Description of the company’s business
Petoro AS was established by the Ministry of Petroleum and Energy on behalf of the Norwegian state on 9 May 2001. The company’s objective is to be responsible, on behalf of the state, for managing the commercial aspects of the State’s Direct Financial Interest (SDFI) in petroleum activities on the Norwegian Continental Shelf, and associated activities.
The state is the majority shareholder in Statoil ASA and the owner of the SDFI. On this basis, Statoil handles marketing and sale of the state’s petroleum. Petoro is responsible for monitoring that Statoil discharges its responsibilities under the applicable marketing and sale instruction.
Petoro AS is also responsible for presenting separate annual accounts for the SDFI portfolio. The cash flow for the SDFI is accordingly excluded from the limited company’s annual accounts.
Petoro Iceland AS was established in December 2012 as a wholly-owned subsidiary of Petoro AS. Through a branch registered in Iceland, it is a licensee and participant in production licences in which the Norwegian state chooses to participate. The company’s share capital at 31 December 2017 comprised NOK 2 million, distributed among 2 000 shares. It has no employees and has entered into a management agreement with Petoro AS. The third and last production licence, which was awarded in January 2014, completed the work programme for the first phase in 2017. The operator, CNOOC, deemed that proceeding to the next phase was insufficiently attractive and recommended relinquishment based on a comprehensive assessment. Petoro Iceland AS supported the operator’s assessment and conclusion and chose to announce its withdrawal in January 2018.
As a result of relinquishing the last production licence on the Icelandic continental shelf, Petoro Iceland AS is no longer involved in any production licences. Some supplementary work for the most recently relinquished license will continue in 2018.
Group and consolidation
The consolidated accounts include the parent company, Petoro AS, and the Petoro Iceland AS subsidiary. They have been prepared as if the group was a single financial unit where transactions and accounts between the companies are eliminated.
The consolidated accounts have been prepared on the basis of uniform principles in that the subsidiary applies the same accounting principles as the parent company.
Classification of assets and liabilities
Assets intended for ownership or use over a longer period are classified as fixed assets. Other assets are classed as current assets. Receivables due within one year are classified as current assets. Equivalent criteria are applied for classification of current and long-term liabilities.
Fixed assets are carried at historical cost with a deduction for planned depreciation. Should the fair value of a fixed asset be lower than the book value, and this decline is not expected to be temporary, the asset will be written down to its fair value. Fixed assets with a limited economic lifetime are depreciated on a straight-line basis over their economic lifetime.
Shares in subsidiaries
Investments in subsidiaries are assessed in accordance with the cost method.
Accounts receivable and other receivables are carried at face value.
Bank deposits include cash, bank deposits and other monetary instruments with a maturity of less than three months at the date of purchase.
Petoro implemented a new pension plan for employees with effect from 1 January 2016. This is a defined contribution plan pursuant to the Defined Contribution Pensions Act with maximum rates. The company has a transitional arrangement for employees who are less than 15 years from retirement age. Premiums for the defined contribution plan are expensed on a continuous basis.
The capitalised obligation relating to the defined benefit plan for employees who remain in the defined benefit scheme, is the present value of the defined obligation on the balance sheet date less the fair value of the plan assets, adjusted for unrecorded change in estimates. The pension obligation is calculated annually by an independent actuary on the basis of a linear earnings method and expected final pay. The pension plan is valued at its expected fair value. The net book liability includes payroll tax.
The period’s pension expense is included in payroll expenses and comprises pension rights earned over the period, interest charges on the estimated pension obligation, expected return on pension plan assets, the recorded effect of estimate changes and accrued payroll tax from the benefit-based scheme, as well as premiums for the contribution-based scheme.
Changes made to estimates as a result of new information or changes in actuarial assumptions in excess of the larger of 10 per cent of the value of the pension plan assets or 10 per cent of the pension obligations are recorded in the income statement over a period which corresponds to the employees’ expected average remaining period of employment.
Correction of errors in previous years’ pension liabilities has reduced equity as of 1 January 2016, ref. Note 10.
Current liabilities are assessed at their face value.
The company is exempt from tax with regard to Petoro AS pursuant to Section 2-30 of the Taxation Act. Tax expense in the consolidated accounts applies to Petoro Iceland AS.
The company receives appropriations from the government for services provided to the Ministry of Petroleum and Energy in accordance with the company’s objective. This operating contribution is appropriated annually by the Storting (parliament). The operating contribution is presented in the accounts as operating revenue.
Contributions for special projects are recorded as income in line with costs expended in the projects (matching principle).
The contribution applied to investment for the year is accrued as deferred revenue and recorded as a liability in the balance sheet. The deferred contribution is recorded as income in line with the depreciation of the investments and specified as deferred revenue in the income statement.
Transactions in foreign currencies are recorded at the exchange rate on the transaction date. Receivables and liabilities in foreign currencies are recorded at the exchange rate on the balance sheet date.
Cash flow statement
The cash flow statement is prepared in accordance with the indirect method. Cash and cash equivalents include cash in hand and at bank, as well as other current liquid assets.