Petoro AS - Notes
Note 1 - Government contribution and other revenue
The appropriation for the year, excluding VAT, was NOK 287 million. The amount is recorded as operating contribution from the Norwegian government. Other revenue primarily relates to services in connection with negotiation management in the SDFI portfolio.
Note 2 - Deferred revenue
The change in deferred revenue recorded in the income statement comprises deferred revenue related to NOK 0.7 million in investments made during 2019, as well as NOK 3.4 million in depreciation of investments made during the year and in earlier years, cf. Note 4.
Note 3 - Payroll expenses, number of employees, benefits, etc.
| Payroll expenses (All figures in NOK 1 000) | 2019 | 2018 |
|---|
| Pay | 107,300 | 105,421 |
| Directors' fees | 1,906 | 1,841 |
| Liability insurance for the board (applies to the entire board of directors) | 105 | 105 |
| Payroll tax | 15,769 | 15,632 |
| Pensions (Note 11) | 33,574 | 31,991 |
| Other benefits | 3,621 | 3,557 |
| Total | 162,275 | 158,547 |
| | |
| Employees at 31 December | 65 | 64 |
| Employees with a signed contract who had not started work at 31 Dec | 1 | 0 |
| Average number of full-time equivalents employed | 62.9 | 64.2 |
- Fixed salaries consist of basic salary and holiday pay.
- Disbursement from the company loyalty scheme to five executives who satisfied requirements. The scheme was discontinued in 2017 and the last disbursement took place in January 2019. This disbursement is not included in pen-sionable income.
- Cash allowance includes performance-related pay. This disbursement is not included in pensionable income.
- Other taxable remuneration includes car allowance, as well as minor remuneration for news subscriptions, telephone and broadband communication. Not included in holiday pay or pension.
- Fixed salaries include cash allowance as compensation for loss of the defined benefit pension scheme calculated based on actuarial assumptions and pensionable income.
- Fixed salaries include compensation for deputyship as vice president technology 1 Jan 2019-31 Dec. 2019
- Acting vice president organisation and business support 1 Jan. 2019-31 Dec. 2019.
- Expensed pension represents the current year’s premium in the defined contribution scheme and the estimated cost of the defined benefit scheme for the President and CEO and managers covered by this.
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 Public Limited Liability Companies Act and the guidelines for state ownership, including the Guidelines on pay and other remuneration for senior executives in wholly or partly state-owned enterprises and companies, which came into force on 13 February 2015.
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 shall be predictable, motivational, clear and easy to communicate. Petoro AS has a uniform 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 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. The board determines compensation for the CEO, who in turn determines the compensation for other members of the company’s senior management within the approved framework.
Main principles for remuneration
Petoro’s wage policy is to be competitive without being a pacesetter on overall remuneration, including the company’s pension schemes.
Total compensation for the President and CEO and the other senior executives shall 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 an equal footing with others in the company, including car allowance as well as pension and insurance benefits, as well as a system for communication allowance.
Pay levels in a reference group comprising relevant companies in the upstream petroleum 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 AS has a performance-related salary scheme to promote achievement of the company’s goals. The principle and framework for performance-related salary have been stipulated by the board and embedded in the “Guidelines on pay and other remuneration for senior executives in wholly or partly state-owned enterprises and companies”. This scheme covers all employees, including the President and CEO, with an equal percentage of basic salary.
The board will stipulate performance-related salary in accordance with the assessed goal attainment within the framework of 10 per cent of basic salary. The goals included in the assessment of performance-related salary consist of select quantitative goals associated with operational and financial activities, as well as goals associated with the company’s prioritised activities. The goals shall be based on objective, definable and measurable criteria that management can influence and are stipulated with a point of departure in the company’s strategy and risk scenario, as well as guidelines laid out in allocation letters from the Ministry of Petroleum and Energy.
In 2019, the following goals were included in the assessment of performance-related salary; Serious incidents (frequency), liquids production (kboed), project progress (milestones), drilling progress (completed wells), as well as concrete goals and milestones linked to further development of Heidrun, maturing well targets, digitalisation, monitoring the marketing and sale instruction issued to Equinor ASA, organisational development and efficiency measures. Performance-related salary for 2019 was addressed by the board after the preparation of annual accounts. The accounts for 2019 include provision of an estimated amount for performance-related salary for the year. Performance-related salary disbursed in 2019 amounted to 7 per cent of basic salary based on the company’s goal attainment in 2018.
On 4 May 2017, the board decided to discontinue the loyalty scheme for employees. The President and CEO was not covered by this scheme, which was established in 2013 to aid the competitive situation. The discontinuation has been implemented with disbursement of the final payment in January 2019 to employees who were part of the scheme at the date of discontinuation.
Share programmes, options and other option-like arrangements are not used by the company.
Petoro AS has a defined contribution-based pension scheme pursuant to the Defined Contribution Pensions Act. The company has no collective pension scheme for employees whose pay exceeds 12 G. This scheme was introduced on 1 Jan. 2016. Petoro AS has a transitional scheme that is still defined-benefit for pay above 12 G. This is the same for executives as for other employees less than 15 years from retirement age (67) at 1 Jan. 2016. Senior executives with employment contracts entered into before 13 February 2015 are covered by the same transitional scheme as other employees.
The CEO’s retirement age is 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 can choose to resign at age 65 in 2019 with reduced benefits. These pension agreements were established before the new guidelines of 13 February 2015 on employment terms for senior executives in state-owned companies came into force. The remaining executives retire at 67.
Senior executives appointed after the relevant guidelines came into force 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 AS will have no new senior executives with a defined benefit pension and no pension expenses over and above those which follow from the defined benefit plan will accrue (pursuant to the Defined Contribution Pension Act).
Remuneration principles and their implementation in the preceding year
The annual evaluation of the basic pay of the President and CEO and other senior executives was conducted with effect from 1 July. The board addressed the wage evaluation of the President and CEO in the board meeting on 20 September 2019. In 2019, the evaluation of other executives was carried out in the third quarter.
Note 4 - Tangible fixed assets
| Alle tall i tusen kroner | Fixtures and fittings | Operating equipment | ICT | Total |
|---|
| Acquisition cost 1 Jan. 2019 | 4,979 | 8,908 | 39,707 | 53,594 |
| Additions fixed assets | - | 96 | 624 | 720 |
| Disposal fixed assets/obsolescence | - | - | - | - |
| Acquisition cost 31 Dec. 2019 | 4,979 | 9,004 | 40,331 | 54,314 |
| | | | |
| Accumulated depreciation 1 Jan. 2019 | 4,514 | 8,551 | 34,169 | 47,234 |
| Reversed accumulated depreciation | - | - | - | - |
| Depreciation for the year | 84 | 159 | 3,154 | 3,397 |
| Accumulated depreciation 31 Dec. 2019 | 4,598 | 8,710 | 37,323 | 50,631 |
| | | | |
| Book value at 31 Dec. 2019 | 381 | 294 | 3,008 | 3,683 |
| Economic life | Lease term | 3/5 years | 3 years | |
|---|
| Depreciation schedule | Straight line | Straight line | Straight line | |
Operational leasing contracts include office equipment and machines. The initial lease period is 3-5 years.
Note 5 – Financial items
| All figures in NOK 1,000 | 2019 | 2018 |
|---|
| Financial income | | |
| Interest income | 4,383 | 2,786 |
| Currency gain | 159 | 624 |
| Financial expenses | | |
| Interest expenses | - | - |
| Currency loss | 324 | 215 |
| Operating loss | 4,218 | 3,195 |
Note 6 - Investments in subsidiary
Company
(All figures in NOK 1000) | Acquisition date | Business office | Interest | Voting share | Equity 31 Dec. | Profit 2019 |
|---|
| Petoro Iceland AS | 11 Dec.2012 | Stavanger | 100 % | 100 % | 4,236 | 1,963 |
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.
The company had no activity in 2019 and will be liquidated in 2020. The company has not received appropriations over the Fiscal Budget in 2019. The management agreement with Petoro AS and overdraft facility agreement with the parent company, Petoro AS, will be void once the company is liquidated. The facility remained undrawn at 31 December 2019.
Note 7 - Other receivables
Other receivables 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
Bank deposits total NOK 232 million, including NOK 8 million in withheld tax and funds to cover unsecured pension obligations in the amount of NOK 185 million.
Note 9 - Share capital and shareholder information
The company’s share capital at 31 December 2019 comprised 10,000 shares with a nominal value of NOK 1,000 each. All shares are owned by the Ministry of Petroleum and Energy on behalf of the Norwegian state, and all have the same rights.
Note 10 - Equity
| Petoro AS (All figures in NOK 1 000) | Share capital | Other equity | Total |
|---|
| Equity at 1 Jan. 2019 | 10,000 | 12,998 | 22,998 |
| Net profit | | 975 | 975 |
| Equity at 31 Dec. 2019 | 10,000 | 13,973 | 23,973 |
Note 11 - Pension costs, assets and liabilities
The company is obliged to offer an occupational pension scheme under the Norwegian Act on Mandatory Occupational Pension Schemes. The company’s pension plans comply with the requirements of this Act.
The company implemented a new pension plan with effect from 1 January 2016. This is a defined contribution plan pursuant to the Defined Contribution Pensions Act. The company has a transitional arrangement for employees who are less than 15 years from retirement age on 1 January 2016. Premiums for the defined contribution plan are expensed on a continuous basis.
| Net pension cost (Figures in NOK 1 000) | 2019 | 2018 |
|---|
| Present value of benefits earned during the year | 14,859 | 14,806 |
| Interest expense on pension obligation | 8,539 | 7,710 |
| Return on pension plan assets | (4,568) | (3,898) |
| Recorded change in estimates | 6,340 | 5,241 |
| Payroll tax | 1,910 | 1,918 |
| Pension cost, defined benefit scheme | 27,080 | 25,777 |
| Pension cost, defined contribution plan | 6,494 | 6,214 |
| Net pension cost | 33,574 | 31,991 |
| Capitalised pension obligation | 2019 | 2018 |
|---|
| Estimated pension obligation at 31 Dec | 347,514 | 335,004 |
| Pension plan assets (market value) | (114,751) | (101,827) |
| Net pension obligations before payroll tax | 232,763 | 223,177 |
| Unrecorded change in estimates | (57,110) | (66,432) |
| Capitalised pension obligation | 175,653 | 166,745 |
Calculation of the year’s net pension cost is based on the assumptions of previous years. The net pension liability is calculated on the basis of assumptions in the present year. Petoro AS has allocated dedicated funds to cover unsecured pension liabilities, cf. Note 8.
The actuarial assumptions are based on common assumptions made in the insurance business for demographic factors.
| 2019 | 2018 |
|---|
| Discount rate | 2.30% | 2.60% |
| Expected return on plan assets | 3.80% | 4.30% |
| Expected increase in pay | 2.25% | 2.75% |
| Expected increase in pensions | 0.50% | 0.80% |
| Expected adjustment of the National Insurance Scheme's Basic Amount (G) | 2.00% | 2.50% |
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
The company’s chosen auditor is KPMG AS. Fees charged for external auditing of the consolidated financial statements in 2019 totalled NOK 0.3 million. Consultancy services from KPMG totalling NOK 1.1 million have also been expensed in connection with implementation of and training in a new digital collaboration solution.
In accordance with the Act relating to the Office of the Auditor General of 7 May 2004, the OAG is the external auditor for the SDFI. PricewaterhouseCoopers AS (PwC) has been engaged as the company’s financial accountant in order to prepare a financial audit of the SDFI accounts as part of the company’s internal auditing. PwC invoiced NOK 0.6 million for financial auditing and NOK 0.6 million for internal auditing in 2019. Costs have also been expensed for invoiced services from PwC within joint venture auditing totalling NOK 1.0 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 31.12.2014. Petoro AS chose to exercise the last option in the lease to 31.12.2020. The remaining lease term is now 2 years with option for a period of another 5 years. Rent for the year totalled NOK 11,1 million, including all operating and shared expenses.
Note 15 - Significant contracts
Petoro AS has an agreement with TMF Norway Energy AS (TMF) concerning the delivery of accounting services and associated ICT services associated with SDFI accounting. This agreement entered into force on 1 March 2014 and runs for five years with an option for Petoro AS to extend it for a further year. Petoro AS has exercised the option that covers the 2019 financial year. Evry is the sub-contractor for ICT services. The expensed accounting fee to TMF in 2019 amounted to NOK 14.9 million. Other purchased services from the supplier amounted to NOK 2.2 million.
A new contract for the delivery of accounting services and associated ICT services linked to the SDFI was entered into with Azets Insights AS in autumn 2019 and will be in force from 1 March 2020 to 1 March 2025 with a two-year extension option. The subcontractor for ICT operations and application management is Basis Consulting AS.
Note 16 - Related parties
Petoro AS was the parent company of Petoro Iceland AS at year-end. There has been no activity in Petoro Iceland AS in 2019, and the company will be liquidated in 2020. The subsidiary had no credit with the parent company at year-end.
Equinor ASA and Petoro AS have the same owner, the Ministry of Petroleum and Energy, and are thus related parties. There were no significant transactions in 2019 between Equinor ASA and Petoro AS. Petoro AS acted as negotiation manager in certain fields associated with the SDFI portfolio where Equinor ASA is operator, cf. Note 1.
1. President and CEO’s letter and Directors’ report
2. Introduction to the enterprise and key figures 2019
3. Activities and results from the year
4. Management and control
5. Assessment of future prospects
Outlook is described in the Directors’ report, Chapter 1.2. 6. Annual accounts 2019
