Petoro - a driving force on the Norwegian continental shelf

SDFI and Petoro annual report 2015

Petoro AS - Notes

Note 1 - Government contribution and other income

The company recorded an operating contribution from the Norwegian government totalling NOK 267.3 million excluding VAT as income in 2015. For the group, the amount was NOK 284.6 million. The appropriation for the year, excluding VAT, was NOK 265 million for Petoro AS and NOK 16.5 million for Petoro Iceland AS, giving a total amount of NOK 281.5 million for the group. The difference between the operating contribution recorded as income and the appropriation for the year reflects accruals between fiscal years. 
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 3.4 million in investment made during 2015 as well as NOK 2 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)




98 681

99 806

Directors’ fees 1 737 1 690
Payroll taxes

15 044

13 998

Pensions (note 11) 

38 881

30 227

Other benefits

3 663

3 753


158 006

149 474

* Directors’ fees are specified in the table.






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

Expensed pension



Grethe Moen, president and CEO

3 221


3 400

1 850

Rest of the management team (seven people)


Olav Boye Sivertsen

1 840


1 996


Marion Svihus

2 373


2 527


Laurits Haga

2 528


2 682


Roy Tore Ruså

2 468


2 622


Jan Terje Mathisen

2 362


2 513


Nashater Solheim

1 729


1 887


Kjell Morisbak Lund

2 323


2 474


Rest of the management team (seven people)

15 623

1 078

16 701

4 952


Expensed pension liabilities represent the current year’s estimated cost of the overall pension liability for the CEO plus the rest of the management team.
Nashater Solheim resigned from Petoro in February 2016.


Declaration on senior executive pay for Petoro AS

The declaration on remuneration for the CEO 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 guidelines on pay and other remuneration for senior executives in wholly or partly state-owned undertakings and companies which came into force on 13 February 2015. These replaced the earlier guidelines on conditions of employment for executives in state-owned undertakings and companies of 31 March 2011.

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 CEO, 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 CEO 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 in accordance 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. The management team, with the exception of the CEO, are also covered by a loyalty scheme like other employees. This matches the calendar year, and involves annually allocating a sum equivalent to five per cent of annual pay at 1 January 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. The first pay-out was made in January 2016 to employees who met 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 had a defined benefit pension scheme in 2015. The CEO 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. Petoro also had an unfunded defined benefit plan in 2015 for personnel earning more than 12 G. This pension agreement was established before the revised guidelines on employment terms for senior executives in state-owned companies came into force. It embraces all employees of the company earning more than 12 G, and is not confined to senior executives.
The board approved a new pension plan for Petoro with effect from 1 January 2016. This is a defined contribution plan pursuant to the Defined Contribution Act. From the same date, Petoro has no collective pension plan for employees with pay above 12 G. A transitional arrangement has been put in place which applies equally to senior executives and other employees with less than 15 years to go before reaching the retirement age of 67. Senior executives with employment contracts entered into before 13 February 2015 are covered by the same transitional scheme as other employees.
Senior executives appointed after the new guidelines came into force on 13 February 2015 will only be covered by the company’s defined contribution plan for pay below 12 G. Consequently, after these new guidelines came into force, Petoro will have no new senior executives with a defined benefit pension and no pension expenses over and above those which follow from the tax-favoured defined benefit plan.

Remuneration principles and their implementation in the preceding year
The annual evaluation of the basic pay of the CEO and other senior executives is conducted with effect from 1 July. Assessments of senior executives other than the CEO in 2015 took place during the second quarter. The board considered the CEO’s pay assessment at its meeting of 3 September 2015. The CEO’s pay is adjusted at 1 July 2016.


Note 4 - Tangible fixed assets


All figures in NOK 1 000

Fixed fittings

Equipment, etc



Purchase cost 1 Jan 15

4 310

8 520

26 543

39 373

Addition fixed assets



3 282

3 407

Disposal/obsolescence fixed assets





Purchase cost 31 Dec 15

4 434

8 520

29 825

42 780



Accumulated depreciation 1 Jan 15

4 064

7 707

24 160

35 931

Reversed accumulated depreciation





Depreciation for the year



1 694

1 991

Accumulated depreciation 31 Dec 15

4 144

7 924

25 853

37 921



Book value at 31 Dec 15



3 971

4 858

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

2 093

3 399

     Currency gain



Financial expenses



     Interest expenses



     Currency loss



     Other financial expenses



Net financial items Petoro AS

1 718

3 006

Net financial items from subsidiary



Net financial items group

1 813

3 078


Note 6 - Investment in subsidiary


Acquisition date

Business office


Voting  share

Equity 31 Dec

Loss 2015

Petoro Iceland AS 11 Dec 2012 Stavanger 100 % 100 % NOK 1 589 (521)

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 2015.


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 199.1 million, Petoro AS accounts for NOK 197.7 million. That includes NOK 145 million in withheld tax and pension plan assets. 


Note 9 - Share capital and shareholder information

The share capital of the company at 31 December 2015 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 2015

10 000

6 749

16 749

Change in equity for the year




Net income


5 040

5 040

Equity at 31 Dec 2015

10 000

11 789

21 789


Group (All figures in NOK 1 000)

Share capital

Other equity


Equity at 1 Jan 2015

10 000

8 858

18 858

Change in equity for the year




Net income


4 520

4 520

Equity at 31 Dec 2015

10 000

13 378

23 378


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 had defined benefit pension plans in 2015 covering all its employees, with the exception of 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.
Petoro has introduced a defined contribution plan with effect from 1 January 2016. Employees who had less than 15 years of pensionable service remaining at 31 December 2015 will stay in the existing defined benefit plans for employees earning below and above 12 G. Where other employees are concerned, Petoro’s collective pension plan for pay above 12 G has been discontinued with effect from 1 January 2016. A transitional arrangement has been established for employees transferring to the defined contribution pension plan.

Net pension cost (Figures in NOK 1 000)



Present value of benefits earned during the year

29 569

22 486

Interest expense on pension obligation

5 278

8 798

Return on pension plan assets

(3 409)

(3 609)

Recorded change in estimates

5 369


Recorded change in pension plan

(2 766)


Payroll tax

4 770

3 171

Pension cost, defined benefit plans

38 811

30 154

Pension cost, defined contribution plan



Net pension cost

38 881

30 227

Capitalised pension obligation 



Estimated pension obligation at 31 Dec 

281 649

293 218

Pension plan assets (market value) 

(99 919)

(105 821)

Net pension obligations before payroll tax 

181 730

187 397

Unrecorded change in estimates

(60 975)

(88 493)

Payroll tax

9 671

14 078

Capitalised pension obligation

130 425

112 983

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. The change to pension plans at the end of 2015 is reflected in the capitalised pension obligations at 31 December.





Discount rate 



Expected return on plan assets



Expected increase in pay



Expected increase in pensions



Expected change in NI base rate



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 2015 totalled NOK 0.4 million. The figure for Petoro AS was NOK 0.3 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 was engaged until 30 June 2015 to conduct a financial audit of the SDFI as part of the company’s internal audit function. Deloitte charged NOK 0.5 million for this service in 2015, and also executed internal audit projects and delivered services related to partner audits for a total of NOK 1.1 million. PricewaterhouseCoopers AS (PwC) has been engaged as the company’s financial auditor with effect from 1 July 2015. PwC charged NOK 0.3 million for financial auditing in 2015, and also delivered services related to partner audits for a total of NOK 0.9 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 five years, with an option to renew for a further five-year period. Rent for the year was NOK 8.9 million, which included all management and shared expenses. 


Note 15 - 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. 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 2015 was NOK 13.2 million. Other services purchased from the contractor totalled NOK 0.6 million.


Note 16 - Close associates

Statoil ASA and Petoro AS have the same owner in the Ministry of Petroleum and Energy, and are close associates. Petoro purchased services in 2015 relating to the audit of licence accounts, insurance services and other minor services. These were purchased at market price on the basis of hours worked. NOK 0.4 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 1.4 million was invoiced in 2015 for the purchase of hours and services. These services are calculated at market price on the basis of hours worked and the government’s scale for travel expenses. The parent company has a credit of NOK 0.1 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 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. At 31 December 2015, Petoro Iceland AS had participatory interests in two production licences.


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