Sverdrup will depend on available disposable funds. 
    
The net loss after net financial income came to NOK 0.5 million for the group and NOK 0.6 million for Petoro AS. The board proposes that this loss be covered from other equity. Remaining other equity at 31 December was NOK 14.8 million for the group and NOK 12.8 million for Petoro AS. The company’s equity position is satisfactory, with low financial risk.

Pursuant to section 3, subsections 3 and 2a, of the Norwegian Accounting Act, the board confirms that the annual accounts for the portfolio and the company provide a true and fair picture of the company’s assets and liabilities, financial position and results of the business, and that the annual accounts have been prepared on the assumption that the company is a going concern. 

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