ANNUAL REPORT 2013 ODFJELL DRILLING ANNUAL REPORT 2013 1 Content Odfjell Drilling in brief 4 Key Figures 7 CEO Letter 10 The Fleet 12 Management Team 15 FEATURE ARTICLES How to avoid dropping objects 18 Deepsea Bergen yardstay 20 CHOSEN FOR EXPERIENCE AND EXPERTISE Wearing the platform shoes 22 Eastbound for growth 24 BUSINESS SEGMENTS Mobile Offshore Drilling Units 26 Drilling & Technology 30 Well Services 34 QHSE 38 Corporate Governance 40 Corporate Social Responsibility Report 44 Board of Directors 46 Board of Directors Report 48 ACCOUNTS & NOTES Consolidated Financial Statements 54 Parent Company Financial Statements 94 Auditors Report 104 2 ODFJELL DRILLING ANNUAL REPORT 2013 3 Odfjell Drilling in brief: An integrated partner for high quality drilling and well services Norway UK The Netherlands Romania THREE BUSINESS SEGMENTS – ONE INTEGRATED COMPANY: Bermuda Gulf of Mexico Dubai Mobile Offshore Drilling & Well Philippines Drilling Units Technology Services Tanzania Angola Brazil Drilling operations in Norway, Angola, Integrated drilling and engineering services on twenty Casing and tubular running, rental of well and Tanzania and Brazil. New sixth generation production installations offshore Norway and the drilling equipment in more than 20 countries. semisubmersible Deepsea Aberdeen will in early UK. Engineering and project management services, 2015 start drilling operations in deep water expertise in upgrades and modifications, subsea and • Casing and tubular running services west of Shetland. well management and well control from offices in • Drill tool and tubular rental Co-owner and manager of three ultra deep– Bergen, Stavanger, Stjørdal, Aberdeen and Manila. • Services in more than twenty countries water drillships under construction for Brazilian from 11 bases in Europe, the Middle East drilling operations starting from 2016. • Providing integrated platform drilling and Asia services on 20 installations in the North Sea • Modern fleet of UDW and harsh • Conceptual engineering and engineering design environment drilling units • Construction and commissioning support, • Extensive drilling experience modifications and upgrades • Provision of integrated management • Compliance assurance and maintenance services for drilling units management 3200 employees Operates six highly advanced 40 years of experience from • Marine and operational support operating in more than offshore drilling rigs and worldwide operations Revenue EBITDA Revenue EBITDA Revenue EBITDA 20 countries drillships Multiple revenue sources Highly specialised Modern fleet with four state- Solid financial profile engineers supporting of-the-art sixth generation 57 % 72 % 26 % 6 % 1717 % % 2422 % % all business segments drilling units One newbuild to be delivered in 2014 In depth, see pages 26–29 In depth, see pages 30–33 In depth, see pages 34–37 4 ODFJELL DRILLING ANNUAL REPORT 2013 5 Key Figures 2013 2012 2011 PROFIT AND LOSS ACCOUNT ( USD MILLION) Operating revenue 1 174 1 094 1 057 Operating profit before depreciation (EBITDA) 393 331 382 Operating profit (EBIT) 248 184 237 Net profit before tax 171 148 153 Net profit 69 117 121 BALANCE SHEET (USD MILLION) Non-current assets 2 239 2 323 2 158 Current assets 497 481 582 Total assets 2 736 2 804 2 741 Equity 1 130 1 154 1 033 Non-current liabilities 1 194 1 234 1 411 Current liabilities 411 416 297 Total equity and liabilities 2 736 2 804 2 741 KEY RATIOS Equity to asset ratio (as a percentage of total capital) 41.3 % 41.2 % 37.7 % EBITDA margin 33.5 % 30.3 % 36.2 % EBIT margin 21.1 % 16.8 % 22.5 % Profit margin (pre-tax) 14.6 % 13.5 % 14.5 % Profit margin (after-tax) 5.8 % 10.7 % 11.5 % Earnings per share (USD) 0.34 0.81 0.54 Number of shares 200 000 000 200 000 000 200 000 000 Earnings per share is based on the issued number of shares in Odfjell Drilling Ltd., which were 200 000 000 shares as per 31 December 2013. Comparative figures (EPS) are presented retrospectively based on number of issued shares as at 31 December 2013. Earnings per share is based on profit after tax attributable to the owners of the parent. 6 ODFJELL DRILLING ANNUAL REPORT 2013 7 2013 Key Events 7 MAR 9 MAY 24 OCT 1 Stepped up technology development in Extended drilling contract for Deepsea 3 Deepsea Bergen completed yard stay well services Metro I ahead of schedule Odfjell Well Services acquired Dubai-based Zenon Well BG Group and Ophir Energy extended the drilling The rig Deepsea Bergen underwent a client funded Technology LLC. The company has developed a range of contract for Deepsea Metro I in Tanzania. The extension yard stay at Coast Center Base, Bergen, in order to 6 FEB solutions for wellbore clean-up tools. The acquisition is is for a 540-day period from June 2013. The agreement 7 AUG meet requirements from the client, Statoil. The rig important to Odfjell Well Services’ in-house technology also included an additional 18-month option. modifications were completed in 26 days, two days Grane voted Rig of the Year development, and the product solutions are now in use. Statoil extended contract with Deepsea ahead of schedule. Deepsea Bergen is on a long-term Grane was voted Rig of the Year in platform drilling in Atlantic contract with Statoil. 2012. Odfjell Drilling has drilling services contracts on a total of 20 platforms, and the best-run platform is 8 MAR Statoil exercised a one-year option for its use of Deepsea honoured every year. Atlantic. Deepsea Atlantic has been drilling for Statoil in Engineering services for Lundin Norway the North Sea since 2009. In addition to the one-year option being exercised, the contract includes a further Lundin Norway AS awarded Odfjell Drilling a frame 27 SEP 7 FEB two-year option. agreement for engineering services. The frame Listed on Oslo stock exchange Drilling at record water depths agreement has a duration of two years, with possibilities for extensions. Lundin Norway has become a major 27 AUG player in the North Sea, with an important role in the CEO Simen Lieungh rang the bell to mark the stock Odfjell Drilling set a company record for drilling in ultra exchange listing of Odfjell Drilling Ltd. “The interest deep waters when Deepsea Metro II drilled its second Johan Sverdrup field, one of the largest oil discoveries Island Innovator received AoC ever made on the Norwegian shelf. and feedback we have received from the investors and well at a water depth of 2,845 metres off the Sergipe the listing of the shares in Odfjell Drilling Ltd open new coast in Brazil. The drillship Deepsea Metro II is on a As manager for Island Innovator, Odfjell Drilling received perspectives and opportunities for the company,” said Mr three-year contract with Petrobras, with an option for the Acknowledgement of Compliance (AoC) from the Lieungh. three more years. 14 MAY Norwegian Petroleum Authority. In September, Island Innovator started to perform drilling services on the 2 First steel cut for Brazilian drillships Johan Sverdrup field under contract to Lundin Norway. The NS Guarapari is the first of three drillships to be owned and operated by Odfjell Galvão. The ship is 10 DEC expected to be delivered from the shipyard in Aracruz in 13 SEPT 4 10 APR Brazil in 2016. Delivery of the next drillships is scheduled Calling all wellheads in Scotland for 2017 and 2018. Upgraded the Veslefrikk drilling system Platform drilling on Statoil’s Mariner with new control technology An advertising campaign at Aberdeen airport was used platform 1 OCT to attract senior personnel to the new onshore and 18 MAY After two and a half years of intensive work, Drilling offshore organisation for Deepsea Aberdeen. The aim Technology delivered its first EPC(I) project to Statoil. Statoil awarded Odfjell Drilling the contract for drilling Wintershall new client through Brage was to get experienced people to apply for the senior Deepsea Aberdeen launch successfully The main objectives of the project were to upgrade services on the Mariner platform on the UK continental operatorship positions as driller, toolpusher and subsea engineers. The the drilling system on Statoil’s Veslefrikk platform with shelf. The platform is under construction and drilling completed campaign was met with a positive response and resulted new control technology and to improve the working is scheduled to start up in 2016. Together with the In 2012, Odfjell Drilling was awarded a contract in an increase in applications. environment on the drill floor. establishment of the new onshore and offshore Deepsea Aberdeen was successfully launched from for integrated drilling services on eight of Statoil’s organisation for Deepsea Aberdeen, this strengthens the load-out barge at Daewoo Shipbuilding and Marine production installations on the Norwegian continental Odfjell Drilling’s position in the UK. In total, Odfjell Drilling Engineering (DSME) in Korea. The semisubmersible sixth- shelf, including Brage. The German company Wintershall 28 DEC 25 SEP will recruit 600 employees in the UK over the next four generation rig will operate on a contract with BP off the officially took over operating responsibility for Brage on 1 8 FEB coast of Shetland. Incident with Deepsea Aberdeen at yard years. Major contracts with Shell October, thereby becoming a new client of Odfjell Drilling. Celebrated 40 years The semisubmersible rig Deepsea Aberdeen, currently Odfjell Well Services was awarded a contract for Tool under construction in Korea, experienced water ingress 18 APR 3 JUNE 3 OCT Odfjell Drilling celebrated the company’s 40th Rental Services for Shell operated activities in Northern in pontoon while moored at the yard’s quay. Immediate anniversary in the medieval Håkon’s Hall in Bergen. In an Deep Sea Mooring sold to HitecVision Deepsea Stavanger contract extension Europe. The contract will run for four years and includes Two years without lost-time incidents evacuation was commenced and the rig was stabilised anniversary interview, the founder of Odfjell Drilling, Mr two options for two-year extensions.