Petoro - a driving force on the Norwegian continental shelf

SDFI and Petoro annual report 2014

Petoro AS - Notes

Note 1 - Government contribution and other income

The company recorded an operating contribution from the Norwegian government totalling NOK 277.2 million excluding VAT as income in 2014. For the group, the amount was NOK 288.8 million. The appropriation for the year, excluding VAT, was NOK 278.3 million for Petoro AS and NOK 15.3 million for Petoro Iceland AS, giving a total amount of NOK 293.6 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 29.5 million excluding VAT for 2014.

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 2.75 million in investment made during 2014 as well as NOK 2.74 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)




99 806

90 535

Directors’ fees 1 690 1 657
Payroll taxes

13 998

12 801

Pensions (note 11) 

30 227

26 356

Other benefits

3 753

4 046


149 474

135 395

* Directors’ fees are specified in the table.






Employees at 31 Dec, including the CEO and senior executives



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

Expensed pension






Grethe Moen, president and CEO

3 231


3 418

1 961

Rest of the management team (seven people)





Olav Boye Sivertsen

1 727


1 880


Marion Svihus

2 244


2 402

1 031

Laurits Haga

2 394


2 542

1 197

Roy Tore Ruså

2 304


2 455


Jan Terje Mathisen

2 188


2 334


Nashater Solheim, from March

1 485


1 611


Kjell Morisbak Lund, from February

1 980


2 117


Rest of the management team (seven people)

14 322

1 019

15 341

6 471






Expensed 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.


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. New guidelines for pay and other remuneration for senior executives in enterprises and companies with a state ownership interest were established by the Ministry of Trade, Industry and Fisheries with effect from 13 February 2015. These guidelines primarily affect pension schemes above 12 times the National Insurance base rate (G), and the company has begun work to review and understand these provisions.
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. All employees 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. Also embracing the management team, the scheme involves allocating a sum equivalent to five per cent of annual pay up to a maximum of 24G annually at 1 January. 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. The first pay-out will be made in January 2016 to employees who meet the conditions. 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 oil and gas industry 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 president 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. Assessments of senior executives other than the president in 2014 took place during the second quarter. The board considered the president’s pay assessment at its meeting of 5 September 2014. The president’s pay is adjusted at 1 July 2015.


Note 4 - Tangible fixed assets

All figures in NOK 1 000

Fixed fittings

Equipment, etc



Purchase cost 1 Jan 14

4 021

8 320

24 282

36 623

Addition fixed assets



2 261

2 750

Disposal/obsolescence fixed assets





Purchase cost 31 Dec 14

4 310

8 520

26 543

39 373






Accumulated depreciation 1 Jan 14

3 727

7 509

21 956

33 192

Reversed accumulated depreciation





Depreciation for the year



2 203

2 739

Accumulated depreciation 31 Dec 14

4 064

7 707

24 160

35 931






Book value at 31 Dec 14



2 383

3 442

Economic life

Until lease expires in 2020

3-5 years   

3 years

Depreciation plan Linear Linear Linear  

Operational leasing contracts include office equipment and machines. The initial hire period is three-five years.


Note 5 – Financial items

All figures in NOK 1 000



Financial income



     Interest income

3 399

3 770

     Currency gain



Financial expenses



     Interest expenses



     Currency loss



     Other financial expenses



Net financial items Petoro AS

3 006

3 424

Net financial items Petoro Iceland AS



Net financial items group

3 078

3 489


Note 6 - Investment in subsidiary


Acquisition date

Business office


Voting  share

Equity 31 Dec

Profit 2014

Petoro Iceland AS 11 Dec 2012 Stavanger 100 % 100 % 2 109 62

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. The facility remained undrawn at 31 December 2014.


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 178.3 million, Petoro AS accounts for NOK 173.5 million. That includes NOK 130.7 million in withheld tax and pension plan assets. 


Note 9 - Share capital and shareholder information

The share capital of the company at 31 December 2014 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 14

10 000

12 764

22 764

Change in equity for the year




Net income


(6 015)

(6 015)

Equity at 31 Dec 14

10 000

6 749

16 749


Group (All figures in NOK 1 000)

Share capital

Other equity


Equity at 1 Jan 14

10 000

14 829

24 829

Corrected equity at 1 Jan 14   (18) (18)
Change in equity for the year




Net income


(5 953)

(5 953)

Equity at 31 Dec 14

10 000

8 858

18 858

Consolidated reserves include 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 plans comply with the requirements of this Act.
The company has defined benefit pension plans covering all its employees, with the exception one person who has a defined contribution plan. The plans confer 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 

22 486

21 799

Interest expense on pension obligation 

8 798

8 056

Return on pension plan assets 

(3 609)

(3 775)

Recorded change in estimates


(2 726)

Payroll tax

3 171

3 002

Pension cost, defined benefit plans

30 154

26 356

Pension cost, defined contribution plan



Net pension cost

30 227

26 356

Capitalised pension obligation 



Estimated pension obligation at 31 Dec 

293 218

203 561

Pension plan assets (market value) 

(105 821)

(90 255)

Net pension obligations before payroll tax 

187 397

113 306

Unrecorded change in estimates

(88 493)

(22 374)

Payroll tax

14 078

12 954

Capitalised pension obligation

112 983

103 886

Financial assumptions applied in calculating net pension expense for the year relate to the preceding year for net pension costs and to the present year for the net pension obligation:




Discount rate 

2.3 %

4.1 %

Expected return on plan assets

3.2 %

4.4 %

Expected increase in pay

2.75 %

3.75 %

Expected increase in pensions

0.0 %

0.6 %

Expected change in NI base rate

2.5 %

3.5 %

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 2014 totalled NOK 0.37 million. The figure for Petoro AS was NOK 0.26 million. 
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 0.77 million for this service in 2014, and also executed internal audit projects and delivered services related to partner audits for a total of NOK 2.3 million.


Note 14 - Leases

Petoro AS entered into a lease with Smedvig Eiendom AS for office premises in the autumn of 2003. The ordinary term of the lease expired at 31 December 2014. Petoro chose to exercise its option to extend the lease to 31 December 2020.

The remaining term of the lease is now five years, with an option to renew for a further five-year period. Rent for the year was NOK 8.95 million, which included all management and shared expenses. 


Note 15 - Significant contracts

Petoro has entered into a new agreement with Upstream Accounting Excellence (Upax) on the delivery of accounting and associated ICT services related to the SDFI accounts. This agreement applies from 1 March 2014 and runs for five years with an option for Petoro to extend it for a further year. Evry is the sub-contractor for ICT services. The recorded accounting fee for Upax in 2014 was NOK 15 million. Other services purchased from the contractor totalled NOK 2.2 million.


Note 16 - 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 2014 relating to the audit of licence accounts, insurance services for the Norwegian Government Petroleum Insurance Fund and other minor services. NOK 0.91 million was recorded in 2014 for the purchase of services from Statoil ASA. These were purchased at market price on the basis of hours worked. NOK 3.94 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 17 - 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 1.79 million was invoiced in 2014 for the purchase of hours and services, including NOK 0.05 million for travel. These services are purchased at market price, based on hours worked and the government’s scale for travel expenses. The parent company has a credit of NOK 0.08 million with the subsidiary. The amounts have been eliminated in the accounts.


Note 18 - Licences/interests

The Icelandic government awarded two licences on 4 January 2013 to explore for and produce hydrocarbons on the Icelandic continental shelf. A third licence was awarded in January 2014. 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 phase for one licence expired at 4 January 2015. The work programme was fulfilled in 2014. In line with the operator’s recommendation, the government has resolved that Norwegian state participation in this licence will not continue into the next phase.


Note 19 - Tax – consolidated

Tax expense for the year breaks down as



Tax payable



Excess provision for tax 2013



Icelandic 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