Annual Report 2018 2

Contents

A Brief Presentation 3 Fleet Overview 4 Financial Summary 2014-2018 6 Board of Director’s Report 2018 7 Directors’ Responsibility Statement 12

Accounts Dolphin Drilling Group 13 Accounts Dolphin Drilling ASA 49 Consolidated Statement of Income 13 Income Statement 49 Consolidated Statement of Comprehensive Income 14 Balance Sheet 50 Consolidated Statement of Financial Position 15 Statement of Cash Flows 51 Consolidated Statement of Changes in Equity 17 Consolidated Statement of Cash Flows 18 Notes to the Financial Statements 52 Note 1 - Basis of presentation 52 Notes to the Consolidated Financial Statements 19 Note 2 - Summary of significant Note 1 - Principal accounting policies 19 accounting policies 52 Note 2 - Revenues 21 Note 3 - Salaries and other personnel costs 53 Note 3 - Segment reporting 22 Note 4 - Other operating expenses 55 Note 4 - Salaries and other personnel costs 23 Note 5 - Financial income and expenses 55 Note 5 - Other operating expenses 24 Note 6 - Taxes 56 Note 6 - Net financial expenses 25 Note 7 - Property, plant and equipment 57 Note 7 - Income tax expenses 26 Note 8 - Shares in subsidiaries and other equity investments 57 Note 8 - Property, plant and equipment 27 Note 9 - Other non-current assets 58 Note 9 - Deferred tax assets and liabilities 31 Note 10 - Trade and other receivables 58 Note 10 - Cash and cash equivalents 31 Note 11 - Cash and cash equivalents 58 Note 11 - Capital and reserves 32 Note 12 - Capital and reserves 58 Note 12 - Interest-bearing loans and borrowings 32 Note 13 - Interest-bearing loans and Note 13 - Financial risk management 33 borrowings / Mortgages 59 Note 14 - Mortgages and guarantees 37 Note 14 - Trade and other payables 59 Note 15 - Employee benefits 38 Note 15 - Other accrued expenses 59 Note 16 - Rental & Leases 42 Note 16 - Related parties 60 Note 17 - Related parties 43 Note 18 - Contingencies 45 Note 19 - Shareholder information 45 Note 20 - Earnings per share 46 Note 21 - Subsidiaries 47 Auditor’s Report 61 Note 22 - Subsequent events 47 Corporate Governance 65 Corporate Social Responsibility Reporting 70 Definitions of Non-IFRS financial measures 48 Addresses 72

2 Dolphin Drilling ASA - Annual Report 2018 3

A Brief Presentation

Dolphin Drilling ASA is listed on Oslo Stock Exchange and is a provider of exploration and development services to the oil and gas industry. The Company is based on more than 50 years in offshore drilling, and provides competitive solutions to the benefit of its customers, employees and shareholders.

Offices Semi submersibles Ultra-deepwater drillship The Company is headquartered in Oslo with offices in Norway, the UK and Singapore.

Offshore drilling Engineering and fabrication

REVENUES EBITDA ASSETS EMPLOYEES 145.5 -71.2 945.2 501 USD mill. USD mill. USD mill.

Dolphin Drilling ASA - Annual Report 2018 3 4

Fleet Overview

Name/ Built year/ Water (Ownership) Type Location last upgrade depth Features

Bolette Dolphin Gusto Canary Islands 2014 12 000 ft 2*85 t, 1*100 t and (100%) P 10 000 1*165 t deck cranes, 15 000 psi

Blackford Dolphin Aker H-3 Norway 1974/2008 7 000 ft 2*85 t deck cranes (100%) Enhanced 15 000 psi

Bideford Dolphin Aker H-3 Norway 1975/1999 1 500 ft 1*45 t + 1*50 t deck cranes (100%) Enhanced 10 000 psi

Borgland Dolphin Aker H-3 Norway 1976/1999/2015 1 500 ft 1*45 t + 1*70 t deck cranes (100%) Enhanced 15 000 psi

Byford Dolphin Aker H-3 Norway 1973/2010 1 500 ft 1*42 t + 1*53 t deck cranes (100%) 15 000 psi

4 Dolphin Drilling ASA - Annual Report 2018 5

Name/ Built year/ Water (Ownership) Type Location last upgrade depth Features 2018 2019

Bolette Dolphin Gusto Canary Islands 2014 12 000 ft 2*85 t, 1*100 t and Hot stacked (100%) P 10 000 1*165 t deck cranes, 15 000 psi

Blackford Dolphin Aker H-3 Norway 1974/2008 7 000 ft 2*85 t deck cranes BP I3 Energy (100%) Enhanced 15 000 psi

Bideford Dolphin Aker H-3 Norway 1975/1999 1 500 ft 1*45 t + 1*50 t deck cranes Smart stacked (100%) Enhanced 10 000 psi

Borgland Dolphin Aker H-3 Norway 1976/1999/2015 1 500 ft 1*45 t + 1*70 t deck cranes Smart stacked (100%) Enhanced 15 000 psi

Byford Dolphin Aker H-3 Norway 1973/2010 1 500 ft 1*42 t + 1*53 t deck cranes Smart stacked (100%) 15 000 psi

Firm contract Letter of intent for Blackford Dolphin or Borgland Dolphin

Dolphin Drilling ASA - Annual Report 2018 5 6

Dolphin Drilling – Group Financial Summary 2014-2018

Amounts in USD million 2018 2017 2016 2015 2014

Revenues 145.5 279.1 825.0 1 116.4 1 184.1 Operating profit before depreciation (EBITDA) -71.2 104.9 498.4 637.0 516.2 Net result after tax -505.6 -257.4 -105.4 -350.6 117.3 Minority interests -1.4 -0.6 -0.8 0.3 1.0

Assets Current assets 244.2 566.4 511.7 676.9 522.3 Long term assets 701.0 1 075.0 1 378.3 1 896.5 2 946.3 Total assets 945.2 1 641.4 1 890.0 2 573.4 3 468.6

Liabilities and equity Interest-bearing debt 748.4 877.1 879.6 1 327.8 1 455.4 Total liabilities 876.6 1 048.1 1 036.8 1 607.9 2 160.7 Equity of majority 68.6 593.3 853.2 965.5 1 307.9 Minority interests - - - - - Total liabilities and equity 945.2 1 641.4 1 890.0 2 573.4 3 468.6

Key Figures Definitions 2018 2017 2016 2015 2014

Market capitalization 1 9.98 176.39 245.27 260.45 611.47 Net interest-bearing debt 2 611.50 442.10 589.20 1 113.70 1 252.00 Enterprise value 3 621.48 618.49 834.47 1 374.15 1 863.47 Debt/Book equity ratio 10.91 1.48 1.03 1.38 1.11 Debt/Market capital ratio 75.00 4.97 3.59 5.10 2.38 Current ratio 4 0.31 1.88 7.03 1.34 0.79 EBITDA margin 5 -48.9 % 37.6 % 60.40 % 57.10 % 43.60 % Average number of shares outstanding 66.7 mill 66.7 mill 66.7 mill 66.7 mill 66.7 mill Share price at year end in NOK 6 1.30 21.70 31.70 34.40 68.15 Earnings per share (EPS) in USD 7 -7.61 -3.88 -1.58 -5.30 1.77 Diluted earnings per share in USD -7.61 -3.88 -1.58 -5.30 1.77 Capital expenditures per share -0.47 -0.22 -0.16 -6.04 -12.00 Price/Earnings 8 -0.02 -0.69 -2.33 -0.74 5.21 Price/Book 9 0.15 0.30 0.29 0.27 0.47 EV/EBITDA -8.73 5.90 1.67 2.16 3.61

1 Closing price * number of shares at year-end 2 Short-term debt + long-term debt - cash and cash equivalents 3 Market capitalisation + net interest-bearing debt 4 Current assets / current liabilities 5 EBITDA / revenue 6 Last trade on last trading day of the year 7 Net profit / average number of shares outstanding 8 Closing price / EPS For 2014; closing price converted to USD at the rate per 31.12.14 9 Closing price / book value per share

6 Dolphin Drilling ASA - Annual Report 2018 7

Dolphin Drilling Group and Dolphin Drilling ASA Board of Director’s Report 2018

The operating activities of Dolphin Drilling ASA (formerly Fred. stabilizing effect on the oil price. The main market driver in a Olsen Energy ASA) and its subsidiaries (the Group) consist of longer term perspective is believed to be production decline offshore drilling and engineering and fabrication services. The of mature fields combined with the effect of current relatively parent company of the Group is Dolphin Drilling ASA (the Com- low investment level. These factors are believed to stimulate pany), with its corporate headquarters located in Oslo, Norway. both increased exploration activity and sanctioning of new The Group manages its activities from offices in Norway, UK and development projects, leading to further improvements in the Singapore. Operation of the Group’s offshore units is managed floating drilling market through 2019 and beyond. through Dolphin Drilling AS (100% owned) in Stavanger and Dolphin Drilling Ltd. (100% owned) in Aberdeen. The Harland There has been further decommissioning and cold stacking & Wolff (H&W) shipyard (92.2% indirectly owned), located in of units in the midwater segment through 2018. Since 2014, Belfast, Northern Ireland, and related activities form the Group’s more than 80 midwater drilling units have been scrapped. These engineering and fabrication division. units have mainly been working in the international benign segment. In addition, there are cold stacked units where the five- Gross revenues in 2018 were USD 145 million, a decrease of USD year class certificates have lapsed or will shortly. This will lead to 134 million from the previous year. The Group achieved Earnings additional units being effectively out of the market. Based on Before Interest, Taxes, Depreciation, Amortization and Impairment the fleet composition in the midwater segment we expect the (EBITDA) of negative USD 71 million compared to EBITDA of USD market to rebalance in 2019. 105 million in 2017. The cash flow from operations amounted to negative USD 92 million compared to USD 213 million for 2017. During the downcycle the Group has had strong focus on the The difference between EBITDA and cash flow from operation is liquidity, cost reduction initiatives and increased efficiencies. mainly due to changes in working capital. Net interest-bearing The management and the organisation have been optimized, debt at 31 December 2018 for the Group was USD 611 million. while keeping the core competence in the Group and maintaining organisational capacity to be ready for the market recovery. Markets and prospects The units have been kept smart stacked and ready for new con- The market recovery in the offshore floater drilling segments tracts, and by a novel approach to renewal of main class cer- has continued through 2018, with a steady increase in contract tificates, future capital needs have been significantly de-risked. activity throughout the year. The harsh environment market in the North Sea has demonstrated the most notable recovery, By year-end, the Group had no contract backlog for its drilling driven by sanctioning of new field development projects. Fur- fleet, which also was the situation by 31 December 2017. The ther sanctioning of development projects as well as increase in Group owns and operates two deepwater units, and three mid- exploration and appraisal activity, is forecasted in the North Sea. water semi-submersible drilling rigs. This may lead to further strengthening of this market segment, both in terms of utilisation and increase in dayrates. The ultra- Offshore Drilling deepwater (UDW) market has experienced a rebound in 2018, The drilling activities generated revenues of USD 93 million with incremental demand driven by the markets in North- and compared to USD 261 million in 2017. Within the drilling seg- South America as well as West Africa. An increased demand for ment, the Group achieved EBITDA of negative USD 55 million. In multi-year tenders, with commencement from 2020, have also 2017, the corresponding result was USD 111 million. been seen in these segments. However, due to a significant oversupply of UDW drilling units, dayrates have overall only Bideford Dolphin completed operations for Equinor ASA in marginally improved for 2019 work. Going into 2019 the inter- December 2017. The unit is smart stacked in Flekkefjord, Norway, national midwater market is again becoming active, following ready for new contracts. a five-year period with virtually no contract awards. This covers markets in Central- and South America, Africa, Mediterranean Borgland Dolphin has been smart stacked after completion of and South East Asia. Generally, national oil companies prioritis- the 18-well drilling contract, with a Rig Management Norway ing improved production from existing fields and infrastructure AS (RMN) managed consortium of four oil companies, which drive this demand comeback. ended in September 2016. The unit is smart stacked in Lyngdal, Norway, ready for new contracts. The global oil demand is expected to continue to increase supported by increased energy demand. In the shorter term, Blackford Dolphin completed the contract for BP in November the OPEC energy dialogue and initiatives is expected to have 2018. The unit is currently smart stacked in Flekkefjord ready for a positive effect on the oil demand/supply balance and a new contracts.

Dolphin Drilling ASA - Annual Report 2018 7 8

Dolphin Drilling Group and Dolphin Drilling ASA Board of Director’s Report 2018

Byford Dolphin has been smart stacked after completion of a against negative USD 257 million in 2017. At year-end, the three-year drilling contract with BP, which expired in October Group had consolidated assets of USD 945 million. The ratio of 2016. The unit is smart stacked in Lyngdal, Norway, ready for net interest-bearing debt to total assets was 65% compared to new contracts. 26% at the beginning of the year. The book value of the equity was USD 69 million. Net cash from operating activities was nega- Bolette Dolphin completed operations under its original four- tive USD 117 million against USD 168 million in 2017. Cash and year contract, with Anadarko Petroleum Corporation, in August cash equivalents decreased by USD 298 million during the year, 2017. The unit is hot stacked at the Canary Islands and ready for from USD 435 million to USD 137 million at the end of the year. new contracts. On 3 July 2018, the Company resolved to cease its service of In 2018, it was decided to decommission the two units Bredford interest and amortizations to all of its financial creditors, in order Dolphin and Belford Dolphin, which is expected to be complet- to preserve the liquidity reserves of the Dolphin Drilling Group. ed in 2019. As such, the Company did not make the payment of an instalment and interest payable to its secured lenders on such date. Engineering and Fabrication The Dolphin Drilling Group’s operations otherwise continued in Total revenues within the engineering and fabrication division their ordinary course. amounted to USD 52 million and EBITDA was negative USD 16 million. In 2017, total revenues were USD 19 million and EBITDA Impairment tests have been undertaken for all units in the fleet. was negative USD 6 million including inter-segment activities. Estimating the recoverable amount of the fleet is a complex process involving a number of judgements and estimates regard- The H&W yard continued its operations in engineering, ship re- ing various inputs. Due to the nature of the assets, the valua- pair and shipbuilding. The yard has provided services to some 27 tion technique includes a discounted cash flow model using a vessels ranging from short duration emergency repairs to nor- number of inputs from internal sources due to lack of relevant mal maintenance repair dockings, in addition to fabrication of and reliable observable inputs. As a result of the current market offshore windfarm foundations. The core workforce have been situation and because the uncertainty is higher than usual as stable with 115 employees by the end of 2018 (2017: 114). to when new contracts will be entered into as well as the corresponding dayrate levels, recoverable amount of the offshore The company will continue to seek new contracts within renew- units is exposed to high estimation uncertainty. able energy and offshore projects, shipbuilding, ship repair and engineering. Continued efforts have been made to position the Group in a weak market, and strengthen competitiveness as the markets The financial situation of the yard is challenging. The yard is in a recover. Major efforts include the implementation of an arrange- process to find a sustainable solution and continues to explore ment for prolongation of survey intervals for class renewal, and a business opportunities in all markets. The solution could also smarter classification approach in which class renewal activities require changes to the capital structure of Harland & Wolff as are spread over the class period optimizing use of idle periods. well as sale of shares and/or assets. If a solution to its financial situation is not found, the company will have to initiate some The arrangement for prolongation of survey intervals has been sort of insolvency proceedings. implemented for the laid-up units Borgland Dolphin, Byford Dolphin, Blackford Dolphin, Bideford Dolphin and Bolette Dol- Financial result and balance sheet at year end phin. The arrangement is established based on the Classification Consolidated revenues were USD 145 million compared to USD Society (DNV GL) recommended practice for prolonged survey 279 million in 2017. EBITDA for the Group was negative USD 71 intervals for laid-up units. The arrangement implies that ad- million, a decrease of USD 176 million compared to 2017. After equate preservation, inspection, maintenance and testing ac- depreciation, amortisation and impairment of USD 401 million tivities are carried out during the lay-up period. When a unit is including a non-cash impairment of USD 191 million, the operat- reactivated for operation, a defined reactivation scope will be ing profit before net financial expenses amounted to negative carried out monitored by DNV GL through inspections. When USD 473 million, compared to negative USD 193 million in 2017. the reactivation scope is completed, the validity of unit certifi- Net financial items were negative USD 34 million, a decrease of cates is extended by a period equal to the time spent in lay-up. USD 11 million from the previous year. Loss before taxes was By implementing this arrangement, we can reduce reactivation negative USD 507 million compared to negative USD 238 million risk and maximize the available operational time up to the next in 2017. The net loss for the year was negative USD 506 million class renewal survey.

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Dolphin Drilling Group and Dolphin Drilling ASA Board of Director’s Report 2018

The smarter classification approach has been implemented on The board members Anette S. Olsen and Richard O. Aa have not Blackford Dolphin, Bideford Dolphin and Bolette Dolphin. Utiliz- participated in the Board’s dealings with the Company’s restruc- ing the current lay-up period all major class renewal activities for turing alternatives and related procedures since 3 July 2018 due the upcoming class renewal have been completed significantly to conflict of interest considerations. These board members have increasing available time for new contracts. therefore not participated in forming the Board’s opinion on the said going concern assumption on which these accounts are Dolphin Drilling ASA is a holding company. The Company had based as they have not had access to all required information al- revenues of USD 0 million in 2018, compared to USD 0.3 million lowing them to form a view thereon. in 2017. EBITDA for the year was negative USD 6.9 million compared with negative USD 7.3 million in 2017. Net loss was USD International Financial Reporting Standards (IFRS) 296.7 million compared to negative USD 172.6 million in 2017. The consolidated financial statements have been prepared in accordance with the Norwegian Accounting Act and Going concern assumption International Financial Reporting Standards (IFRS) as adopted by The Company’s financial situation has come under increasing EU and interpretations adopted by the International Accounting pressure during the continued downturn in the domestic and Standards Board (IASB). The accounts for the parent company international drilling markets. To alleviate such pressure, the have been prepared in accordance with the Norwegian Company first obtained a waiver of the financial covenants in the Accounting Act and Norwegian accounting standards. Company’s loan agreements in December 2016, effective up until 30 June 2018. Investment and capital resources Capital expenditures amounted to USD 31 million in the year During the first half of 2018, the Company sought an agreement compared to USD 10 million in 2017. The capital expenditures with its financial creditors to extend such waiver period, and to were mainly related to regular investments in the active fleet temporarily suspend the Company’s service of all financial debt. through 2018. Such agreement was however not reached. In order to preserve the liquidity reserves of the Dolphin Drilling group, the Company Per 31 December 2018, the Group’s debt consisted of one credit resolved to stop its service of its financial debt with effect from facility with a consortium of banks and one bond loan. The facil- 30 June 2018. Since then, the Company has been in default of its ity was refinanced in July 2014 and is a combined term loan and payment obligations to its financial creditors. revolving credit facility of originally USD 1 450 million, with final maturity in 2020. The outstanding amount under the credit fa- During 2018 the Company has also been in continuous discus- cility at year-end was USD 635 million, including unpaid interest sions with its key stakeholders with a view to obtain a financial of approximately USD 24 million. The bond loan (FOE05) of NOK restructuring. In the course of such discussions, the Company has 1,100 million, later reduced to NOK 1,025 million, was raised in received and presented several restructuring outlines. Neither of the Norwegian market in February 2014 and had original matu- the outlines have received the necessary support of the financial rity in February 2019. However, the Maturity Date of the bond creditors. issue has been extended from 28 February 2019 to 28 August 2019. This is to ensure the continued VPS registration and is Nevertheless, the key stakeholders of the Company remain sup- only a technical extension and does not in any way amend the portive of the Company’s continued operations and restructur- rights of the bondholders under the bond issue. ing efforts. Moreover, the Company remains in dialogue with representatives for all of its key financial creditors. In light of this Research and development activities dialogue, the Board of Directors considers that the restructuring The Group’s research and development activities are an integrat- efforts of the Company have a reasonable prospect of success. ed part of operations carried out both internally and through co- operation with various design houses and equipment suppliers. On this basis and in accordance with §3-3a of the Norwegian Ac- The Group monitors and evaluates new drilling related technol- counting Act, the Board of Directors confirms that the going con- ogy and arrangements on a continuous basis, including those cern assumption, on which the financial statements have been materializing through operations and projects. Expenditures prepared, is considered to be appropriate. The Board of Directors on research activities, undertaken with the prospect of gaining notes, however, that it is not in any way certain that the Company technical knowledge and understanding, are recognized in the will succeed in resolving its financial situation. If a solution to its income statement as incurred expenses. financial situation is not found, the Company will need to file for bankruptcy.

Dolphin Drilling ASA - Annual Report 2018 9 10

Dolphin Drilling Group and Dolphin Drilling ASA Board of Director’s Report 2018

Financial risks Interest rate The Group is exposed to certain financial risks related to its activ- The Group is exposed to fluctuations in interest rates for USD ities. These are mainly foreign exchange risks, interest rate risks and NOK. At 31 December 2018 approximately 7% (2017: 6%) and credit risks. The Group continuously monitors and manages of the Group’s interest expenses was based on fixed interest rate its financial risks by partly hedging its exposure. See also page swap agreements. The remaining portion of the debt was based 33 to 37. on floating interest rates (USD LIBOR and NIBOR) plus a margin.

Liquidity risk Credit risk The outstanding amount under the bank facility at year-end Due to the nature of the Group’s operations, revenues and re- was USD 635 million, including unpaid interest of approximately lated receivables are typically concentrated amongst a relatively USD 24 million. small customer base, including national oil companies, super- majors, majors and independent oil companies. The Group con- The outstanding amount for the bond loan (FOE05) is NOK 1.050 tinuously evaluates the credit risk associated with customers million including unpaid interest of NOK 25 million. The Maturity and, when considered necessary, requires certain guarantees. Date of the bond issue has been extended from 28 February The Group’s short-term investments are limited to cash deposits 2019 to 28 August 2019. in the Group’s relationship banks and derivative financial instruments are normally entered into with the Group’s main relation- At 29 June 2018, the waiver period with the Company’s financial ship banks. As such, the Group considers its exposure to credit creditors expired. The Company and the financial creditors were risk to be moderate. not able to agree to an extension of the waiver. On 3 July 2018, the Company resolved to cease its service of interest and amorti- Corporate Governance zations to its financial creditors, in order to preserve the liquidity The Company emphasizes the importance of maintaining reserves of Dolphin Drilling Group. As such, the Company did and further developing its corporate governance policy and not make the payment of an instalment and interest payable to supports the principles set out in the Norwegian Code of Prac- its secured lenders on such date. The Dolphin Drilling Group’s tice for Corporate Governance. A description of the Company’s operations would otherwise continue in their ordinary course. compliance with the above recommended Corporate Govern- ance principles is presented on pages 65 to 69. Constructive discussions are continuing with the financial creditors and investors in order to solve the Company’s financial The Board of Directors consists of five board members who are situation. It is expected that a long term solution will require elected for a two-year period. In June 2018, Mr. Stephen Knudtzon new equity and amendments to the Company’s bank and bond stepped down as Director and Aksel O. Hillestad was elected at facilities, including impairments of debt, in order to secure a the annual general meeting (AGM) in June 2018. All of the Direc- viable financial foundation for the purpose of safeguarding the tors are independent of the Company’s management and three Company’s position in the market. Unless a solution is found to of them are also independent in relation to the Company’s main the Company’s financial situation, the Company will need to file shareholder Bonheur ASA. Forty percent of the Board of Directors for bankruptcy. are women. During 2018 the Board of Directors held 43 meetings.

According to IFRS a liability that is repayable on demand The Board of Directors has appointed an Audit Committee because loan conditions have been breached, is classified as consisting of two Directors, of which one is independent of current. As a consequence the Group has reclassified all of the the main shareholder of the Company. The charter of the Au- loans to current interest-bearing loans and borrowings. dit Committee is to assist the Board of Directors in fulfilling its responsibilities concerning the financial reporting process, inter- Foreign exchange nal control, management of financial risks, the audit process and From 2014, the Group’s financial statements are presented in the Group’s process for monitoring compliance with applicable USD. The Group’s revenues consist primarily of USD, NOK and laws and regulations. GBP with USD as the most dominant currency. The Group’s expenses are primarily in NOK, GBP and USD. The Group’s The Board of Directors has appointed a Compensation Com- earnings are exposed to fluctuations in the currency market. The mittee comprising four Directors, including the Chairman of Group’s future foreign exchange exposure is dependent upon the Board. The Compensation Committee discusses and recom- the currency denomination of revenues and expenses. mends to the Board of Directors salary and benefits for the Chief

10 Dolphin Drilling ASA - Annual Report 2018 11

Dolphin Drilling Group and Dolphin Drilling ASA Board of Director’s Report 2018

Executive Officer and Senior Management, as well as the man- Sick leave was 4.25% (2017: 3.41%) for the Group. The Group agement incentive schemes for the Group. The compensation continues to focus on reducing sick leave. The Group strives to be to the Chief Executive Officer comprises salary, pension scheme a workplace with equal opportunities, offering challenging and and performance bonus. motivating jobs to all personnel, regardless of nationality, culture, religion or gender. The composition of genders within the Group Dividends will be distributed subject to earnings, the Company’s reflects the available recruitment base for offshore work, which investment plans, financial strategy, market conditions and traditionally has a higher proportion of men, being the nature approval by the shareholders. In addition, the Company may of the offshore industry worldwide. However, the Group’s policy consider share buy-backs in accordance with the authorization is to offer equal opportunities for male and female. Two out of to the Board of Directors from the Annual General Meeting. five members of the Board of Directors are women, including The Board of Directors will not propose dividend at the Annual the Chairman of the Board. At year-end 2018 the Group had 501 General Meeting in May 2019. employees. 54 of the employees were women and 25 percent of leading onshore personnel within the Group are women. A Share Capital Issues description of the Company’s Corporate Social Responsibility is The Annual General Meeting in May 2018 authorized the Board presented on pages 70 to 71. of Directors to issue up to 6 669 422 shares through an equity issue and to increase the share capital by another 6 669 422 Significant legal matters shares through convertible loans, or a combination of equity During 2018 the Group had one legal dispute with business issue or convertible loans although always on the premise that counterparts. See note 19 for further information. the maximum amount of new shares shall not exceed 6 669 422. At the time of approving final accounts, these authorizations External Environment have not been used. At year-end the Company owned 430 100 The Group’s operations involve activities that entail potential risks own shares (2017: 430 100). At 31 December 2018 the Company’s to the external environment. The Group is careful in its approach share capital amounted to NOK 1 334 million, corresponding to to the environment and continuously strives to reduce the use of 66 694 229 shares at par value NOK 20 each. hazardous chemicals and materials to minimize negative effects and seeks alternative products to safeguard the environment. The Safety, work environment, organization and equal opportunities Company is a holding company and as such has no activities that The Group has a strong focus on health, safety and environment entail potential significant risks to the external environment. (HSE) for its employees, subcontractors and customers. Continuous efforts involve planning, training of personnel and Coverage of loss careful selection of subcontractors. The Group maintains a zero Net loss after tax for the parent company was USD 296.7 million, accident objective and is closely monitoring its established which is proposed covered as follows: procedures for operations, projects and work sites both onshore and offshore. The Total Recordable Incident (TRI) rate for offshore To loss carried forward 296.7 million drilling and related services in 2018 was 14 per one million working Total allocations 296.7 million hours, compared to 1,9 per one million working hours in 2017. The TRI frequency is based on one rig operating for 5 months and Annual General Meeting suffered 3 injuries. The TRI rate includes personnel injuries of the The date of the Annual General Meeting is scheduled for 21 May categories lost time incidents and medical treatment incidents. 2019.

Oslo, 31 December 2018 / 3 April 2019 Dolphin Drilling ASA

Anette S. Olsen Jan Peter Valheim Cecilie B. Heuch Richard Olav Aa Aksel O. Hillestad Ivar Brandvold Chairman Chief Executive Officer

Dolphin Drilling ASA - Annual Report 2018 11 12

Dolphin Drilling – Group Directors’ Responsibility Statement

Today, the Board of Directors and the Chief Executive Officer the consolidated and separate annual financial statements reviewed and approved the Board of Directors’ report and give a true and fair view of the assets, liabilities, financial posi- the consolidated and separate annual financial statements for tion and loss as a whole as of 31 December 2018 for the Group Dolphin Drilling ASA, for the year ending and as of 31 December and the Company. 2018 (annual report 2018). Dolphin Drilling ASA’s consolidated financial statements have been prepared in accordance with IFRS the Board of Directors’ report for the Group and the Company as adopted by the EU and additional disclosure requirements in includes a true and fair review of the Norwegian Accounting Act, applicable as of 31 December - the development and performance of the business and the 2018. The separate financial statements for Dolphin Drilling position of the Group and the Company. ASA have been prepared in accordance with the Norwegian - the principal risks and uncertainties the Group and the Accounting Act and Norwegian accounting standards as of 31 Company face. December 2018. The Board of Directors’ Report for the Group and the Company is in accordance with the requirements in the The board members Anette S. Olsen and Richard O. Aa have not Norwegian Accounting Act and Norwegian accounting standard participated in the Board’s dealings with the Company’s restruc- no 16, as of 31 December 2018. turing alternatives and related procedures since 3 July 2018 due to conflict of interest considerations. These board members have To the best of our knowledge: therefore not participated in forming the Board’s opinion on the the consolidated and separate annual financial statements said going concern assumption on which these accounts are for 2018 have been prepared in accordance with applicable based as they have not had access to all required information accounting standards allowing them to form a view thereon.

Oslo, 31 December 2018 / 3 April 2019 Dolphin Drilling ASA

Anette S. Olsen Jan Peter Valheim Cecilie B. Heuch Richard Olav Aa Aksel O. Hillestad Ivar Brandvold Chairman Chief Executive Officer

12 Dolphin Drilling ASA - Annual Report 2018 Accounts Dolphin Drilling Group

Dolphin Drilling – Group Consolidated Statement of Income

For the year ended 31 December

Amounts in USD 000’s Note 2018 2017

Revenues 2, 3, 16, 17 145 480 279 101

Materials -29 268 -7 576 Salaries and other personnel costs 4, 15, 17 -85 397 -68 842 Other operating expenses 5, 16, 17 -102 054 -97 813 Operating (loss)/profit before depreciation, impairment and net financial expenses -71 239 104 870

Depreciation 8 -210 395 -222 478 Impairment 8 -191 089 -75 000 Operating loss before net financial expense -472 723 -192 608

Financial income 26 424 20 325 Financial expenses -60 545 -65 666 Net financial expenses 6, 13, 17 -34 121 -45 341

Loss before tax -506 844 -237 949

Income tax expenses 7 1 242 -19 434

Loss for the year -505 602 -257 383

Attributable to: Equity holders of the parent -504 230 -256 740 Non-controlling interest -1 372 -643 Loss for the year -505 602 -257 383

Basic earnings per share 20 -7.61 -3.87 Diluted earnings per share 20 -7.61 -3.87

The notes represent an integral part of the consolidated financial statements.

Dolphin Drilling ASA - Annual Report 2018 13 14

Dolphin Drilling – Group Consolidated Statement of Comprehensive Income

For the year ended 31 December

Amounts in USD 000’s Note 2018 2017

Loss for the year -505 602 -257 383 Items that will never be reclassified to statement of separate income Actuarial gains/(losses) on defined benefit pension plans 15 -17 885 5 957 Income tax relating to components of other comprehensive income 0 -1 067 Reversal of deferred tax assets relating to actuarial losses previous years 0 -7 555 Items that are or may be reclassified to statement of separate income Exchange differences on translation of foreign operations -1 213 114 Total comprehensive loss for the year -524 700 -259 934

Attributable to: Equity holders of the parent -522 365 -258 947 Non-controlling interests -2 335 -987 Total comprehensive loss for the year -524 700 -259 934

The notes represent an integral part of the consolidated financial statements.

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Dolphin Drilling – Group Consolidated Statement of Financial Position

For the year ended 31 December

Amounts in USD 000’s Note 2018 2017

Assets Property, plant and equipment 8, 14 689 823 1 073 397 Other non-current assets 12, 17 10 973 357 Deferred tax assets 9 162 1 284 Total non-current assets 700 958 1 075 038

Consumable spare parts 62 466 103 056 Prepayments, tax refunds and other current assets 2, 8 32 240 13 928 Trade and other receivables 13, 17 12 589 14 440 Cash and cash equivalents 10 136 947 434 969 Total current assets 244 242 566 393

Total assets 945 200 1 641 431

The notes represent an integral part of the consolidated financial statements.

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Dolphin Drilling ASA - Annual Report 2018 15 16

Dolphin Drilling – Group Consolidated Statement of Financial Position

For the year ended 31 December

Amounts in USD 000’s Note 2018 2017

Equity Share capital 193 290 193 290 Share premium 83 549 83 549 Translation reserves 1 034 2 247 Reserve for own shares -1 215 -1 215 Retained earnings -208 049 315 438 Share of equity attributable to shareholders of the parent 11, 19 68 609 593 309 Non-controlling interests 0 0 Total equity 68 609 593 309

Liabilities Interest-bearing loans and borrowings 12, 13, 14 0 686 244 Employee benefits 15 83 418 60 263 Financial instruments 13 0 848 Total non-current liabilities 83 418 747 355

Interest-bearing loans and borrowings 12, 13, 14 748 444 190 909 Trade and other payables 17 16 119 10 081 Financial instruments 13 121 0 Tax payable 590 8 422 Other accrued expenses and deferred revenue 27 899 91 355 Total current liabilities 793 173 300 767

Total liabilities 876 591 1 048 122

Total equity and liabilities 945 200 1 641 431

The notes represent an integral part of the consolidated financial statements.

Oslo, 31 December 2018 / 3 April 2019 Dolphin Drilling ASA

Anette S. Olsen Jan Peter Valheim Cecilie B. Heuch Richard Olav Aa Aksel O. Hillestad Ivar Brandvold Chairman Chief Executive Officer

16 Dolphin Drilling ASA - Annual Report 2018 17

Dolphin Drilling – Group Consolidated Statement of Changes in Equity

Reserve Non- Share Share Translation for own Retained controll. Total Amounts in USD 000’s capital premium reserves shares earnings Total interests equity

Balance at 1 January 2017 193 290 83 549 2 133 -1 215 575 486 853 243 0 853 243 Loss for the year 0 0 0 0 -257 383 -257 383 0 -257 383 Other comprehensive income/(loss) for the period 0 0 114 0 -2 665 -2 551 0 -2 551 Balance at 31 December 2017 193 290 83 549 2 247 -1 215 315 438 593 309 0 593 309

Balance at 1 January 2018 193 290 83 549 2 247 -1 215 315 438 593 309 0 593 309 Loss for the year 0 0 0 0 -505 602 -505 602 -505 602 Other comprehensive loss for the period 0 0 -1 213 0 -17 885 -19 098 0 -19 098 Balance at 31 December 2018 193 290 83 549 1 034 -1 215 -208 049 68 609 0 68 609

The notes represent an integral part of the consolidated financial statements.

Dolphin Drilling ASA - Annual Report 2018 17 18

Dolphin Drilling – Group Consolidated Statement of Cash Flows

For the year ended 31 December

Amounts in USD 000’s Note 2018 2017

Cash flows from operating activities Loss before income tax -506 844 -237 949 Adjustment for: Depreciation 8 210 395 222 478 Impairment 8 191 089 75 000 Interest expenses 6 39 633 39 163 Gain on sale of property, plant and equipment -42 -2 874 Unrealised (gain)/loss on financial instruments/debt -7 622 4 685 Changes in trade and other receivables -12 390 80 534 Changes in trade and other payables 7 445 -10 001 Changes in other balance sheet items -13 520 42 318 Cash (used)/generated from operations -91 856 213 354 Interest paid -17 296 -34 763 Income taxes paid -7 615 -10 863 Net cash (used)/from operating activities -116 767 167 728

Cash flows from investing activities Purchases of property, plant and equipment -31 371 -14 661 Proceeds from sale of equipment 96 4 619 Net cash used in investing activities -31 275 -10 042

Cash flows from financing activities Proceeds from interest-bearing loans 0 0 Repayments of interest-bearing loans -147 488 -12 944 Net cash used in financing activities -147 488 -12 944

Net (decrease)/increase in cash and cash equivalents -295 530 144 742 Cash and cash equivalents at 1 January 434 969 290 362 Effect of exchange rate fluctuations on cash held -2 492 -135 Cash and cash equivalents at 31 December 10 136 947 434 969

The notes represent an integral part of the consolidated financial statements.

18 Dolphin Drilling ASA - Annual Report 2018 19

Dolphin Drilling – Group Notes to the Consolidated Financial Statements

Note 1 - Principal accounting policies and key accounting estimates

Dolphin Drilling ASA (the “Company”) is a company domiciled in Norway.

The consolidated financial statements of the Group for the year ended 31 December 2018 comprise the Company and its subsidiaries.

The financial statements were authorized for issue by the Board of Directors on 3 April 2019.

Basis of accounting The consolidated financial statements have been prepared in accordance with the Norwegian Accounting Act and International Financial Reporting Stand- ards (IFRS) as adopted by the European Union.

Basis of preparation The financial statements are presented in US Dollar (USD), rounded to the nearest thousand.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed regularly. Actual results may differ from these estimates.

Judgements and estimates made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the specific notes.

The accounting policies have been applied consistently to all periods presented in these consolidated financial statements. The relevant financial reporting principles are described in each note to the consolidated financial statements.

The accounting policies have been applied consistently by Group entities.

Basis of consolidation Subsidiaries The consolidated financial statements include the Company and its subsidiaries (the Group of companies). Subsidiaries are entities controlled by the Group. See note 21 for details of the subsidiaries.

Transactions eliminated in consolidation All material intra-group transactions, balances, income and expenses are eliminated in full when consolidated.

Foreign currency Foreign currency transactions The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The consolidated financial statements are presented in USD, which is the presentation currency of the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in foreign currencies are translated at the foreign exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign exchange rate at the balance sheet date. Foreign exchange differences arising on translation are recognized in the income statement. Non-monetary assets that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transactions. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the exchange rates ruling at the dates the fair value was determined.

Financial statements of foreign operations The assets and liabilities of foreign subsidiaries are translated into USD at the foreign exchange rate at the balance sheet date. The revenues and expenses of foreign subsidiaries are translated using average monthly foreign exchange rate, which approximates the foreign exchange rates on the dates of the transactions. Foreign exchange differences arising on translation are recognized in Other Comprehensive Income.

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Dolphin Drilling ASA - Annual Report 2018 19 20

Dolphin Drilling – Group Notes

Provisions A provision is recognized in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

Principal accounting policies The Group’s accounting policies are described in the individual notes to the Consolidated Financial Statements. Considering all the accounting policies applied, Management regards the ones listed in the table below as the most significant accounting policies for the recognition and measurement of reported amounts. This is the first annual report in which IFRS 15 Revenue from contracts with customers and IFRS 9 Financial instruments have been applied. The principles related to IFRS 15 are described in note 2. The impact of IFRS 9 has been limited.

Accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that Management considers reasonable and appropriate under the circumstances. The resulting accounting estimates may differ from the eventual outcome, but the Group regard this as the best estimate at the balance sheet date. Please refer to the specific notes for further information on the key accounting estimates and judgments, see table below.

Principal accounting policies Key accounting estimates and judgements Note

Revenues 2 Income tax/ deferred tax Provision for uncertain tax positions, accrual for income taxes 7, 9 Fair values for rigs and drill ship Impairment tests 8 Going concern Going concern 13 Pension obligations Present value of the pension obligation 15

Forthcoming requirements A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2019 and earlier application is permit- ted; however, the Group has not early-adopted new or amended standards in preparing these consolidated financial statements. The most relevant changes for the Group is IFRS 16 Leases.

IFRS 16 Leases Replaces existing guidance in IAS 17 Leases. IFRS 16 eliminates the current dual accounting model for leases and will establish a single, on-balance sheet accounting model for lessees that is similar to the current finance lease accounting under IAS 17. For lessors, IFRS 16 essentially continues existing principles from IAS 17.

The Group has reviewed its leasing contracts to be able to estimate the effect for the contracts where Group entities act as a lessee. The implementation of IFRS 16 will have no impact on the underlying cash flow.

The Group will apply the exemptions proposed by the standard on lease contracts for which the lease terms ends within 12 months as of the date of initial application, and lease contracts for which the underlying assets is of low value. The Group has leases of certain office equipment that are considered of low value.

The implementation assessment indicate that the contracts for use of the following assets will be classified as leases in accordance with IFRS 16: - Properties - Dock and yard - Trucks and vehichles

The lessee effect as of 1 January 2019 will be approximately USD 7 million as an increased Right of Use assets and increased leasing liability for the Group. The effects will be an increase of EBITDA of approximately USD 0.6 million, an increase of interest expense of approximately USD 0.6 million and an increase in depreciation of approximately USD 0.1 million.

The Group will transition to IFRS 16 on 1 January 2019 without changing comparatives, i.e. applying the modified retrospective approach.

20 Dolphin Drilling ASA - Annual Report 2018 21

Dolphin Drilling – Group Notes

Note 2 - Revenues

Accounting policies IFRS 15 Revenue from contracts with customers was adopted on 1 January 2018. The Group has applied a modified retrospective implementation method.

Operating income from charter rate contracts is split into two elements, income from lease and income from rendering of services. Income from rendering of services is within the scope of IFRS 15 and income from lease contracts is within the scope of IAS 17 Leases.

The Group has four revenue streams as set out below:

Revenue from lease contracts The Group recognizes revenue from lease on a systematic basis based on the benefits received from the leased assets. In cases where the consideration covers a general upgrade of a unit or equipment, which increases the value of the unit or equipment beyond the contract period, the consideration is recognized as revenue over the contract period, whereas the investment is depreciated over the remaining lifetime of the asset. In cases where the consideration covers specific upgrades or equipment specific to the contract, the consideration is recognized as revenue over the estimated contract period. The related investment is depreciated over the estimated contract period.

Revenue from rendering of services The rendering of services in a contract are normally assessed to meet the series guidance and accounted for as a single performance obligation for which revenue is recognized over time. The rate per hour of service is specifically allocated to the distinct hour within the series. As there is a right to bill the customer for each hour of service, which correspond directly with the value to the customer for the performance completed to date, revenue is recognized in the amount to which the entity has a right to invoice.

Revenue from reimbursables Revenue for the purchases of certain supplies, personnel services and other services provided on behalf of and at the request of our customers in accordance with a contract or agreement are recognized as revenue under IFRS 15 and accounted for separately when enforceable rights and obligations arise. The list prices for these goods and services are representative of the stand alone selling price.

Engineering and fabrication contracts Under IFRS 15, revenue from engineering and fabrication contracts are recognized either over time or at a point in time. Revenues from contracts with customers to provide engineering and fabrication services and/or structures, which have no alternative use for the Group have been assessed to be one performance obligation, and revenues are recognized over time. Progress for contracts recognized over time are measured using a cost progress method. Costs incurred to fulfil the contract during the project phase are capitalized and amortized over the contract term if they meet the criteria in the standard. Unbilled recognized revenues will be recognized as contract assets. Amounts paid up front and/or at interim milestone stages by the customers will be recognized as a contract liability until an enforceable right to payment for progress completed has been achieved. Potential liquidated damages are recognized as a reduction of the contract price unless it is highly probable that they will not be incurred. Profit on projects is not recognized until the outcome of the performance obligations can be measured reliably.

Revenue split Revenues from charter rate contracts contain two elements, income from rentals and income from services. Other income in 2018 consists mainly of the remaining termination fee of USD 62 million received in 2017, insurance settlement and reimbursable to clients.

Amounts in USD 000’s 2018 2017

Lease revenue 4 059 82 505 Service revenue 16 236 115 686 Other income 72 711 62 517 Engineering and fabrication 52 474 18 393 Total 145 480 279 101

As at 31 December USD 9 million is recorded as contract assets.

Dolphin Drilling ASA - Annual Report 2018 21 22

Dolphin Drilling – Group Notes

Note 3 - Segment reporting

Accounting policies An operating segment is a distinguishable component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with the other of the Group’s component. The Group provides services and operates within the two operating segments; offshore drilling and engineering and fabrication. The Group management regularly review the result of the operating segments in order to make decisions and assess its performance, and for which discrete financial information is available. Segment information is based on the Group management’s and internal reporting structure. For each of the strategic business units, internal management reports are reviewed on a monthly basis.

Operating segments The Group comprises the following operating segments:

Offshore drilling provides services and lease of drilling units to the offshore oil and gas industry. Dolphin Drilling ASA is included within the offshore drilling segment. Harland & Wolff Group, which forms the Engineering and fabrication segment, provides engineering, fabrication, shipbuilding and repair services for various offshore and onshore industries. In addition, the yard holds a waste management license and can be used as logistics and assembly base for offshore wind farms.

Inter-segment pricing is determined on an arm’s length basis.

Engineering and Amounts in USD 000’s Offshore drilling fabrication Eliminations Consolidated 2018 2017 2018 2017 2018 2017 2018 2017

Revenues from external customers 1) 93 006 260 708 52 474 18 393 0 0 145 480 279 101 Inter-segment revenues 0 0 0 649 0 -649 0 0 Total revenues 93 006 260 708 52 474 19 042 0 -649 145 480 279 101

Operating expenses -148 625 -149 563 -68 094 -25 317 0 649 -216 719 -174 231

Segment result before depreciation, amortisation and impairment -55 619 111 145 -15 620 -6 275 0 0 -71 239 104 870

Depreciation and amortisation -208 638 -220 548 -1 757 -1 930 0 0 -210 395 -222 478 Impairment -191 089 -75 000 0 0 0 0 -191 089 -75 000 Segment result -455 346 -184 403 -17 377 -8 205 0 0 -472 723 -192 608

Net financing costs -33 858 -45 266 -263 -75 0 0 -34 121 -45 341 Income tax expenses 1 242 -19 434 0 0 0 0 1 242 -19 434 Profit/(loss) for the period -487 962 -249 103 -17 640 -8 280 0 0 -505 602 -257 383

Segments assets 923 872 1 619 781 27 425 25 178 -6 097 -3 528 945 200 1 641 431 Segments liabilities 791 942 997 196 90 746 54 454 -6 097 -3 528 876 591 1 048 122

Capital expenditures 28 747 9 527 399 783 0 0 29 146 10 310

Net cash (to)/from operating activities -110 645 175 135 -6 122 -7 407 0 0 -116 767 167 728 Net cash used in investing activities -30 876 -9 259 -399 -783 0 0 -31 275 -10 042 Net cash (used)/from financing activities -147 488 -12 944 2 710 2 318 -2 710 -2 318 -147 488 -12 944

1) See note 2.

22 Dolphin Drilling ASA - Annual Report 2018 23

Dolphin Drilling – Group Notes

Geographical information Europe Asia Americas Africa Consolidated 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

Revenues from external customers 2) 145 442 182 420 38 3 0 47 392 0 49 286 145 480 279 101

Capital expenditure 13 721 1 983 15 425 8 327 0 0 0 0 29 146 10 310

Of the total revenue in 2018, UK contributed 98% whereof 36% is related to Engineering and fabrication segment (2017: Norway 36% and UK 29% whereof 7% in Engineering and fabrication segment). 1)

In 2018, revenues from BP contributed 15% (2017: 0%), revenues from Anadarko (termination fee) contributed 47% (2017: 54%) and revenues from Lamprell (Engineering and fabrication segment) contributed 28%.

1) See note 2. 2) Based on location of units. Revenues in Asia are of administrative nature.

Note 4 - Salaries and other personnel costs

“Other” includes insurance expenses, health plan and other personnel expenses.

Amounts in USD 000’s 2018 2017

Salaries 49 339 68 541 Social security costs and employee taxes 5 882 11 439 Pension costs 13 770 -20 194 Training 904 800 Temporary staff 15 153 6 167 Other 2 906 2 089 Capitalized personnel expenses -2 557 0 Total 85 397 68 842 Average number of employees 519 534 Number of employees at year end 501 524 Average man-labour year 593 603

Dolphin Drilling ASA - Annual Report 2018 23 24

Dolphin Drilling – Group Notes

Note 5 - Other operating expenses

Accounting policies Repairs and maintenance Costs for class renewal surveys on offshore units, which are required by classification societies, are capitalised and depreciated over the anticipated period between surveys, generally five years. Other repair and maintenance costs are expensed as incurred.

Consumable spare parts The Group categorizes spare parts into two groups, spare parts and spare equipment. A spare part is a consumable that is not depreciated, but expensed when used against repair and maintenance cost. A spare equipment is larger spare item recorded as a rig component and depreciated. Consumables are recorded at cost and expensed when used.

Research and development Expenditures on research and development activities, undertaken with the prospect of gaining technical knowledge and understanding, is recognized in the income statement as an expense as incurred.

Amounts in USD 000’s 2018 2017

Repairs and maintenance on offshore units 9 546 28 480 Impairment and write off of inventory 1) 38 194 0 Recharged expenses 3 071 10 685 Rig overheads 24 134 21 857 Travel 3 115 6 184 General operating expenses 5 740 6 708 Insurance 3 808 6 723 Professional and operational fees 9 696 8 934 Catering costs 2 610 5 814 Property rental expenses 2 111 2 413 Loss on sale of assets 29 15 Total 102 054 97 813

1) Inventory impaired down to zero for Belford Dolphin, Bredford Dolphin and Byford Dolphin.

Fees for audit and other services provided by the Group’s auditor are as follows:

Amounts in USD 000’s 2018 2017

Audit 664 672 Tax advisory services 43 50 Other non-audit services 41 53 Total 748 775

24 Dolphin Drilling ASA - Annual Report 2018 25

Dolphin Drilling – Group Notes

Note 6 - Net financial expenses

Accounting policies Net financial expenses comprise interest payable on borrowings calculated using the effective interest rate method, interest received, foreign exchange gains and losses, and gains and losses on financial instruments.

Amounts in USD 000’s 2018 2017

Interest income 3 683 10 404 Other financial income 0 0 Gain on financial instruments 759 1 081 Foreign exchange gain 21 982 8 840 Total 26 424 20 325

Financial expenses Interest expenses 36 913 35 083 Amortized borrowing cost 2 720 4 080 Write off of borrowing cost 3 928 0 Loss on financial instruments 520 1 005 Other financial expenses 906 3 115 Foreign exchange loss 15 558 22 383 Total 60 545 65 666 Net financial expense -34 121 -45 341

The remaining borrowing cost related to the existing loans was expensed in 2018 due to the waiver period with the Company’s financial creditors expired. See note 13 Liquidity risk. Gain on financial instruments relates to unrealized gain on fixed interest contracts. Loss on financial instruments in 2018 and 2017 relates to realised loss on fixed interest contracts.

Dolphin Drilling ASA - Annual Report 2018 25 26

Dolphin Drilling – Group Notes

Note 7 - Income tax expenses

Accounting policies Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the income statement except to the extent that it relates to items recognized in Other Comprehensive Income (OCI), in which case it is recognized in OCI.

Current tax is the expected tax payable on the taxable income for the year and any adjustment to tax payable in respect of previous years.

Key accounting estimate – income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax issues based on best estimate of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such difference will affect the income tax and deferred tax provisions in the period in which such determination is made.

Amounts in USD 000’s 2018 2017

Current tax expenses -2 422 11 653 Deferred tax expenses/(benefits) 1 180 7 781 Total income tax expenses in income statement -1 242 19 434

Income tax relating to components of other comprehensive income 0 8 622

Reconciliation of effective tax rate 2018

Profit before tax -506 844 Income tax using the domestic corporation tax rate 23.0 % -116 574 Permanent differences -4.9 % 24 784 Permanent differences due to currency effect in tax filings -3.2 % 16 254 Effect of foreign subsidiaries -16.8 % 85 058 Change in limitation of deferred tax assets related to tax loss carryforward 2.1 % -10 764 Effective tax rate 0.2 % -1 242

Reconciliation of effective tax rate 2017

Profit before tax -237 949 Income tax using the domestic corporation tax rate 24.0 % -57 108 Permanent differences -10.5 % 24 898 Permanent differences due to currency effect in tax filings -6.1 % 14 444 Effect of foreign subsidiaries -2.7 % 6 499 Change in limitation of deferred tax assets related to tax loss carryforward -12.9 % 30 701 Effective tax rate -8.2 % 19 434

26 Dolphin Drilling ASA - Annual Report 2018 27

Dolphin Drilling – Group Notes

Note 8 - Property, plant and equipment

Accounting policies Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets and modi- fications includes the cost of material, direct labour and other direct attributable cost to bring the asset to a working condition for its intended use.

Components of property, plant and equipment with different useful lives are accounted for separately.

Subsequent expenditures are capitalized when it is probable that they will give rise to future economic benefits. Other costs are recognized in the income statement as incurred.

Borrowing costs are capitalized as part of the cost on certain qualifying assets in accordance to IAS 23. A qualifying asset is one which necessarily takes a substantial period of time to be made ready for its intended use, which are generally assets that are subject to major development or construction projects.

Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful life of each component of property, plant and equipment. The estimated useful lives, residual values and decommissioning costs are reviewed at each financial year-end. Any changes are accounted for prospectively as a change in accounting estimate. No decommissioning costs have been recorded to date, and the presence of any obligations is reviewed at each financial year-end.

The estimated useful lives are as follows:

Rigs 20 to 25 years Ultra-deepwater drillship 25 years Major components 5 to 15 years Plant and Buildings 5 to 50 years Machinery and Equipment 3 to 10 years

Key accounting estimate – recoverable amount of the units At each balance sheet date, judgement is used to determine whether there is any indication of impairment of the Group fleet of rigs and drillships. If any such indication exists, the asset’s recoverable amount is estimated. When considering impairment indicators, the Group considers both internal (e.g. adverse changes in performance) and external sources (e.g. adverse changes in the business environment). These are analyzed by reviewing dayrates and broker valuations. Another indicator is if the carrying amount of net assets of the Group exceeds the Group’s market capitalization. If an indicator of impairment is noted, further management estimate is required to determine the amount, if any, of impairment. In order to measure for potential impairment, the carrying amount of the rigs and drillships would be compared to the recoverable amount, which normally is the value in use. The value in use is calculated as the present value of the expected future cash flows for the individual units, requiring significant management estimates of the dayrates, utilizations, length and amounts of cash flows as well as proper discount rates. Estimating the recoverable amount is a complex process involving a number of key judgements and estimates regarding various inputs. Due to the nature of the asset, the valuation technique includes a discounted cash flow model that uses a number of inputs from internal sources due to lack of relevant and reliable observable inputs.

As a result of the current market situation and because the uncertainty is higher than usual for when new contracts will be entered into and the related future day-rate levels, recoverable amount of the offshore units is exposed to high estimation uncertainty.

An impairment loss would be recognized to the extent the carrying amount exceeds the recoverable amount.

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Dolphin Drilling ASA - Annual Report 2018 27 28

Dolphin Drilling – Group Notes

Rigs and Machinery and Plant, building Amounts in USD 000’s drillships equipment and land Total

Cost Balance at 1 January 2017 3 856 665 74 307 18 304 3 949 276 Acquisitions 9 343 967 0 10 310 Disposals -290 065 -338 0 -290 403 Effect of movements in foreign exchange 0 5 617 1 221 6 838 Balance at 31 December 2017 3 575 943 80 553 19 525 3 676 021

Balance at 1 January 2018 3 575 943 80 553 19 525 3 676 021 Acquisitions 28 692 454 0 29 146 Disposals -940 216 -8 189 0 -948 405 Reclassifications -10 510 0 0 -10 510 Effect of movements in foreign exchange 0 -3 816 -818 -4 634 Balance at 31 December 2018 2 653 909 69 002 18 707 2 741 618

Accumulated depreciation Balance at 1 January 2017 2 519 846 59 495 8 984 2 588 325 Depreciation charge for the year 216 775 5 064 639 222 478 Impairment charge for the year 75 000 0 0 75 000 Disposals -288 467 -191 0 -288 658 Effect of movements in foreign exchange 0 4 798 681 5 479 Balance at 31 December 2017 2 523 154 69 166 10 304 2 602 624

Balance at 1 January 2018 2 523 154 69 166 10 304 2 602 624 Depreciation charge for the year 205 428 4 335 632 210 395 Impairment charge for the year 191 089 0 0 191 089 Disposals -940 162 -8 188 0 -948 350 Effect of movements in foreign exchange 0 -3 480 -483 -3 963 Balance at 31 December 2018 1 979 509 61 833 10 453 2 051 795

Carrying amounts At 1 January 2017 1 336 819 14 812 9 320 1 360 951 At 31 December 2017 1 052 789 11 387 9 221 1 073 397

At 1 January 2018 1 052 789 11 387 9 221 1 073 397 At 31 December 2018 674 400 7 169 8 254 689 823

Decommissioning costs There is no decommissioning liability on the drillships or the drilling rigs as there is no legal or constructive obligation to dismantle or restore the assets. In practice, assets of this nature are when no longer useful, either rebuilt, laid up or decommissioned. For a standard vessel, special dismantling yards pay for a vessel to be decommissioned per light displacement tonnes (LDWT) of the vessel.

Residual values The residual value is reviewed at each year-end, with any change in estimate accounted for prospectively.

The most common method to estimate residual values for ships is to use scrap price publicly noted by brokers in USD per LDWT of a complete vessel with all normal machinery and equipment on board. This method is used to determine the residual value for the drillship Bolette Dolphin. The estimated residual value as at 31 December 2018 is USD 12.7 million (2017: USD 10.4 million).

Drilling rigs are considerably more complicated to decommission than drillships and have less metal and recoverable material due to their construction, design and nature. The price that could be recovered from the sale for scrap is estimated to approximate the cost of extracting this scrap metal. Therefore, no residual value is recorded for the drilling rigs.

28 Dolphin Drilling ASA - Annual Report 2018 29

Dolphin Drilling – Group Notes

Useful lives The useful lives of the assets are reviewed at each year-end. Management review the rigs by expected utilization and consider the scheduled 5 years Class Renewal Surveys going forward.

Blackford Dolphin completed its Class Renewal Surveys and was upgraded for UK sector in July 2014. Bideford Dolphin completed its Class Renewal Survey in 2014 while Borgland Dolphin and Byford Dolphin completed their Class Renewal Surveys in first half of 2015. Smart stacked rigs are pre- served, maintained and kept warm by regular integrated testing. Under the DNV GL regime of prolonged survey intervals the validity of Class and Statutory certificates are extended equal to the smart stacking period.

Bredford Dolphin and Belford Dolphin are decided to be decommissioned in 2019, and the net book value of USD 8 million and USD 1 million respectively, have been reclassified to assets held for sale under Prepayments, tax refunds and other current assets.

Estimated lifetime of Bideford Dolphin and Borgland Dolphin are based on the assumption that they will carry out their next forthcoming Class Re- newal Survey and continue to operate five years thereafter. Two more scheduled Class Renewal Surveys are assumed for Blackford Dolphin and the lifetime of Bolette Dolphin was assumed to 25 years at delivery in 2014.

Estimates Net book value Remaining lifetime as at as at 31 December Amounts in million of USD 31 Dec 2018 31 Dec 2017 2018 2017

Belford Dolphin 1) 0 8 - 120 Bideford Dolphin 5.5 6.5 44 77 Borgland Dolphin 6 7 47 70 Byford Dolphin 1.5 2.5 10 44 Bredford Dolphin 1) 0 4.5 - 11 Blackford Dolphin 10.5 11.5 191 232 Bolette Dolphin 20 21 382 496 Equipment - 2 Total rigs and drillship 674 1 052

1) Reclassified to assets held for sale 2) Remaining lifetime do not account for: - prolongation of survey intervals to be credited at reactivation - partial renewal surveys performed under the regime of Classification for Smarter Operations

Impairment An impairment loss of USD 191 million was recorded in 2018 (2017: USD 75 million). Impairment tests have been undertaken for all the units in the fleet. The determination of the recoverable amount for each Cash Generating Unit (CGU) is based on value in use calculation by estimating future cash flows to be derived from continuing use of each CGU including three scenarios, at different levels of dayrates and utilization, with a percentage likelihood. The Group applied pre-tax discount rates in the range from 11.32% to 13.87% (2017: 9.2% to 11.55%) for the various units. The post-tax discount rates varies from 9.78% up to 10.54% (2017: 8.15% to 8.59%) due to differences in effective tax rates for the units.

The following impairments have been recorded:

Discount rates 2018 Amounts in million of USD 2018 2017 Post-tax Pre-Tax

Bolette Dolphin 69.1 - 10.46% 11.32% Byford Dolphin 17.8 - 9.78% 11.86% Belford Dolphin 95.8 - N/A N/A Bredford Dolphin 7.6 - N/A N/A Blackford Dolphin - 75.0 9.78% 12.85% Equipment 0.8 - Total impairment 191.1 75.0

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Dolphin Drilling ASA - Annual Report 2018 29 30

Dolphin Drilling – Group Notes

The offshore floater drilling market experienced a turnaround in 2018, with an increase in requests, tenders and contract awards. The harsh environment market in the North Sea has demonstrated the most notable recovery, driven by sanctioning of new field development projects. Further sanctioning of development projects as well as increase in exploration and appraisal activity, is forecasted in the North Sea. This may lead to further strengthening of this market segment, both in terms of utilisation and increase in dayrates. The increased activity has resulted in contract awards in the offshore floater drilling market, with commencements through the period 2018 to 2020, as the company experienced with the contract with BP for Blackford Dolphin in 2018. The ultra-deepwater (UDW) market has experienced a rebound in 2018, with incremental demand driven by the markets in North- and South America as well as West Africa. An increased demand for multi-year tenders, with commencement from 2020, have also been seen in these segments. However, due to a significant oversupply of UDW drilling units, dayrates have not improved and are currently only marginally higher than operating expenses. Going into 2019 the international midwater market is again becoming active, following a five-year period with virtually no contract awards. This covers markets in Central- and South America, Africa, Mediterranean and South East Asia. Generally, national oil companies prioritising improved production from existing fields and infrastructure drive this demand comeback.

The value in use calculation is based on estimated future cash flows, the estimates are based on the assumed low dayrates and low utilization for 2019 and 2020. Thereafter it is assumed increased dayrates for all CGUs and normalized utilization (above 90%) for the remaining lifetime of the units.

The net book value of the units represent the estimated recoverable amount of the assets that have been impaired.

Belford Dolphin and Bredford Dolphin are currently being mobilized and prepared for decommission. The units have been impaired to estimated net sales price and reclassified to assets held for sale.

Sensitivity An increase of 1% on the post-tax discount rate would trigger a further impairment of USD 33 million for Bolette Dolphin. The other units would not have been affected.

The estimated day rates and utilization of the units are significant assumptions in the model. The estimates used in the model are based on the low market dayrates and low or no utilization for 2019 and 2020. Thereafter increased dayrates and normalized utilization. A decrease of 10% of the dayrates would trigger a further impairment of USD 107 million and a decrease of 10% of the utilization would trigger a further impairment of USD 115 million for Bolette Dolphin. The other units would not have been affected.

Commitments Commitments related to investments are approximately USD 1.4 million as at 31 December 2018.

30 Dolphin Drilling ASA - Annual Report 2018 31

Dolphin Drilling – Group Notes

Note 9 - Deferred tax assets and liabilities

Accounting policies Deferred tax is provided using the balance sheet liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.

Deferred tax assets are attributable to the following:

Assets Liabilities Net Amounts in USD 000’s 2018 2017 2018 2017 2018 2017

Property, plant and equipment 0 -439 0 0 0 -439 Provisions -92 -646 0 0 -92 -646 Other items -70 -221 0 22 -70 -199 Tax value of loss carry-forward recognized 0 0 0 0 0 0 Tax (assets)/liabilities -162 -1 306 0 22 -162 -1 284 Set off1) 0 22 0 -22 0 0 Net tax (assets)/liabilities -162 -1 284 0 0 -162 -1 284

1) Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income tax levied to the same taxable entity.

Unrecognized deferred tax assets: Deferred tax assets have not been recognized in respect of the following items:

Amounts in USD 000’s 2018 2017

Deductible temporary differences 191 668 146 932 Tax losses 187 140 181 481 Total unrecognized deferred tax assets 378 808 328 413

As at 31 December 2018, approximately USD 186 million of the tax losses carried forward are available to offset the taxable income for subsidiaries in UK and USD 700 million for subsidiaries in Norway, in total USD 886 million in tax losses carried forward for the Group. The losses are not recorded as a deferred tax asset due to uncertainty of the level of future suitable taxable profits in the respective taxable jurisdictions.

Note 10 - Cash and cash equivalents

Accounting policies Cash and cash equivalents includes cash, bank deposits and other short-term highly liquid assets that are readily convertible to known amounts of cash and which are subject to insignificant changes in value.

Amounts in USD 000’s 2018 2017

Cash related to payroll tax withholdings 984 1 994 Other restricted cash 5 363 4 827 Total restricted cash 6 347 6 821

Unrestricted cash 130 600 428 148 Total cash and cash equivalents 136 947 434 969

Dolphin Drilling ASA - Annual Report 2018 31 32

Dolphin Drilling – Group Notes

Note 11 - Capital and reserves

Share capital and share premium Par value per share NOK 20 Number of shares authorized 73 363 651 Number of shares issued 66 694 229

Outstanding shares 2018 2017

As at 31 December 66 264 129 66 264 129

Translation reserves This reserve represents exchange differences resulting from the consolidation of subsidiaries having different functional currencies.

Reserve for own shares The Company held 430 100 shares as at 31 December 2018 (unchanged from 2017).

Dividend No dividend were paid in 2017 or 2018.

Note 12 - Interest-bearing loans and borrowings

Accounting policies Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis.

Amounts in USD 000’s 31.12.18 31.12.17 Nominal Nominal Currency Interest rate Maturity value Balance value Balance

FOE05 bond loan (including overdue interest) NOK 3M Nibor + 3.00% 2019 120 421 120 421 124 924 124 526 Fleet loan USD 3M Libor + 2.70% 2020 515 935 515 935 758 877 752 627 Fleet loan (overdue settlements and interest) USD 3M Libor + 4.70% 112 088 112 088 0 0 Total interest-bearing loans and borrowings 748 444 748 444 883 801 877 153

Current interest-bearing loans and borrowings 748 444 190 909 Non-current interest-bearing loans and borrowings 0 686 244 Total interest-bearing loans and borrowings 748 444 877 153

Of the interest-bearing debt of the Group at 31 December 2018, USD 628 million is denominated in US dollars (2017: USD 759 million), and USD 120 million is denominated in NOK (2017: USD 125 million).

The Group has repaid USD 147.5 million in 2018 of the fleet facility. At 29 June 2018, the waiver period with the Company’s financial creditors expired. As a consequence the Group has reclassified all of its loans to current interest-bearing loans and borrowings, and expensed all amortized loan costs. At 3 July, the Company resolved to stop its service of interest and amortizations to its financial creditors, in order to preserve the liquidity reserves of Dolphin Drilling Group. As such, the Company did not make payment of an instalment of USD 95.5 million and interest payable to its secured lenders on such date.

Prepayments of refinancing cost of USD 10.8 million is reported under Other non-current assets. Part of it could either be booked against equity or be part of liabilities carried at amortized cost dependent of the outcome.

32 Dolphin Drilling ASA - Annual Report 2018 33

Dolphin Drilling – Group Notes

Note 13 - Financial risk management

Accounting policies Financial assets and financial liabilities are recognized on the Group’s consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instruments.

Derivative financial instruments The Group use derivative financial instruments to manage its exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are classified as fair value through profit or loss.

Derivative financial instruments are recognized initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognized in profit or loss. There are no derivatives to which hedge accounting is applied.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date. The fair value of forward exchange contracts is their market price at the balance sheet date, being the present value of the quoted forward price as provided by financial institutions. There are no forward exchange contracts as at 31st December 2018.

Trade and other receivables Trade and other receivables are stated at cost less impairment losses.

Trade and other payables Trade and other payables are stated at cost.

Capital management and going concern The Group’s objective is to have a sound financial position in order to maintain market confidence and sustain future development of the business. The Board monitors the capital structure and return on capital on a continuous basis, with the aim to maintain a strong capital base while maximiz- ing the return on capital.

The Company’s financial situation has come under increasing pressure during the continued downturn in the domestic and international drilling markets. To alleviate such pressure, the Company first obtained a waiver of the financial covenants in the Company’s loan agreements in December 2016, effective up until 30 June 2018.

During the first half of 2018, the Company sought an agreement with its financial creditors to extend such waiver period, and to temporarily suspend the Company’s service of all financial debt. Such agreement was however not reached. In order to preserve the liquidity reserves of the Dolphin Drill- ing group, the Company resolved to stop its service of its financial debt with effect from 30 June 2018. Since then, the Company has been in default of its payment obligations to its financial creditors.

During 2018 the Company has also been in continuous discussions with its key stakeholders with a view to obtain a financial restructuring. In the course of such discussions, the Company has received and presented several restructuring outlines. Neither of the outlines have received the necessary support of the financial creditors.

Nevertheless, the key stakeholders of the Company remain supportive of the Company’s continued operations and restructuring efforts. Moreover, the Company remains in dialogue with representatives for all of its key financial creditors. In light of this dialogue, the Board of Directors considers that the restructuring efforts of the Company have a reasonable prospect of success.

On this basis and in accordance with §3-3a of the Norwegian Accounting Act, the Board of Directors confirms that the going concern assumption, on which the financial statements have been prepared, is considered to be appropriate. The Board of Directors notes, however, that it is not in any way certain that the Company will succeed in resolving its financial situation. If a solution to its financial situation is not found, the Company will need to file for bankruptcy.

The board members Anette S. Olsen and Richard O. Aa have not participated in the Board’s dealings with the Company’s restructuring alternatives and related procedures since 3 July 2018 due to conflict of interest considerations. These board members have therefore not participated in forming the Board’s opinion on the said going concern assumption on which these accounts are based as they have not had access to all required information allowing them to form a view thereon.

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Dolphin Drilling ASA - Annual Report 2018 33 34

Dolphin Drilling – Group Notes

Market risk The Group is exposed to credit-, interest rate- and foreign currency risks in its operations. Derivative financial instruments are from time to time entered into to hedge against fluctuations in foreign currency rates and interest rate levels. The Group does not enter into commodity hedging contracts.

Credit risk Due to the nature of the Group’s operations, revenues and related receivables are typically concentrated amongst a relatively small customer base. The Group continually evaluates the credit risk associated with customers and, when considered necessary, requires certain guarantees, either in the form of parent company guarantees, bank guarantees or cash collateral. The Group’s short-term investments are limited to cash deposits in the Group’s relationship banks and derivative financial instruments entered into with the Group’s main relationship banks. As such, the Group considers its exposure to credit risk to be moderate.

At 31 December 2018, the units in the fleet are currently not on contract. It is expected that the concentration of credit risk might reside on fewer customers than the previous years due to lower contract coverage. Maximum exposure to credit risk is reflected in the carrying value of each financial asset, including derivative financial instruments, in the balance sheet.

Amounts in USD 000’s 2018 2017

Loans and receivables 12 647 14 531 Cash and cash equivalents 136 947 434 969 Total 149 594 449 500

Receivables are to be collected from the following type of customers:

Amounts in USD 000’s 2018 2017

Loans to employees 1) 58 123 Customers 12 589 14 408 Total 12 647 14 531

1) Average interest rate for loans to employees was 2.15 % in 2018 and 2.2% for 2017. Part of the amount contains rolling travel advances.

The ageing of trade receivables at the reporting date was:

2018 2017 Nominal value Provision Balance Nominal value Provision Balance

Not due 11 491 0 11 491 13 178 0 13 178 Overdue 0-30 days 5 0 5 5 0 5 Overdue 30-90 days 0 0 0 0 0 0 Overdue 90-180 days 1 005 0 1 005 0 0 0 Overdue 180-360 days 88 0 88 0 0 0 Overdue > 360 days 0 0 0 4 036 -2 811 1 225 Total 12 589 0 12 589 17 219 -2 811 14 408

34 Dolphin Drilling ASA - Annual Report 2018 35

Dolphin Drilling – Group Notes

Liquidity risk Per 31 December 2018, the Group’s debt consisted of one credit facility with a consortium of banks and one bond loan. The facility was refinanced in July 2014 and is a combined term loan and revolving credit facility of originally USD 1 450 million, with final maturity in 2020. The outstanding amount under the credit facility at year-end was 628 million, including unpaid overdue interest of approximately USD 17 million. The bond loan (FOE05) of NOK 1 100 million, later reduced to 1 025 million, was raised in the Norwegian market in February 2014 and had original maturity in February 2019. However, the Maturity Date of the bond issue has been extended from 28 February 2019 to 28 August 2019. This is to ensure the continued VPS registration and is only a technical extension and does not in any way amend the rights of the bondholders under the bond issue.

At 29 June 2018, the waiver period with the Company’s financial creditors expired. The Company and the financial creditors were not able to agree on an extension of the waiver. On 3 July 2018, the Company resolved to cease its service of interest and amortizations to its financial creditors, in order to preserve the liquidity reserves of the Group. As such, the Company did not make the payment of an instalment and interest payable to its secured lenders on such date. The Group’s operations would otherwise continue in their ordinary course.

Constructive discussions are continuing with the financial creditors and investors in order to solve the Company’s financial situation. It is expected that a long term solution will require new equity and amendments to the Company’s bank and bond facilities, including impairments of debt, in order to secure a viable financial foundation for the purpose of safeguarding the Company’s position in the market. Unless a solution is found to the Company’s financial situation, the Company will need to file for bankruptcy.

Interest rate risk The Group is exposed to fluctuations in interest rates for USD and NOK. As per 31 December 2018 approximately 7 % of outstanding debt was at fixed rate. At 31 December 2018 the Group’s USD denominated debt amounted to USD 628 million, while the NOK denominated debt amounted to NOK 1 025 million. The debt with floating interest rate is based on US Libor or Nibor plus a margin. USD 50 million is based on a fixed rate of 3.16 % plus a margin, and was fixed for 10 years until May 2019.

Realized loss of USD 0.5 million and unrealized gain of USD 0.8 million (2017: realized loss of USD 1 million and unrealized gain of USD 1.1 million) was recorded as net financial expense in 2018 related to fixed rate agreements. The mark-to-market value of the interest rate swaps are measured as the difference between the agreed fixed rate and the current market interest rate with the corresponding maturity as the remaining fixed rate maturity.

Foreign currency risk The Group is exposed to foreign currency risks related to its operations and debt instruments. The Group’s financial statements are denominated in USD and most of the subsidiaries use USD as their functional currency. Some subsidiaries also use GBP or NOK. The Group’s revenues consist primarily of NOK, GBP and USD. The Group’s expenses are primarily in NOK, GBP and USD. As such, the Group’s earnings are exposed to fluctuations in the foreign currency market. The Group’s future foreign currency exposure is dependent upon the currency denomination of future operating contracts and denomination of operating expenses. In 2018, approximately 50 % of revenues and 16 % of operating expenses are in USD an 50 % of revenues and 49 % of operating expenses are in GBP. In the longer term, parts of the USD/NOK exposure is neutralised due to a majority of the Group’s debt being denominated in USD. 84 % of total debt is denominated in USD, while 16 % is denominated in NOK.

At 31 December 2018, the Group had no outstanding currency derivative contracts.

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Dolphin Drilling ASA - Annual Report 2018 35 36

Dolphin Drilling – Group Notes

Sensitivity analysis In managing interest- and currency risks the Group aims to reduce the impact on its earnings from short-term fluctuations in interest rates and currency exchange rates. Over the longer-term changes in currency exchange rates and interest rate levels will have an impact on the Group’s earnings.

Interest rate sensitivity The Group has estimated that 1 – one percent incremental change in USD LIBOR and NIBOR have an effect of approximately USD 6 million (2017: USD 4 million) on the net result, taken into account the fixed rate portion of the net debt.

The Group is exposed to fluctuations in the interest rates. At the reporting date the following table shows the nominal amounts of financialinstruments with fixed and variable interest:

Amounts in USD 000’s 2018 2017

Fixed rate instruments Financial liabilities -50 000 -50 000

Variable rate instruments Bank deposits 136 947 434 969 Financial liabilities -698 444 -833 801 Total variable rate instruments -561 497 -398 832

Exchange rate sensitivity from operations For 2018 a 10% increase in NOK versus USD would have increased the Group’s EBITDA by USD 7 million while a 10% increase in GBP versus USD would have decreased the EBITDA by USD 3 million.

Exchange rate sensitivity on balance sheet items and derivatives as at reporting date At December 2018, there is no material balance sheet items which are exposed for exchange rate fluctuations.

36 Dolphin Drilling ASA - Annual Report 2018 37

Dolphin Drilling – Group Notes

Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows:

Amounts in USD 000’s 2018 2017 Carrying amount Fair value Level Carrying amount Fair value Level

Assets carried at amortized cost Loans and receivables 12 647 12 647 14 531 14 531 Cash and cash equivalents 136 947 136 947 434 969 434 969 Total 149 594 149 594 449 500 449 500

Liabilities carried at fair value Interest rate swaps - - 2 849 849 2 Current liabilities Interest rate swaps 121 121 2 - - 2 Total 121 121 849 849

Liabilities carried at amortized cost Secured bank loans 628 023 628 023 2 752 627 758 877 2 Bond loan 120 421 18 063 2 124 526 87 447 2 Trade and other payables 16 119 16 119 10 081 10 081 Total 764 563 662 205 887 234 856 405

The gain or loss on re-measurement to fair value for the financial instruments stated at fair values is recognized in profit or loss.

The mark-to-market value on the interest swaps is derived from the interest rate difference between the fixed rate and the relevant market interest rate for the remaining maturity of the interest rate swap.

The fair value of the bond loan is calculated using the average of bid and ask prices. The secured bank loan has been traded during 2018, however the Company has no information of the pricing of the transactions.

The Group is required to disclose the hierarchy of how fair value is determined for financial instruments recorded at fair value in the consolidated financial statements. The hierarchy gives highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Level 2 includes assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.

Note 14 - Mortgages and guarantees

Amounts in USD 000’s 2018 2017

Interest-bearing debt 628 023 758 877 Other guarantees and liabilities 5 363 4 827 Total 633 386 763 704

The net book value of assets pledged as security: Rigs and drillships 674 400 1 050 573 Total 674 400 1 050 573

As a normal part of it operations, the Group has provided performance guarantees in relation to certain of its drilling contracts.

Dolphin Drilling ASA - Annual Report 2018 37 38

Dolphin Drilling – Group Notes

Note 15 - Employee benefits

Accounting policies Pensions The Company and certain of its subsidiaries have pension plans for employees that provide for a defined pension benefit upon retirement. The benefit to be received by employees generally depends on many factors including length of service, retirement date and future salary increases. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their services in the current and prior periods, that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date reflecting the maturity dates approximating to the terms of the Group’s obligations. A qualified actuary performs the calculation.

Re-measurements of the net defined benefit liability, which comprise actuarial gains and losses, are recognized in other comprehensive income (OCI).

The Company and certain of its subsidiaries have a defined contribution plan, where the employer makes contributions on a regular basis to the employees individual pension account. The benefits received by the employee are based on the employer contributions and gains or losses from investing the capital. Contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred.

In addition, employees of other subsidiaries are covered by multi-employer pension plans administered by trade unions and by plans administered by related companies. Costs related to these plans are expensed as incurred.

Key accounting estimate – pension obligation The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost for pensions include the discount rate. Any changes in these assumptions will impact the calculated pension obligations. The Group determines the appropriate discount rate at the end of each year. This rate is used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. The rate used for Norwegian subsidiaries is based on 10 year government bonds or OMF rate (covered bonds). Beyond 10 years the rate has been based on an extrapolation of the government bond rate and long- term swap rates for the relevant period. Other key assumptions for pension obligation are based on current market conditions.

Pension plans Dolphin Drilling ASA including its subsidiaries Dolphin Drilling AS, Harland & Wolff Group Plc and Harland & Wolff Heavy Industries Ltd have independent pension plans that provide employees with a defined benefit upon retirement. The employees participating in these plans are entitled to future pension payments based on length of service and salary upon retirement. The total number of employees involved in the pension plans as of 31 December 2018 was 162 and the number of pensioners was 1 384, of which the majority is related to Harland & Wolff. Each of these pension plans are operated independently of each other and have no recourse in case of underfunding to either other pension plans or other companies within the Group.

Characteristics of the plans: Harland & Wolff Group Plc: The pension scheme liabilities are spread mainly across the deferred and pensioner categories. The weighted average duration of the scheme’s liabilities is 14 years. The scheme closed for future accrual on 1 February 2018.

Norway: The pension plan for the Norwegian Group companies is in accordance with the Norwegian law concerning mandatory occupational pension (OTP).

In 2017, Dolphin Drilling AS implemented a defined contribution plan for both onshore and offshore employees replacing a defined benefit plan.

The Company administers an additional pension arrangement for senior management under which beneficiaries within that group may receive in total 66% of their pension-qualifying income at an early retirement age of 65 and until their pension age (67), and in total up to 70% of such part of their pension-qualifying income which at the pension age (67) exceeds 12 G (G = Basic rate under the Norwegian social security system) although adjusted for so many thirty-parts that the beneficiary at the pension age has qualifying earning years in the Company. This arrangement is unsecured.

Dolphin Drilling Management AS has defined benefit plan for its employees but it was closed for new members in June 2012. New employees participate in a defined contribution plan.

38 Dolphin Drilling ASA - Annual Report 2018 39

Dolphin Drilling – Group Notes

Employees not eligible for coverage under the defined benefit plans in the UK are eligible to participate in pension plans in accordance with local industrial, tax and social regulations. All of these plans are considered defined contribution plans. The Group’s contributions to defined contribution plans for year ended December 31, 2018 and 2017 were USD 2.4 million and USD 3 million respectively.

The status of the defined benefit obligations is as follows:

Amounts in USD 000’s 2018 2017

Present value of unfunded obligations 14 890 16 153 Present value of funded obligations 245 025 250 292 Total present value of obligations 259 915 266 445 Plan assets at market value 176 497 206 182 Net liability for defined benefit obligations -83 418 -60 263

Hereof unfunded pension plans -14 890 -16 153 Hereof funded pension plans -68 528 -44 110 Net liability for defined benefit obligations -83 418 -60 263

Other investments 0 0 Employee benefits -83 418 -60 263 Balance at 31 December -83 418 -60 263

Movements in the net liability for defined benefit obligations recognized in the balance sheet:

Defined benefit Fair value of Net defined Amounts in USD 000’s obligation plan assets benefit liability Funded 2018 2017 2018 2017 2018 2017

Balance at 1 January -250 292 -288 684 206 182 214 493 -44 110 -74 191

Pension contribution 0 0 2 228 4 673 2 228 4 673 Benefits paid by the plan 11 466 11 448 -11 379 -11 345 87 103 Total 11 466 11 448 -9 151 -6 672 2 315 4 776

Included in profit or loss: Interest -6 015 -6 374 3 466 4 584 -2 549 -1 790 Current service cost -1 357 -1 272 0 0 -1 357 -1 272 Settlements -6 545 62 569 0 -34 857 -6 545 27 712 Net pension cost -13 917 54 923 3 466 -30 273 -10 451 24 650

Included in other comprehensive income: Actuarial gain/(loss) arising from: Demographic assumptions 0 0 0 0 0 0 Financial assumptions -6 289 -3 585 -12 993 9 600 -19 282 6 015 Experience adjustments 567 124 0 0 567 124 Actuarial gain/(loss) -5 722 -3 461 -12 993 9 600 -18 715 6 139 Foreign currency translation 13 440 -24 518 -11 007 19 034 2 433 -5 484 Balance at 31 December -245 025 -250 292 176 497 206 182 -68 528 -44 110

Hereof Harland & Wolff Group Plc -230 772 -235 698 162 429 191 259 -68 343 -44 439

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Dolphin Drilling ASA - Annual Report 2018 39 40

Dolphin Drilling – Group Notes

Amounts in USD 000’s Unfunded 2018 2017

Balance at 1 January -16 153 -14 728 Benefits paid by the plan 556 620

Included in profit or loss: Current service costs -647 -669 Interest on pension liability -379 -359 Settlements 0 -15 Net pension cost -1 026 -1 043

Included in other comprehensive income: Actuarial gain/(loss) arising from: Demographic assumptions -277 0 Financial assumptions 0 11 Experience adjustments 1 094 -212 Actuarial gain/(loss) 817 -201 Foreign currency translation 916 -801 Balance at 31 December -14 890 -16 153

Total expense recognized in the income statement for all defined benefit plans:

Amounts in USD 000’s 2018 2017

Current service costs 2 004 1 941 Interests on obligations 6 394 6 733 Expected return of plan assets -3 466 -4 584 Gain on settlements 6 545 -27 697 Net pension cost for defined benefit plans 11 477 -23 607

Hereof Harland & Wolff Group Plc 9 141 2 066

Major categories of plan assets:

2018 2017

Equity instruments 12% 41% Corporate bonds 40% 38% Government bonds 18% 12% Liability driven investments 19% 0% Annuities 7% 7% Real estate 1% 1% Cash 3% 1% Plan assets 100% 100%

Approximately 99.3% of the equities and 95% of the bonds are quoted at bid prices. The annuities have been valued on a basis consistent with the valuation of the Scheme’s liabilities. There are no investments in the Company or in property occupied by the Group.

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Dolphin Drilling – Group Notes

Total present value of obligations

Amounts in USD 000’s 2018 2017

Employees 18 830 37 264 Deferred 108 721 91 050 Pensioners 132 364 138 131 Total present value of obligations 259 915 266 445

Assumptions used in the calculation of pension obligations are as follows:

2018 2017 UK Norway UK Norway

Assumed salary increases 0 % 2.5 % 0 2.25 % Discount rates 2.7 % 2.75 % 2.6 % 2.5 %

Sensitivity: Amounts in USD 000’s Increase in PBO 1)

Future salary and pension increase with 0.25% -2 618 Discount rate decrease by 0.25% -8 905

Future mortality increase by 1 year -8 510

1) Projected Benefit Obligation

Expected contributions to funded defined benefit plans in 2019 are USD 3.9 million. Expected payments of benefits for the unfunded plans are in 2019 estimated to be USD 0.5 million.

Risks: The major risks for the defined benefit plans are interest rate risk, investment risk, inflation risk and longevity risk.

Dolphin Drilling ASA - Annual Report 2018 41 42

Dolphin Drilling – Group Notes

Note 16 - Rental & Leases

Leases as lessee

Accounting policies Operating lease expenses Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. The Group does not have any financial leases.

Amounts in USD 000’s 2018 2017

Less than one year 644 749 Between one and five years 2 252 2 450 More than five years 39 455 42 136 Total 42 351 45 335

The Group has certain long-term operating leases expiring on various dates, some which contain renewal options.

The Group subsidiary Compact Properties (NI) Ltd. in Belfast has a property lease contract that expires in 2114 and is the major part of the above.

Leases as lessor

Accounting policies The Group recognize revenue from lease on a systematic basis based on the benefits received from the leased assets.

IAS 17 require the Group to disclose future minimum lease payments under non-cancellable operating leases. For historical lease payments, the charter contracts consists of both lease payments and service payments. Due to the nature of the terms and conditions in the various charter rate contracts and the uncertainty of future operational performance, management is of the opinion that disclosing the lease payments part separately from the service payments will not add any value to the reader in understanding the charter payments. Furthermore, it will be difficult to reconcile the lease payments to the total charter payments.

Contractual income The Group has no contracts for the future as per 31 December 2018.

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Dolphin Drilling – Group Notes

Note 17 - Related parties

In the ordinary course of business, the Group recognizes revenues and expenses with related companies, which have an impact on the Group’s Consolidated Financial Statements. The Group receives certain administrative, financial, and legal advisory services from Fred. Olsen & Co. The agreements are on arms-length terms and are subject to ordinary termination provisions. Other related parties relate to Bonheur ASA which is the owner of 51.92 % of the Company, and its subsidiaries. Revenues and purchases from such companies were as follows:

Amounts in USD 000’s 2018 2017

Revenues Other 4 0 Fred. Olsen & Co. 42 129 Total 46 129

Operating expense Other 429 264 Bonheur ASA 169 165 Fred. Olsen & Co. 1 013 993 Total 1 611 1 422

Accounts receivables Other 1 0 Fred. Olsen & Co. 0 14 Total 1 14

Accounts payable Fred. Olsen & Co. 214 0 Other 317 192 Total 531 192

Loan to employees Loan to senior management 0 8 Loan to employees 58 115 Total 58 123

Average interest rate for loans to employees was 2.15% for 2018 and 2.2% for 2017. Part of the amount contains rolling travel advances.

The loans to Senior Management had monthly settlements and was repaid in 2018.

Members of the Senior Management and Board of Directors hold in total NOK 23.3 million in FOE05 bond loan.

The remunerations of Board of Directors and Senior Management were as follows:

Board of Directors Amounts in USD 000’s 2018 2017

Remuneration 195 126 Total 195 126

Senior Management Amounts in USD 000’s 2018 2017

Salary 1 503 1 438 Pension costs 133 101 Other 172 232 Total 1 808 1 771

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Dolphin Drilling ASA - Annual Report 2018 43 44

Dolphin Drilling – Group Notes

2018 Board Amounts in USD 000’s remuneration Salary Bonus Other Pension Total

Senior Management Ivar Brandvold, Chief Executive Officer 20 639 - 22 45 726 Hjalmar Krogseth Moe, Chief Financial Officer 11 270 - 21 35 337 Gunnar Koløen, Managing Director 282 - 78 30 390 Jonathan H. Guest, Managing Director (from 1st May) 200 - 9 23 232 Robert Cooper, Managing Director (until 30th April) 112 - 11 - 123 Total 31 1 503 0 141 133 1 808

Board of Directors Anette S. Olsen 31 31 Richard Olav Aa 41 41 Jan Peter Valheim 46 46 Aksel Hillestad (from June) 16 16 Cecilie B. Heuch 43 43 Stephen Knutzon 18 18 Total 195 0 0 0 0 195

2017 Board Amounts in USD 000’s remuneration Salary Bonus Other Pension Total

Senior Management Ivar Brandvold, Chief Executive Officer 19 644 - 22 37 722 Hjalmar Krogseth Moe, Chief Financial Officer 10 267 - 21 26 324 Gunnar Koløen, Managing Director 252 - 125 38 415 Robert Cooper, Managing Director 275 - 35 - 310 Total 29 1 438 0 203 101 1 771

Board of Directors Anette S. Olsen 30 30 Richard Olav Aa 23 23 Jan Peter Valheim 24 24 Agnar Gravdahl (until August) 21 21 Cecilie B. Heuch 24 24 Stephen Knutzon 4 4 Total 126 0 0 0 0 126

The pension above reflect the contributions to the plans. Earned pension entitlement to Chief Executive Officer is for 2018 USD 0.3 million (2017: 0.4 million).

Senior Management consists of Chief Executive Officer (CEO) and Chief Financial Officer and the Managing Directors in two subsidiaries, a total of 4 employees in 2018. The Group CEO is the Managing Director of the subsidiaries Dolphin Drilling Management AS, Dolphin Drilling AS and Dolphin Drilling Ltd.

The management has a cash bonus scheme. The beneficiaries of the scheme are Senior Management and certain key personnel. Annual bonus awards under the scheme are maximized to one year’s salary. One third of the annual bonus award will be paid upon approval of the final accounts, while the remaining balance will be paid evenly over the subsequent two years. The scheme is subject to the Group achieving certain predefined financial criteria, including achieved budget goals and development of the Company’s share price. The Group has not any share based remuneration scheme. No member of the Senior Management has contracts with the Company or any of its subsidiaries providing for benefits upon termination of employment.

44 Dolphin Drilling ASA - Annual Report 2018 45

Dolphin Drilling – Group Notes

Guidelines for 2018 The Board of Directors of Dolphin Drilling ASA has a Compensation Committee comprising four Directors including the Chairman of the Board and two Directors independent of the main shareholders. The Compensation Committee discusses and recommends to the Board salary and benefits for the Chief Executive Officer and Senior Management as well as management incentive schemes for the Group.

The policy of Dolphin Drilling ASA is to offer competitive payments and benefits to senior management to attract qualified management within the company’s business segments. The Company seeks to apply competitive and motivating remuneration principles to attract, develop and retain highly qualified employees.

The salaries paid to the Senior Management are determined on the basis of the responsibility and complexity of the appointment in question. A part of the remuneration to the Senior Management is based on the Company’s financial performance and related to achieved budget goals and the increase in market value of the shares for the Company.

The remuneration for 2018 has been in accordance with the statement presented at the Annual General Meeting in May 2018.

Note 18 - Contingencies

The Group is subject to various legal and tax claims arising in the normal course of business which the Group assesses on a regular basis.

The Group has a dispute in UK with the HMRC regarding classification of a rig and its operation. The disputed tax amount is USD 13 million plus interest and legal fees. The dispute is expected to be settled in 2019. The Group has not made any provision for the dispute due to being confident on its view.

Outstanding issues from suppliers A Group Company is involved in a customs issue. This is not expected to have a material effect on the accounts.

Note 19 - Shareholder information

Shareholders holding more than 1% of the shares at 31 December 2018 are as follows:

Shareholder Percent of shares Number of shares

Bonheur ASA 51.92 % 34 628 764 Nordnet Bank AB 3.43 % 2 285 570 Clearstream Banking S.A 3.21 % 2 137 561 Danske Bank AS 1.78 % 1 187 318 The Northern Trust Comp, London 1.52 % 1 015 627 Nordea Bank Abp 1.49 % 991 436 Avanza Bank AB 1.43 % 955 882 The Bank of New York Mellon 1.20 % 800 569 KBC Bank NV 1.12 % 745 870 Others 32.89 % 21 945 632 Total 100.00 % 66 694 229

Shares owned directly by the Company’s directors and senior management at 31 December 2018:

Name Title Shares

Anette S. Olsen Chairman 100 1) Hjalmar Krogseth Moe Chief Financial Officer 10 000

1) Private Fred. Olsen related interests directly/indirectly hold a majority shareholding interest with the Company.

Dolphin Drilling ASA - Annual Report 2018 45 46

Dolphin Drilling – Group Notes

Note 20 - Earnings per share

Accounting policies Basic Basic earnings per share is calculated by the profit attributable to equity holders of the Company divided by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares.

Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has no dilutive potential ordinary shares outstanding.

The calculation of basic and diluted earnings per share is based on the following data:

Earnings Amounts in USD 000’s 2018 2017

Earnings for the purpose of basic earnings per share -504 230 -256 740 Effect of dilutive potential ordinary shares 0 0 Earnings for the purpose of diluted earnings per share -504 230 -256 740

Number of shares In 1000’s 2018 2017

Weighted average number of ordinary shares for the purposes of basic earnings per share 66 264 66 264 Effect of dilutive potential ordinary shares 0 0 Weighted average number of ordinary shares for the purposes of diluted earnings per share 66 264 66 264

Earnings per share 2018 2017

Basic -7.61 -3.87 Diluted -7.61 -3.87

46 Dolphin Drilling ASA - Annual Report 2018 47

Dolphin Drilling – Group Notes

Note 21 - Subsidiaries

The ownership percentage in subsidiaries as of 31 December 2018 was as follows:

Shareholding and Company Jurisdiction voting shares

Dolphin Drilling AS Norway 100.0 % Dolphin International AS Norway 100.0 % Dolphin Finans AS Norway 100.0 % Dolphin Drilling Management AS Norway 100.0 % Dolphin Drilling Operations AS Norway 100.0 % Blackford Dolphin Pte. Ltd. Singapore 100.0 % Bideford Dolphin Pte. Ltd. Singapore 100.0 % Borgland Dolphin Pte. Ltd. Singapore 100.0 % Borgsten Dolphin Pte. Ltd. Singapore 100.0 % Byford Dolphin Pte. Ltd. Singapore 100.0 % Borgny Dolphin Pte. Ltd. Singapore 100.0 % Dolphin Drilling Pte. Ltd. Singapore 100.0 % Borgholm Dolphin Pte. Ltd. Singapore 100.0 % Bredford Dolphin Pte. Ltd. Singapore 100.0 % Bolette Dolphin Pte. Ltd. Singapore 100.0 % Bollsta Dolphin Pte. Ltd. Singapore 100.0 % Dolphin Drilling Personnel Pte. Ltd. Singapore 100.0 % Dolphin Drilling Ltd Scottland 100.0 % Dolphin Drilling Operations Ltd. Scottland 100.0 % Dolphin Drilling Management Ltd. Scottland 100.0 % Dolphin Drilling South Africa (Proprietary) Ltd. South Africa 100.0 % Dolphin Drilling Perfuracão Brasil Ltda Brazil 100.0 % Dolphin Brasil Ltda Brazil 100.0 % Dolphin Drilling Malta Ltd. Malta 100.0 % Atlan Shipping Co. Ltd. Bermuda 100.0 % Harland and Wolff Group PLC Northern Ireland 92.2 % Harland and Wolff Heavy Industries Ltd. Northern Ireland 92.2 % Compact Holdings (NI) Ltd Northern Ireland 100.0 % Compact Properties (NI) Ltd Northern Ireland 100.0 %

Note 22 – Subsequent events

Dolphin Drilling AS, a subsidiary of Dolphin Drilling ASA, has settled a disagreement regarding the use of the drilling rig Borgland Dolphin under the previous RMN consortium contract. Dolphin Drilling AS will be compensated with USD 14 million, which will be booked in the first quarter 2019.

Dolphin Drilling ASA - Annual Report 2018 47 48

Definitions of Non-IFRS financial measures

EBITDA: Profit or loss before income tax, net financial items, depreciation and impairment

EBIT: Profit or loss before net financial items and income tax

Net financial expenses: Interest income and expenses, exchange gain or losses, gain or losses on financial instruments and other financial expenses

Net debt: Interest-bearing loans and borrowings less cash and cash equivalents

Capital expenditures: Acquisitions of property, plant or equipment

48 Dolphin Drilling ASA - Annual Report 2018 Accounts Dolphin Drilling ASA

Dolphin Drilling ASA Income Statement

For the years ended 31 December

Amounts in USD 000’s Note 2018 2017

Revenues 15 3 332

Salaries and other personnel costs 3 -4 018 -4 408 Other operating expenses 4 -2 885 -3 230 Operating loss before depreciation and net financial income -6 900 -7 306 Depreciation 7 0 -10 Operating loss before financial income -6 900 -7 316

Group contribution and dividend 0 12 679 Financial income 8 675 3 433 Impairment of investments 8 -227 010 -114 089 Financial expenses -71 429 -67 257 Net financial expenses 5 -289 764 -165 234

Loss before tax -296 664 -172 550

Income tax expense 6 0 0 Loss for the year -296 664 -172 550

Proposed allocations: To loss carried forward -296 664 -172 550 Total allocations -296 664 -172 550

The notes represent an integral part of the financial statements.

Dolphin Drilling ASA - Annual Report 2018 49 50

Dolphin Drilling ASA Balance Sheet

As at 31 December

Amounts in USD 000’s Note 2018 2017

Assets Property, plant and equipment 7 0 0 Investments in subsidiary companies 8 1 169 754 1 520 448 Other non-current assets 9, 15 5 225 10 046 Deferred tax assets 6 0 0 Total non-current assets 1 174 979 1 530 494

Other current assets 210 164 Trade and other receivables 15 154 15 044 Cash and cash equivalents 10 3 162 15 163 Total current assets 3 526 30 371

Total assets 1 178 505 1 560 865

Equity Share capital 193 290 193 290 Treasury shares -1 215 -1 215 Share premium 83 550 83 550 Loss carry forward/Other equity -136 534 159 430 Total equity 11 139 091 435 055

Liabilities Interest-bearing loans and borrowings 12 0 692 892 Other non-current liabilities 3 14 395 15 468 Total non-current liabilities 14 395 708 360

Interest-bearing loans and borrowings 12 748 444 190 909 Intercompany interest-bearing loans 15 217 500 217 500 Trade and other payables 13, 15 49 960 746 Other accrued expenses 14 9 115 8 295 Total current liabilities 1 025 019 417 450

Total liabilities 1 039 414 1 125 810

Total equity and liabilities 1 178 505 1 560 865

The notes represent an integral part of the financial statements.

Oslo, 31 December 2018 / 3 April 2019 Dolphin Drilling ASA

Anette S. Olsen Jan Peter Valheim Cecilie B. Heuch Richard Olav Aa Aksel Olav Hillestad Ivar Brandvold Chairman Chief Executive Officer

50 Dolphin Drilling ASA - Annual Report 2018 51

Dolphin Drilling ASA Statement of Cash Flows

For the years ended 31 December

Amounts in USD 000’s Note 2018 2017

Cash flows from operating activities Loss before income taxes -296 664 -172 550 Adjustment for: Group contribution 257 44 551 Depreciation 7 0 10 Impairment of investments in subsidiaries 8 227 010 114 089 Provision of bad debt 6 004 0 Interest expenses 5 36 913 48 316 Unrealised currency gain financial instruments / debt 0 6 407 Changes in trade and other receivables -5 586 -260 Changes in trade and other payables 15 895 -9 523 Changes in other balance sheet items -501 4 907 Cash generated from operations -16 672 35 947 Interest paid -17 296 -47 992 Net cash from operating activities -33 968 -12 045

Cash flows to investing activities 0 0

Cash flows used in financing activities Repayments of interest-bearing loans -147 487 -12 944 Repayment of investment in subsidiary 130 000 0 Intercompany interest-bearing loans 39 454 -2 310 Net cash from financing activities 21 967 -15 254

Net decrease in cash and cash equivalents -12 001 -27 299 Cash and cash equivalents at 1 January 15 163 42 462

Cash and cash equivalents at 31 December 3 162 15 163

The notes represent an integral part of the financial statements.

Dolphin Drilling ASA - Annual Report 2018 51 52

Dolphin Drilling ASA Notes to the Financial Statements

Note 1 - Basis of presentation

Dolphin Drilling ASA (the Company) is domiciled in Norway. The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in Norway (NGAAP).

The financial statements which have been prepared by the Company’s Board of Directors and Management should be read in conjunction with the report of the Board of Directors and the Auditors report. The financial statements have been prepared in accordance with the requirements of the Norwegian Accounting Act. The Company’s financial statement are presented in US Dollar (USD), which is the Company’s functional currency.

Bonheur ASA controls 51,92 % of the voting shares of the Company. Bonheur ASA has prepared consolidated financial statements and has business address Fred. Olsensgt. 2.

The notes and accounting policies refer to the Company’s financial statements unless specified otherwise.

Note 2 - Summary of significant accounting policies

Foreign currency Gains and losses on transactions denominated in foreign currencies are included in financial income/(expense). Transactions in foreign currencies are translated into USD using the exchange rates applicable at the time of each transaction. Monetary items in foreign currencies are translated into USD using the exchange rates applicable on the balance sheet date. Non-monetary items that are measured at historic cost in a foreign currency are translated into USD using the exchange rates applicable on the transaction date. Non-monetary items that are measured at fair value in a foreign currency are translated into USD using the exchange rates applicable on the date of measurement. Valuation changes due to exchange rate fluctuations are recorded on a continuous basis under other financial items.

Non-current assets The carrying amount of the Company’s non-current assets, other than deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, each asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is determined by the higher of fair value or estimated future discounted cash flows. Impairment losses are recognized in the income statement.

Classification and valuation of other balance-sheet items Current assets and current liabilities include items due within one year. Other assets and liabilities due after one year are classified as non-current assets or non-current liabilities. Current assets are valued at the lowest of cost and fair value. Current liabilities are valued at nominal value at the time of recognition.

Cash and cash equivalents The cashflow statement is prepared in accordance with the indirect method. Cash and cash equivalents includes cash and bank deposits that are readily convertible to cash.

Use of estimates The preparations of financial statements require use of estimates, judgements and assumptions that may affect the use of accounting principles and recognized assets, liabilities, income and expenses. The resulting accounting estimates may differ from the eventual outcome.

Estimating the fair value is a complex process involving a number of key judgements and estimates regarding various inputs. Due to the nature of the underlaying asset of investments in subsidiaries, the valuation technique includes a discounted cash flow model that uses a number of inputs from internal sources due to lack of relevant and reliable observable independent inputs.

As a result of the current market situation for the underlaying assets and because there are more than normal uncertainty when new contracts will be entered into and the related future dayrate levels, fair value of the underlying assets is exposed to high estimation uncertainty.

The going concern considerations are equally applicable for the Company as for the Group, with reference to note 13 page 33-37.

52 Dolphin Drilling ASA - Annual Report 2018 53

Dolphin Drilling ASA Notes

Note 3 - Salaries and other personnel costs

Amounts in USD 000’s 2018 2017

Salaries 1 020 1 302 Social security expenses 232 262 Pension costs 1 182 1 286 Travel expenses 65 57 Other 1 519 1 501 Total 4 018 4 408 Average number of employees 8 8 Number of employees at year end 0 8

Salaries, remuneration and other personnel expenses to the Chief Executive Officer, Senior Management and Board of Directors, see note 17 for the Group.

Pension Plans Dolphin Drilling ASA has pension plans that provide employees with a defined benefit upon retirement. The employees participating in these plans are entitled to future pension payments based on length of service and salary upon retirement.

The pension plan assets consist primarily of bank deposits, investments in fixed income and equity securities. The pension plan for the Company is in accordance with the Norwegian law concerning mandatory occupational pension (OTP). The Company accounts for defined benefit pension plans in accordance with NRS 6A, which means that the Company can elect to present pension liabilities in NGAAP accounts in accordance with IAS 19. Costs related to these plans are expensed as incurred. The total number of employees involved in the pension plans as of 31 December 2018 was 0.

As of 1st June 2012 the defined benefit plan was closed for new members, and are included in the defined contribution plan.

The status of the defined benefit pension plans, funded and unfunded, is as follows:

Amounts in USD 000’s 2018 2017

Projected benefit obligation -15 158 -18 077 Plan assets at market value 763 2 609 Net pension liability -14 395 -15 468

Dolphin Drilling ASA - Annual Report 2018 53 54

Movements in the net liability for defined benefit obligations recognized in the balance sheet:

Defined benefit Fair value of Net defined Amounts in USD 000’s obligation plan assets benefit liability Funded and unfunded 2018 2017 2018 2017 2018 2017

Balance at 1 January -18 077 -17 588 2 609 3 113 -15 468 -14 475

Pension contribution 0 0 -30 409 -30 409 Benefits paid by the plan 477 537 -43 -45 434 492 477 537 -73 364 404 901

Included in profit or loss: Interest -423 -406 64 53 -359 -353 Current service cost -802 -858 0 0 -802 -858 Net pension cost -1 225 -1 264 64 53 -1 161 -1 211

Included as equity transactions: Actuarial gain/(loss) arising from: Financial assumptions -9 0 -56 174 -65 174 Demographic assumptions -277 0 0 0 -277 0 Experience adjustments 1 042 -114 0 0 1 042 -114 756 -114 -56 174 700 60 Transferred value to subsidiary 1 885 1 310 -1 635 -1 255 250 55 Foreign currency translation 1 026 -958 -146 160 880 -798 Balance at 31 December -15 158 -18 077 763 2 609 -14 395 -15 468

Assumptions used in the calculation of pension obligations are as follows:

2018 2017

Assumed salary increases 2.50 % 2.25 % Discount rates 2.75 % 2.50 %

Net periodic pension costs for defined benefit plans are as follows:

Amounts in USD 000’s 2018 2017

This period’s earned pensions 802 892 Interest expense on pension liabilities 423 423 Earnings on pension funds -64 -55 Net pension cost for defined benefit plans 1 161 1 260 Net pension cost for defined contribution plans 21 26

Actuarial gain on defined benefit pension plans recorded in equity 700 60 Accumulated actuarial loss on defined benefit pension plans through equity -6 274 -6 974

Social security cost of pension cost is included in the calculation from the actuary, and is expensed in net pension cost.

54 Dolphin Drilling ASA - Annual Report 2018 55

Dolphin Drilling ASA Notes

Note 4 - Other operating expenses

Amounts in USD 000’s 2018 2017

General operating overheads 2 716 3 065 Property rental expenses 169 165 Total 2 885 3 230

Fees for audit (exclusive VAT) and other services provided by the Company’s auditor are as follows:

Amounts in USD 000’s 2018 2017

Audit fees 340 373 Tax advisory services 0 21 Other non-audit services 20 3 Total 360 397

Note 5 - Financial income and expenses

Amounts in USD 000’s 2018 2017

Financial income Interest income 550 626 Group contribution and dividend 0 12 679 Gain on foreign currency contracts 0 268 Foreign exchange gains 8 125 2 539 Total 8 675 16 112

Financial expense Interest expenses 36 913 35 083 Group financial expenses 20 706 18 497 Other financial expenses 7 449 6 907 Impairment of investments in subsidiaries 227 010 114 089 Provision for bad debt 6 004 0 Foreign exchange losses 357 6 770 Total 298 439 181 346

Net financial expense -289 764 -165 234

Interest income is related to return on cash and cash equivalents and loans to other companies in the Group.

Interest expenses is expenses related to bank loan and bond loan. Group financial expenses relates to loans from other companies in the Group and guarantee fee to other companies in the Group.

Other financial expenses is primarily amortized borrowing costs.

Information regarding interest income and expenses from Group companies and other related parties is provided in note 15.

Dolphin Drilling ASA - Annual Report 2018 55 56

Dolphin Drilling ASA Notes

Note 6 - Taxes

Accounting policies Income taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates as they apply to taxable income in the years in which the differences are expected to be recovered or settled. Deferred tax assets are recognized in the balance sheet to the extent that is more likely than not that benefits will be recognized.

Temporary differences between the book and tax basis of assets and liabilities, and related deferred taxes, are as follows:

Amounts in USD 000’s 2018 2017

Temporary difference -15 576 -12 705 Temporary difference related to investment i shares -6 256 -6 624 Losses carried forward -540 373 -462 576 Limitation of deferred tax assets 1) 562 205 481 905 Net basis for deferred tax (assets)/liabilities 0 0

1) Deferred tax assets have not been recognized in respect of these items due to uncertainty of the level of future taxable profit.

The provisions for income taxes are as follows:

Amounts in USD 000’s 2018 2017

Loss before income tax -296 664 -172 550 Change in temporary differences 3 579 1 792 Group contribution 8 187 14 894 Permanent differences 142 302 105 688 Currency effects in tax filings 47 086 58 591 Utilize of tax losses carry forward 0 -8 415 Basis taxes payable -95 510 0 Tax rate 23% 24%

Effective tax rate:

Amounts in USD 000’s 2018 2017

Expected income tax expense according to statutory tax rate -68 233 23% -41 412 24% Permanent differences 45 442 43 001 Effect of tax losses utilized / changes in temporary differences not recognized 22 791 -1 589 Income tax 0 0% 0 0%

The Board of Directors of Dolphin Drilling ASA has proposed a Group contribution, without tax effect, to the subsidiaries Dolphin Drilling Management AS and Dolphin Finans AS for total USD 8.2 million.

56 Dolphin Drilling ASA - Annual Report 2018 57

Dolphin Drilling ASA Notes

Note 7 - Property, plant and equipment

Accounting policies Property, plant and equipment are recorded at cost and are depreciated on a straight-line basis over 3-5 years.

Amounts in USD 000’s 2018 2017

Cost Balance at 1 January 37 37 Disposals during the period 0 0 Balance at 31 December 37 37

Accumulated depreciation Balance at 1 January 37 27 Depreciation during the period 0 10 Balance at 31 December 37 37

Net book value at 31 December 0 0

Note 8 - Shares in subsidiaries and other equity investments

Accounting policies Investments in subsidiaries are accounted for using the cost method in the Company’s accounts. The investments are valued at cost less any impairment losses. Write downs to fair value are recognized when the impairment is considered not to be temporary. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, if no impairment loss had been recognized.

Amounts in USD 000’s % of holding & Equity Net profit Book value Capital Impair- Book value Subsidiaries Business Offices voting shares 31.12.18 (loss) 31.12.17 changes ment 31.12.18

Dolphin Drilling Management AS Oslo, Norway 100 % 1 305 325 1 206 0 0 1 206 Dolphin International AS Oslo, Norway 100 % 879 788 -227 010 1 236 798 -130 000 -227 010 879 788 Dolphin Finans AS Oslo, Norway 100 % 141 423 2 260 145 071 0 0 145 071 Dolphin Drilling AS Tananger, Norway 100 % 53 741 -5 048 32 785 6 316 0 39 101 Dolphin Drilling Operations Ltd Aberdeen, UK 100 % 85 604 1 46 928 0 0 46 928 Dolphin Drilling Ltd Aberdeen, UK 55 % 201 -104 386 57 660 0 0 57 660 Atlan Shipping Co. Ltd. Hamilton, Bermuda 100 % -66 -45 0 0 0 0 Dolphin Drilling Perfuracao Brasil Ltda Macae, Brazil 0.01 % 1 768 -334 0 0 0 0 Total 1 520 448 -123 684 -227 010 1 169 754

The companies Dolphin Drilling Ltd and Dolphin Drilling Perfuracao Brasil Ltda are indirectly 100 % owned by Dolphin Drilling ASA.

The Company has accounted for a repayment of investment of USD 130 million, an investment of USD 0.6 million, and an impairment of USD 227 million in 2018.

The subsidiary Fred. Olsen Energy Management AS changed it’s name to Dolphin Drilling Management AS in January 2019.

Dolphin Drilling ASA - Annual Report 2018 57 58

Dolphin Drilling ASA Notes

Note 9 - Other non-current assets

Amounts in USD 000’s 2018 2017

Prepayment of refinancing cost 5 225 0 Capitalised borrowing costs 0 6 648 Long-term receivables (see note 16) 0 3 398 Total 5 225 10 046

Note 10 - Cash and cash equivalents

Amounts in USD 000’s 2018 2017

Payroll taxes 139 78 Total restricted cash 139 78 Unrestricted cash 3 023 15 085 Total cash and cash equivalents 3 162 15 163

Note 11 - Capital and reserves

Share Treasury Share Paid in Other Amounts in USD 000’s capital shares premium other equity equity Total

Balance at 1 January 2017 193 290 -1 215 83 550 24 931 306 989 607 545 Net loss for the year 0 0 0 0 -172 550 -172 550 Actuarial gain on defined benefit pension plans 0 0 0 0 60 60 Balance at 31 December 2017 193 290 -1 215 83 550 24 931 134 499 435 055

Balance at 1 January 2018 193 290 -1 215 83 550 24 931 134 499 435 055 Net loss for the year 0 0 0 0 -296 664 -296 664 Actuarial gain on defined benefit pension plans 0 0 0 0 700 700 Balance at 31 December 2018 193 290 -1 215 83 550 24 931 -161 465 139 091

Treasury shares The Company held 430 100 shares as at 31 December 2018 (unchanged from 2017).

Par value The par value per share in the Company is NOK 20.

58 Dolphin Drilling ASA - Annual Report 2018 59

Dolphin Drilling ASA Notes

Note 12 - Interest-bearing loans and borrowings / Mortgages

2018 2017 Nominal Nominal Amounts in USD 000’s Currency Interest rate Maturity value value

FOE05 bond loan (including overdue interest) NOK 3M Nibor + 3.00% 2019 120 421 124 924 Syndicated Bank Facility USD 3M Libor + 2.70% 2020 515 935 758 877 Syndicated Bank Facility (overdue settlements and interest) USD 3M Libor + 4.70% 112 088 0 Total 748 444 883 801

Of the interest-bearing debt of the Company at 31 December 2018, USD 628 million is denominated in US dollars (2017: USD 759 million), and USD 120 million is denominated in NOK (2017: USD 125 million).

The Company has repaid USD 147.5 million in 2018 of the syndicated bank facility. At 29 June 2018, the waiver period with the Company’s financial creditors expired. As a consequence the Company has reclassified all of the loans to current interest-bearing loans and borrowings and expensed all amortized loan costs. At 3 July, the Company resolved to stop its service of interest and amortizations to its financial creditors, in order to preserve the liquidity reserves of Dolphin Drilling Group. As such, the Company did not make payment of an instalment of USD 95.5 million and interest payable to its secured lenders on such date.

Mortgages:

Amounts in USD 000’s 2018 2017

Interest-bearing debt 628 023 758 877 Total 628 023 758 877

The net book value of assets pledged as security: Rigs and drillship 674 400 1 050 574 Total 674 400 1 050 574

The net book value of the Groups rigs and drillships are pledged as security for the syndicated bank facility.

Note 13 - Trade and other payables

Amounts in USD 000’s 2018 2017

Trade 1 440 158 Related parties (note 16) 48 520 588 Total 49 960 746

See note 15 for additional information on balances with Group companies and other related parties.

Note 14 - Other accrued expenses

Amounts in USD 000’s 2018 2017

Accrued wages 184 263 Accrued interest 8 533 7 998 Other 398 34 Total 9 115 8 295

Dolphin Drilling ASA - Annual Report 2018 59 60

Dolphin Drilling ASA Notes

Note 15 - Related parties

In the ordinary course of business, the Company recognizes revenues and expenses with related companies, which may have a significant impact on the Company’s financial statements. The Company receives certain administrative and legal advisory services from Fred. Olsen & Co. The agreements are on arms-length terms and are subject to ordinary termination provisions. Other related parties relate entirely to Bonheur ASA which are the owners of 51.92 % of the shares in the Company, and their subsidiaries and Fred. Olsen & Co.

Revenues, purchases, financial income and financial expenses from such companies were as follows:

Amounts in USD 000’s 2018 2017

Revenues Subsidiaries 2 320 Other related parties 1 12 Total 3 332

Operating expenses Subsidiaries 1 836 1 754 Other related parties 1 182 1 158 Total 3 018 2 912

Financial income Subsidiaries 268 12 788 Total 268 12 788

Financial expense Subsidiaries 20 706 18 497 Provision for bad debt of loan to subsidiary 6 004 0 Total 26 710 18 497

Revenues from subsidiaries are recharge of personnel expenses and administrative expenses. Financial income relates to dividend and group contribution.

Amounts in USD 000’s 2018 2017

Other non-current assets Subsidiaries 0 3 366 Other related parties 0 32 Total 0 3 398

Trade and other receivables Subsidiaries 154 15 044 Total 154 15 044

The balance relates primarily to loans to subsidiaries and Group contributions.

The subsidiaries will repay the loans based on the “pay-as-you earn” principle. The interest rate is based on market rate plus a margin.

Amounts in USD 000’s 2018 2017

Interest-bearing loans subsidiaries 217 500 217 500

Trade and other payables Subsidiaries 48 304 571 Other related parties 216 17 Total 48 520 588

See note 5, 9 and 13 for further information on transactions with related parties.

60 Dolphin Drilling ASA - Annual Report 2018 61

Auditor’s Report

KPMG AS Telephone +47 04063 Sørkedalsveien 6 Fax +47 22 60 96 01 Postboks 7000 Majorstuen Internet www.kpmg.no 0306 Oslo Enterprise 935 174 627 MVA

To the General Meeting of Dolphin Drilling ASA

Independent auditor’s report

Report on the Audit of the Financial Statements

Opinion We have audited the financial statements of Dolphin Drilling ASA, which comprise:

• The financial statements of the parent company Dolphin Drilling ASA (the Company), which comprise the Balance Sheet as at 31 December 2018, the Income Statement and Statement of Cash Flow for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and

• The consolidated financial statements of Dolphin Drilling ASA and its subsidiaries (the Group), which comprise the Statement of Financial Position as at 31 December 2018, Statement of Income, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion:

• The financial statements are prepared in accordance with the law and regulations.

• The accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.

• The accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Material Uncertainty Related to Going Concern The Company and Group Financial Statements have been prepared based on the going concern assumption. We draw attention to Note 13 to the Group Financial Statement and the going concern section in the Board of Directors' report describing the basis for going concern. The Board of Directors states that it considers that the restructuring efforts of the Company have a reasonable prospect of success. However, unless a solution is found to the Company’s financial situation, the Company will need to file for bankruptcy. As stated in Note 13 and the Board of Directors’ report, these events or

Dolphin Drilling ASA - Annual Report 2018 61 62

Auditor’s Report

Dolphin Drilling ASA

conditions, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Valuations of offshore units (drill-ships and rigs) in the consolidated financial statement and valuation of shares in subsidiaries in the Company's financial statements.

We refer to the sections "Offshore Drilling" and "Financial result and balance sheet at year end" in the Board of Director's report, note 8 of the Consolidated Financial Statements and note 8 of the Company's Financial Statements.

Key audit matter How the matter was addressed in our audit: The observable market capitalization for the Our audit procedures in this area included: Group is significantly lower than the book value • Assessing management's impairment paper of equity. This triggers a need for impairment and underlying valuation model, and testing of the Group's offshore units. The value challenging the assumptions and inputs used of the offshore units at year-end constitutes 71 in calculating the estimated cash flow, % of the Group's total balance, after the including the various scenarios used in the recognition of an impairment of USD 191 analysis. million. • Testing the sensitivity of the applied assumptions and inputs, and focusing our Management's determination of the recoverable detailed work on the rigs which were most amount is a complex process involving a sensitive to changes in assumptions and number of key judgements and estimates of inputs. various inputs. • Evaluating management's assumptions on revenue projection and utilization of the The recoverable amount is based on a valuation offshore units by comparing assumptions technique that includes a discounted cash flow against data from comparative companies, model using a number of inputs from internal macroeconomic analysis for the related sources due to lack of relevant and reliable sector and our understanding of the industry observable independent inputs. Due to the and the economic environment in which the company's challenging refinancing situation Group operates. and the increased level of uncertainty related to • Involving a KPMG valuation specialist to the timing of new contracts and future day rate assess the mathematical and methodological levels, the recoverable amounts of the offshore integrity of management's impairment models units are subject to a high degree of uncertainty. and to assess the discount rate applied with reference to market data; The above mentioned impairment risk has a • Assessing whether the impairment of shares direct impact on the valuation of shares in in subsidiaries is consistent with the book subsidiaries in the Company. Investment in value of the offshore units. subsidiaries for the Company constitutes 99 % • Evaluating the adequacy of the financial of the total balance, after the recognition of an statement disclosures, including disclosures impairment of USD 227 million. of key assumptions, judgements and sensitivities.

Other information Management is responsible for the other information. The other information comprises information in the annual report, except the financial statements and our auditor's report thereon.

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Dolphin Drilling ASA

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director (Management) are responsible for the preparation in accordance with law and regulations, including fair presentation of the financial statements of the Company in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements of the Company use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations. The consolidated financial statements of the Group use the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's or the Group's internal control.

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the

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Dolphin Drilling ASA

audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern.

• evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

Opinion on the Board of Directors’ report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors’ report and in the statements on Corporate Governance and Corporate Social Responsibility concerning the financial statements, the going concern assumption and the proposed allocation of the result is consistent with the financial statements and complies with the law and regulations.

Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the Company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway.

Oslo, 5 April 2019 KPMG AS

Arve Gevoll State Authorised Public Accountant

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Corporate Governance

High standards of Corporate Governance is a cornerstone of Dol- shares through an equity issue and to increase the share capital phin Drilling ASA. A strong Corporate Governance framework by another 6 669 422 shares through convertible loans, or a provides the guide to our overall approach to business opera- combination of an equity issue or convertible loans although tions, dealings and providing services to customers and adding always on the premise that the maximum amount of new shareholder value. shares shall not exceed 6,669,422. This mandate expires at the next Annual General Meeting. When the General Meeting of The Board of Directors in Dolphin Drilling ASA continually devel- shareholders considers whether or not to authorize the Board ops and refines its Corporate Governance policy and strive to be of Directors to carry out share capital increases for multiple in compliance with the Norwegian Code of Practice for Corpo- purposes, each purpose must be considered separately by the rate Governance (NUES). The Corporate Governance is subject meeting. At 31 December 2018, the consolidated equity is USD to an annual assessment by the Board of Directors. Corporate 68.6 million (USD 593 million in 2017), which is equivalent to Governance instituted throughout our Company reflects the 7 % (36 %) of total assets. economy and industry we operate in. The Annual General Meeting authorized the Board in 2018 to The Corporate Governance chapter is structured in the same purchase up to 10 % of the Company’s own shares, pursuant order as the Norwegian Code of Practice. In the Board of to Sections 9-2 onwards of the Norwegian Public Limited Com- Directors Report, Dolphin Drilling ASA is required to report panies Act, in order to allow greater flexibility around manag- our Corporate Governance in accordance with the Norwegian ing the Company’s capital structure. This mandate expires at Accounting Act section 3-3b. We refer to this in the Board of the next Annual General Meeting. As at 31 December 2018 the Directors report. Company held 430 100 shares of its own shares.

Business Dividends will be distributed subject to earnings, the Company’s As stated in the articles of association, the Company’s purpose investment plans, financial strategy, market conditions and is to carry out shipping business, including the ownership and approval by the shareholders. In addition, the Company may leasing of floating platforms and everything related thereto, consider share buy-backs in accordance with the authorization including owning shares and interests in companies with similar to the Board of Directors from the Annual General Meeting. or related businesses. In carrying out their duties, assignments The Board of Directors will not propose dividend at the Annual or appointments for the Company, all employees are expected General Meeting in May 2019. to follow high standards of ethical and non-discriminating behaviour. The objectives of the Company, as defined in its Treatment of shareholders, transactions with close associates articles of association, are to own or carry out industrial and other The Company’s shares are listed on Oslo Stock Exchange. Shares associated businesses, management of capital and other functions have been issued in only one share class. The Company’s trans- for the Group, and to participate in or acquire other businesses. actions in own shares will be carried out in the market at market The principal strategies of the Group are presented in the Annual price. All shares in the Company have equal rights and all share- Report. Each year, the Board of Directors evaluates the strategy, holders have the right to participate in General Meetings. goals and guidelines of the Company through designated strategy processes. Information concerning the financial position and There has not been any share capital increases in the Company principal strategies of the Company, and any changes thereto is since the listing in 1997 except conversion of the convertible disclosed to the market in the context of the Company’s quarterly bond loan FOE 02 in the period 2005 to 2008. In a case where reporting and in designated market presentations. the pre-emptive right of existing shareholders is waived in connection with a capital increase a stock notice with the reasoning Equity and dividends behind the proposal will be issued to the Oslo Stock Exchange. To the extent it is considered desirable the Company may raise new equity in the capital market to strengthen its business In connection with transactions that are not immaterial between within the offshore segment. In this regard the Board of the Company and related parties (see note 18), a competent Directors received an authorization from the Annual General Board of Directors consisting of Board members independent Meeting in 2018 to increase the share capital by 6 669 422 of the Company’s main shareholder, Bonheur ASA, will deal

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with any such matters and avoid conflicts of interest. In such Nomination committee cases the Board will ensure that an independent valuation is Dolphin Drilling ASA has for the time being no Nomination presented to the Board. Committee. Due to the ownership structure of the Company, the Company has not considered it adequate to establish a The Company has established routines to ensure that the Board Nomination Committee. The Board will appoint a Nomination is notified if Directors or management directly or indirectly have Committee as a sub-committee of the Board on an ad hoc basis material interest in agreements entered into by the Company. as and if required.

Freely negotiable shares Corporate Assembly and Board of Directors, composition and The Company has no restrictions on ownership and voting independence rights. In accordance with Norwegian law, the Board of Directors is responsible for managing the Company and for ensuring that the General Meetings Company’s operations are organized in a satisfactory manner. The Annual General Meeting (AGM) is normally held in May each The Company’s Articles of Association provides that the Board of year. Summons together with all supporting documents and Directors shall have no less than three and no more than seven resolution proposals are sent to shareholders and will also be members. In accordance with Norwegian law, the CEO and at available on the Company’s website 21 days prior to the AGM. least half of the members of the Board of Directors must either The supporting documents must contain all the documentation be resident in Norway, or be citizens of and resident in an EU/ necessary to enable the shareholders to decide on the matters EEA country. The Annual General Meeting of the shareholders to be decided. The registration to participate in the AGM is set elects each member of the Board of Directors individually. The as close to the AGM date as possible. Board of Directors currently consists of five Board members who are elected for a two-year period. The Chairman of the Board is The auditor is present at the AGM. The chairman for the AGM is elected annually by the Board of Directors. elected at the AGM. One shareholder together with the chairman will sign the minutes and approval of the Summons of the All of the Directors are independent of the Company’s manage- Meeting and the Agenda. It is intended for the Board of Directors ment and three of them are independent also in relation to the to attend the general meeting. Company’s main shareholder, Bonheur ASA. 40 % of the Mem- bers of the Board are women. In 2018 the Board of Directors Shareholders registered in the Norwegian Registry of Securities had 43 meetings. Board members are elected based on need (VPS) can vote in person or by proxy. Shareholders who cannot for expertise, capacity and ability to make balanced decisions in attend the meeting are urged to authorize a proxy, and the the best interests of the shareholders in general. The Board shall system facilitates the use of proxies on each individual item operate independently of any special interests and function on the agenda. Shareholders, who are not able to attend the effectively as a collegiate body in the best interests of the share- Annual General Meeting in person, may execute a proxy in the holders in general. name of another person attending the meeting. Such proxy may be issued to the Chairman Anette S. Olsen, CEO Ivar Brandvold The Board of Directors are encouraged to own shares in the or any other person. If no name is stated the proxy will be Company. The Company has no Corporate Assembly. considered given to the chairman of the meeting. The Board of Directors consists of: The Annual General Meeting of shareholders elects individually Anette S. Olsen (b. 1956), Chairman. Ms. Olsen has been the the members to the Board of Directors, appoints the external Chairman of the Board since the inception of the Company auditor, determines the auditor’s remuneration, approves in 1997. Since 1994 Ms. Olsen has been the sole proprietor of the annual result and any dividend proposed by the Board of Fred. Olsen & Co. – which is in charge of the management of the Directors and determines the remuneration to the Board of stock listed company Bonheur ASA, where Ms. Olsen holds the Directors. The summons and registration form are distributed position as Managing Director. Ms. Olsen holds chairman and to all shareholders according to the address list in VPS, at least ordinary board positions with a number of companies, amongst 21 days before the Annual General Meeting. others with Fred. Olsen Ocean Ltd., Fred. Olsen Renewables Ltd.,

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Fred. Olsen Cruise Lines Ltd., Timex Corporation and NHST Media The work of the Board of Directors Group AS. Ms. Olsen holds a BA in Business Organization and an The Company has implemented guidelines for the work of the MBA. Ms. Olsen is a Norwegian citizen, resident in Oslo, Norway. Board of Directors. The purpose of these guidelines is to establish a practical tool for the Board’s annual plan for exercising Richard Olav Aa (b. 1966), Director. Mr. Aa became a Director of good Corporate Governance. The Board has prepared special the Board in October 2016 after assuming the position as CFO instructions for the CEO. The current composition of Directors in Fred. Olsen & Co. Prior to joining Fred. Olsen & Co., Mr. Aa reflects adequate competence relative to the main business held positions as CFO of the Telenor Group, Investment Director areas of the Group. The Board of Directors has appointed an of Arendals Fossekompani ASA, CEO of Norsk Vekst ASA, CFO Audit Committee consisting of two Directors, of which one and other functions within Elkem ASA and Senior VP business is independent of the main shareholder of the Company. development of Bertel O.Steen AS. He has further experience The charter of the Audit Committee is to assist the Board in both as chairman and board member from numerous boards fulfilling its responsibilities concerning the financial reporting in Norway and internationally. Mr. Aa graduated as Siviløkonom process, internal controls, management of financial risks, the from NHH in Bergen in 1990. He is a Norwegian citizen, resident audit process, and the Company’s process for monitoring in Bærum, Norway. compliance with applicable laws and regulations. The Audit Committee has regular meetings with the management and Cecilie B. Heuch (b. 1965), Director, independent of the main the external auditor. Part of the meetings with the external shareholder. Ms. Heuch became a Director of the Board in 2007. auditor are without participation of the management. The She assumed the position as Chief People Officer in Telenor ASA Board of Directors has appointed a Compensation Committee in 2017. Ms Heuch has previously worked in similar position in comprising four Directors including the Chairman of the Board DNV GL, and has worked for Norsk Hydro in the fertilizer division and two of the independent Directors. The Compensation (now Yara), in Hydro Aluminium and in Corporate staff. She has Committee discusses and recommends to the Board salary had several positions within economic and market analysis, and benefits for the CEO and senior management as well as strategy and business development. Ms. Heuch graduated from the management incentive schemes for the Group. Meetings of Institut d’Etudes Politiques de Paris. She has a MSc from London the Board of Directors are chaired by the Chairman of the Board. School of Economics and a Business diploma from Henley If the Chairman of the Board is absent, the Board must select a Management College. Ms. Heuch is a Norwegian citizen, resident member to chair the meeting. in Bærum, Norway. The Board evaluates its own work and work methods annually, Jan Peter Valheim (b. 1951), Director, independent of the main and the evaluation forms the basis for adjustments and meas- shareholder. Mr. Valheim became a Director of the Board in May ures. In addition, the Board’s competencies, overall and those of 2007. Mr. Valheim retired from the position as Chief Financial each Board member, are evaluated. Officer (CFO) in Fred. Olsen & Co. in September 2016. Prior to joining Fred. Olsen & Co., Mr. Valheim was CFO in Fred. Olsen Risk management and internal control Energy ASA from 2002. Mr. Valheim has held positions in Scribona The Board of Directors holds responsibility that proper guide- AB, PC Lan ASA, Saga Petroleum ASA and Fearnley Finans AS. lines and internal control processes are instituted and operated. Mr. Valheim is a graduate from BI Norwegian School of Management. The Company’s risk management, financial reporting and inter- He is a Norwegian citizen, resident in Oslo, Norway. nal control procedures are reviewed by the Audit Committee in accordance with its charter. The risk management process Aksel O. Hillestad (b. 1948), Director, independent of the main of the Group is carried out in accordance with the Group’s Risk shareholder. Mr. Hillestad is a graduate from the law school of Management Manual. The process ensures identification and the University of Oslo. He was admitted to the bar in 1975, and treatment of all relevant risks in order to support the organiza- the Supreme Court in 1992. After many years as partner in the tion in achieving defined corporate objectives, enable explicit law firm of Arntzen de Besche, Oslo, he is now self-employed consideration of risks in decision-making and maintain the risk attorney at law. Mr. Hillestad has experience as board member exposure of the Group at an acceptable level. The operational of numerous entities. He is a Norwegian citizen, resident in Oslo, risk management, financial reporting and internal controls are Norway. carried out within each subsidiary in accordance with the nature

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Corporate Governance

of the operations and the government legislation in the relevant activities, including the overall responsibility for Norsk Hydro’s jurisdiction. In addition, the Company carries out internal audits global drilling operations from 2002 to 2007. Mr. Brandvold related to specific projects and to the ongoing business. Risk has a Master of Science degree from The Norwegian Institute management related to foreign exchange, interest rate manage- of Science and Technology (NTNU) in Trondheim, Norway. Mr. ment and short-term investments is handled by the Company Brandvold is a Norwegian citizen, and resides in Bergen, Norway. on behalf of itself and the subsidiaries, in accordance with listed authorizations, policies and procedures. The Company receives Hjalmar Krogseth Moe (b. 1971), Chief Financial Officer. Mr. reports on the financial development of each business seg- Moe has been Chief Financial Officer since June 2007. Mr. Moe ment and subsidiary. The Audit Committee will raise issues to joined the Company in January 2005 as Financial Manager, and the Board of Directors if deemed necessary and a review of the has previously held positions in Aros Securities and A. Sundvall Group’s risks is part of an annual review. ASA/Kaupthing ASA. Mr. Moe holds a Master of Business and Economics from BI Norwegian School of Management. He is a Remuneration of the Board of Directors Norwegian citizen and resides in Bærum, Norway. The Board’s remuneration reflects the Board’s responsibility, expertise, time commitment and the complexity of the Gunnar Koløen (b. 1978), Managing Director, Dolphin Drilling Company. All Directors are remunerated with a fixed fee and Pte Ltd. Mr. Koløen was appointed Managing Director of Dolphin the remuneration is not linked to the Group’s bonus scheme Drilling Pte Ltd in July 2014. He first joined the Company in July and there is no option program for Directors. If any additional 2011 as CFO for Dolphin Drilling Pte Ltd. He has previously remuneration is given to Board members it will be specified in held positions in the Awilco Offshore Group (later known as the annual report. China Oilfied Services Limited), Gram Car Carriers and KPMG. Mr Koløen holds a Master of Science degree in Finance from The fee to the Board for 2018 total be NOK 1,054,945. In addi- University of Strathclyde and qualified as a state authorised tion, each board member is compensated with an additional NOK public accountant from Norway. Mr. Koløen is a Norwegian 7,500 per board meeting in which the board member participates citizen, and resides in Singapore. in excess of ten meetings from 1 January 2018 until 31 December 2018. For board members having served as board members in Jonathan H. Guest (b. 1971), Chief Executive Officer, Harland parts of 2018 only, the fixed fee and the ten meeting threshold and Wolff Group PLC. Mr Guest was appointed CEO of Harland for the additional per meeting compensation will be reduced pro and Wolff Group PLC in May 2018. Mr Guest joined the Com- rata on the basis of the time served as a board member in 2018. pany in 1996 and, having left in 2003, returned to Harland and The remuneration to the Board of Directors is fully disclosed in Wolff in 2014 to take up a position on the Board as Director of note 18. In 2018 none of the Board of directors have worked for Fabrication before moving into the role of Director of Business the Company outside of their directorships. Development and Improvement. Mr Guest holds an Honours degree in Manufacturing Engineering and an MBA from the Senior Management University of Ulster. A fellow of the Institute of Directors, Mr The Chief Executive Officer (CEO) is appointed by and serves at Guest has achieved their diploma in Company Direction, is a UK the discretion of the Board of Directors. He is responsible for the citizen and resides in Belfast, Northern Ireland. daily management and the operations of the Company. The CEO is not a member of the Board of Directors. Remuneration of the senior management The Board has adopted guidelines for remuneration of The senior management consists of: senior management in accordance with section 6-16a of the Ivar Brandvold (b. 1956), Chief Executive Officer. Mr. Brandvold Norwegian Public limited Liability Companies Act. These joined the company in September 2009, and was appointed guidelines are communicated to the Annual General Meeting. President and Chief Executive Officer as of November 2009. Before joining the company, Mr. Brandvold held the position as The Board’s Compensation Committee present and recom- Chief Operating Officer of DNO International ASA. He previously mends to the Board of Directors salary and benefits for the Chief has 23 years of experience from Norsk Hydro ASA, of which he Executive Officer and leading personnel as well as management has held a number of positions within the company’s oil and gas incentive schemes for the Group.

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Management has had a cash bonus scheme since 2005. The for the Company which could lead to conflicts of interest. The beneficiaries of the scheme are the senior management and Audit Committee is responsible for ensuring that the auditor’s certain key personnel. Annual awards under the scheme, maxi- independent role is maintained and, on an annual basis, the mized to one year’s salary. auditor presents a review of the Company’s internal control procedure to the committee. A summary annual audit plan shall Information and communications be presented to the Audit Committee once a year. In accordance The Company provides information to the market through with the auditor’s independence requirement, the Company is quarterly and annual reports; investor- and analyst presenta- cautious when using the elected external auditor for tasks other tions open to the media and by making operational and finan- than the financial audit required by law. Nevertheless, the auditor cial information available on the Company’s website. Events of may be used for tasks that are naturally related to the audit, importance are made available to the stock market through such as technical assistance with tax returns, annual accounts, notification to the Oslo Stock Exchange in accordance with the understanding of accounting and tax rules and confirmation of Stock Exchange regulations. Information is provided in English. financial information in various contexts. Information about fees paid by the Company to the auditor is provided in the Annual Takeovers Report. The Audit Committee is kept informed, on a regular In light of the Company’s shareholder structure, with the con- basis, of all work undertaken by the auditor. The auditor provides trolling shareholders holding a majority of the shares, the Board the Board with an annual written confirmation that a number of Directors has not found it appropriate to establish separate of requirements, including independence and objectivity are guidelines to prepare for a take-over situation. met. The auditor attends meetings of the Audit Committee that deal with the financial statements and that review the report Auditor on the auditor’s view of the Company’s accounting principles, The auditor is appointed by the Annual General Meeting. The risk areas and internal control routines. The external auditor remuneration of the auditor is stated in the Annual Report and also takes part in the Board’s discussions on the final annual approved by the general meeting of shareholders. The same financial statements. Both the Audit Committee and Board of firm of auditors should also as a general rule be appointed Directors ensures that it is able to discuss relevant matters with for all subsidiaries. The auditor should not perform any work the auditor without the presence of the management.

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Corporate Social Responsibility Reporting

Introduction Red zone areas on the units; restricted zones for personnel The Corporate Strategy, Corporate Governance and the Code of entry Conduct Policy constitute the fundamental steering principles Observation card reporting; reporting of incidents and in the Group. Together these form the foundation of how we actions for improvement should act and operate in the Group as well as giving the pri- Avoid falling objects; procedures related to preventing orities and the direction of the Group. Supplementary to these falling objects principles are the Corporate Management Systems. Together, Improved supervision and monitoring of control measures these define the roles and responsibilities within the organiza- on site tion and towards our stakeholders, including employees, cus- Improved risk assessment including all workers in tool box tomers, shareholders, regulatory and governmental bodies, talk meetings financial institutions, vendors and the environment as well as local communities and countries where we operate. When negative trends are observed or any rigs are underper- forming on their KPIs, corrective actions are taken. Working environment The Group has a strong focus on health, safety and environment Whenever an incident has occurred, investigations are carried (HSE) for its employees, subcontractors and customers, embed- out in order to understand the underlying causes and corrective ded in our zero accident objective. We are closely monitoring actions are taken to improve. The implementation of mandatory the established procedures for operations, projects and work last minute risk assessment and debrief prior to and after each sites both onshore and offshore. Continuous efforts involve work task have improved the planning process and the lesson planning, training of personnel and careful selection of sub- learnt process. contractors. The objective of zero accident applies to personnel injuries, harm to the environment and material damage. Special focus in 2018 has been to improve and align the work permit process and the self-verification process offshore. The We suffered 3 recordable injuries in 2018 (on one rig in opera- work permit process include planning, risk assessment and per- tion) compared to 8 recordable injuries in 2017 (4 rigs in opera- formance of the offshore work tasks. Self-verification is a super- tion). TRI Recordable injuries include personnel injuries of the visory activity performed by the offshore management to verify categories lost time incidents, medical treatment incidents and compliance with our procedures and guidelines. Sick leave was work restricted cases. 4.25% in 2018 versus 3.4% in 2017.

Furthermore, all incidents relating to personnel, environment Equality and equipment with a high potential risk factor are recorded The Group aims to be a workplace with equal opportunities, separately and investigated (defined as “high potential”). All offering challenging and motivating jobs to all personnel, injuries and damages are registered and the potential risk regardless of gender. The composition of genders within the factors are determined based on a five by five risk matrix system. Group reflects the available recruitment base for offshore work, One personnel injury was categorized as high potential during which traditionally has a higher proportion of men, being the year. The injury occurred on the drill floor where a person got the nature of the offshore industry worldwide. For onshore his small finger squeezed during lifting of bowls. HSE results are operations, there are 32 women. measured and benchmarked continuously in order to improve performance and to react proactively to negative trends. Two out of five members of the Board of Directors are women, including the Chairman of the Board. At year-end 2018 the Group To meet our zero accident objective on a long-term basis, some has 501 employees. 11% of the employees are women and 25% main areas of continuous improvement have been established. of leading onshore personnel within the Group are women. These can be summarized as follows: Adherence to the Management Systems; follow rules and Discrimination procedures The Group aims to be a workplace with equal opportunities, Observation techniques on site; including pictures and doc- offering challenging and motivating jobs to all personnel, umented observations regardless of nationality, culture, religion or gender. It is

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the Group’s Code of Conduct Policy to conduct business in all businesses in an honest and ethical manner and in compli- accordance with the letter and spirit of the law and with the ance with applicable laws and regulations. The Group take a overriding ethical standards of good business conduct including zero tolerance approach to modern slavery, bribery and cor- non-discriminating behaviour. The Group does not accept any ruption and are committed to acting professionally and with form of discrimination or harassment e.g. based on race, color, integrity in all our relationship and business dealings. The Code religion, gender, age or disability. of Conduct Policy underline that any form of corruption or bribery, or participation in any form of modern slavery is strictly The composition of nationalities reflects the available recruit- prohibited. The Group adopt a risk-based approach to its Anti- ment base for the offshore drilling industry. Per year-end 2018, bribery and Corruption Program. The means of controls in place there were 8 nationalities working for the Group. relative to the operation the Group are commensurate with the deemed bribery and corruption risk that have been identified Environment during the quarterly risk assessment process. The Anti-Bribery The Group’s operations involve activities that entail potential and Corruption Program comprise of three action elements: Pre- risks to the external environment, with the main risks being vent, Detect and Respond and includes activities such as anti- emissions to air and discharges to sea. corruption training, annual internal audit plan, financial control mechanisms and Business partner’s compliance program. In 2018 we strengthened the corporate focus on reducing our environmental impact with the establishment of our new vision; Initiatives in 2018 will be to continue to further enhance the preparing sustainable drilling solutions for tomorrow. Among knowledge of the Code of Conduct Policy, e.g. by introducing the initiates we have carried out is preparing Bideford Dolphin this through the new e-learning system. for a hybrid power solution which will reduce the fuel consump- tion further, and the Company have been granted funding from the NOx Fund for this solution.

The Group is careful in its approach to the environment and discharges to sea are continuously monitored and reported. The Group strives to reduce the use of hazardous chemicals and materials through established routines and procedures and seeks alternative products to safeguard the environment.

Dolphin Drilling Ltd is ISO 14 000 certified by DNV GL. The Group will during 2019 continue to evaluate measures that can be undertaken in order to further reduce the environmental impact from our operations.

Corporate Social Responsibility The Corporate Strategy and Code of Conduct Policy constitute the foundation in managing our Corporate Social Responsibility as a Group. The Code of Conduct Policy is distributed to our main suppliers and relations as well as to all employees. The principles are emphasized regularly when representatives from the Senior Management have review meetings with management teams and employees.

The Corporate Strategy and Code of Conduct emphasizes the respect for human rights and ethical behaviour. All employees may be part of a union. It is the policy of the Group to conduct

Dolphin Drilling ASA - Annual Report 2018 71 Reporter Annual Report 2018 Dolphin Drilling ASA Enterprise number: 287 977 388 2 Olsens gate Fred. Norway N-0152 Oslo, 1159 Sentrum Postboks Norway N-0107 Oslo, 10 00 +47 22 34 Telephone: E-mail: [email protected] www.dolphindrilling.no Ivar Brandvold, OfficerChief Executive Hjalmar Krogseth Moe, Officer Chief Financial Dolphin Drilling AS Enterprise number: 920 473 210 5 Plattformveien Norway N-4056 Tananger, + 47 51 69 43 00 Telephone: www.dolphindrilling.no Ivar Brandvold, Managing Director Dolphin Drilling Ltd. number:UK Registration 1017560 Kirkhill Est. Moss Industr. Dr., Howe AB21 0GL, Scotland Dyce, Aberdeen +44 1224 411 411 Telephone: E-mail: [email protected] www.dolphindrilling.no Ivar Brandvold, Managing Director Ltd. Dolphin Drilling Pte. Enterprise number: 200303833E Avenue One Temasek #36-02 Millenia Tower 039192 Singapore +65 6305 4710 Telephone: E-mail: [email protected] www.dolphindrilling.com.sg Gunnar Koløen, Managing Director Plc. Group Wolff Harland and number:UK Registration NI 38422 Belfast BT3 9DU Island, Queen’s Northern Ireland +44 2890 458 456 Telephone: E-mail: [email protected] www.harland-wolff.com Jonathan H. Guest, Managing Director Addresses