annual report 2005 - dolphindrilling.no · bideford dolphin continued operations offshore norway...

Annual Report 2005

Contents

Financial Summary 2001-2005 3 A Brief Presentation 4 Major Events 2005 5 Board of Directors’ Report 2005 7-11 Accounts Fred. Olsen Energy Group 13-45

Income Statement 13

Balance Sheet 14-15

Cash Flow 16

Notes 17-45 Accounts Fred. Olsen Energy ASA 46-63

Income Statement 46

Balance Sheet 47

Cash Flow 48

Notes 49-60

Auditor’s Report 61 Investor Information 62-65 Corporate Governance 66-67 Contract Overview 68-69 The Offshore Drilling Market 70-71 Management Report 72-75

Offshore drilling 72-74

Engineering and fabrication 75 Quality, Health, Safety and Environment 76 Addresses 78 . . .at a glance

Fred. Olsen Energy ASA - Annual Report 20052

2

Financial Summary 2001-2005

IFRS NGAAP

Income Statement Data All amounts in NOK mill 2005 2004 2003 2002 2001

Revenues 2 882.9 2 345.8 1 696.6 2 528.0 3 066.2

Operating profit before depreciation and other items (EBITDA) 920.7 566.4 389.8 581.3 1 050.5

Net result after tax (15.7) 419.8 (464.3) (969.5) 8.7

Assets

Current assets 1 700.2 1 257.6 937.2 991.7 1 800.0

Non-current assets 5 539.6 5 180.6 8 271.2 9 244.3 11 525.3

Net assets discontinued operations 51.9 203.5 383.2

Total assets 7 239.8 6 438.2 9 260.3 10 439.5 13 708.5

Liabilities and equity

Interest bearing debt 3 295.3 3 164.0 3 498.5 4 575.8 6 438.9

Total liabilities 4 289.2 4 196.4 4 281.4 5 141.2 7 155.4

Equity 2 950.6 2 241.8 4 978.9 5 298.3 6 472.7

Total liabilities and equity 7 239.8 6 438.2 9 260.2 10 439.5 13 708.5

Key Figures Definitions 2005 2004 2003 2002 2001

Market capitalization 1 14 864.1 5 276.3 1 718.6 572.9 2 653.2

Net interest bearing debt 2 2 578.2 2 565.3 3 139.5 4 027.8 5 196.6

Enterprise value 3 17 442.3 7 841.6 4 858.1 4 600.6 7 849.8

Debt/Book equity ratio 1.12 1.41 0.70 0.86 0.98

Debt/Market capital ratio 0.22 0.62 2.04 7.99 2.43

Current ratio 4 1.30 1.37 0.73 0.69 1.45

EBITDA margin 5 31.9 % 24.1 % 23.0% 23.0% 34.3%

Average number of shares outstanding 61.2 mill 57.4 mill 57.3 mill 57.5 mill 59.8 mill

Share price at year end 6 243.0 87.5 28.5 9.5 44.0

Basic earnings per share (EPS) 7 (0.3) 7.3 (8.1) (16.9) 0.1

Net investment per share (8.8) 2.0 9.4 (6.2) (6.3)

Price/Basic earnings 8 neg. 12.0 neg. neg. 302.4

Price/Book 9 5.0 2.4 0.3 0.1 0.4

EV/EBITDA 18.9 13.8 12.5 7.9 7.5

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 /Revenues

6 Last trade on last trading day of the year

7 Net profit/average number of shares outstanding

8 Closing price/Basic EPS

9 Closing price/Book value per share

Fred. Olsen Energy ASA - Annual Report 2005�

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Fred. Olsen Energy – Group

A Brief Presentation

Fred. Olsen Energy ASA (The Company) is listed on the Oslo Stock Exchange and is a leading provider of exploration and production services to the oil and gas

industry. The Company is based on more than 150 years experience in shipping and over 35 years in offshore driling, and provides competitive solutions to the

benefit of our customers, employees and shareholders.

The Company is headquartered in Oslo with offices in Norway, the UK, Singapore, Bermuda, Mexico and US (agent).

Revenues 2005

3 000 NOK mill

2 400

1 800

1 200

600

0

Offices

Semisubmersibles

Deepwater Drillship

EBITDA 2005

1 000 NOK mill

800

600

400

200

0

Assets per 31.12.2005

8 000 NOK mill

6 400

4 800

3 200

1 600

0

Employees per 31.12.2005

1 000

800

600

400

200

0

2 756

127

880

40 104

837

95

7 143

Offshore drilling

Engineering and fabrication

March 05

Five months drilling contract with Peak Well Management Ltd. for Bredford Dolphin.

Five months drilling contract with Chevron Texaco North Sea Ltd. for Borgsten Dolphin.

Two months drilling contract with Total for Bredford Dolphin.

April 05

Six months accommodation contract with Shell U.K. Ltd. for Borgholm Dolphin.

June 05

Acquisition of Ocean Liberator, renamed Blackford Dolphin.

August 05

5 wells drilling contract, estimated to 210 days, with Equator for Bulford Dolphin.

September 05

Three years drilling contract with Anadarko Petroleum Corporation for Belford Dolphin.

Three months drilling contract with CNR for Borgsten Dolphin.

Three years drilling contract with Statoil for Borgsten Dolphin.

October 05

12 months drilling contract with Equator for Bulford Dolphin.

November 05

275 days drilling contract with CNR for Byford Dolphin.

720 days drilling contract with Tullow/Nexen for Borgsten Dolphin.

December 05

260 days accommodation contract with Shell/Talisman for Borgholm Dolphin.

3 wells drilling contract, estimated to 90 days, for Bredford Dolphin.

Events after 31.12.05

January 06

Three years drilling contract with Drilling Production Technology as for Bredford Dolphin.

March 06

Secured contract with Keppel FELS for upgrading of Blackford Dolphin.

Two months drilling contract with Peak Well Management Ltd. for Bredford Dolphin.

Three years drilling contract with Reliance Industries Ltd. for Blackford Dolphin.

Early redemption of NOK 760 million bonds 2004/09

Established new credit facility of USD 600 million.

Major Events in 2005

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�Fred. Olsen Energy ASA - Annual Report 2005

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Board of Directors’ Report 2005

The operating activities of Fred. Olsen Energy

ASA and its subsidiaries (“The Group”) consist

of offshore drilling as well as engineering and

fabrication services. The Group has its corporate

headquarters located in Oslo, Norway. The par-

ent company of the Group is Fred. Olsen Energy

ASA (“The Company”). The Group manages its

activities from offices in Norway, the UK, Singa-

pore, Bermuda and Mexico and has a branch

office in India. Engineering and fabrication serv-

ices consist of activities related to the Harland &

Wolff (H&W) shipyard located in Belfast, North-

ern Ireland.

Gross revenues in 2005 were NOK 2 883 million,

an increase of NOK 540 million from the previ-

ous year. The Group achieved earnings before

interest, taxes, depreciation and amortization

(EBITDA) and other items of NOK 921 million

compared to an EBITDA before other items of

NOK 568 million in 2004.

Net interest bearing debt at 31.12.2005 for the

Group was NOK 2 578 million.

Markets and prospects

The market for offshore services continues

to be strong. Globally, the balance between

supply and demand for offshore drilling units

tightened in all segments. This development

has been reflected in significant increases in

day rates. The high demand for offshore drilling

services is expected to continue during the next

few years as a result of renewed focus on reserve

replacement supported by high demand for oil

and gas and expectations of continued high

energy prices.

During 2005 a number of contracts for construc-

tion of new floating drilling units have been

signed. Several of these new builds have been

Oil Price

70 USD/Barrel

60

50

40

30

01.01.2004 31.03.200630

40

50

60

70

contracted on speculative basis, i.e. there are no

drilling contracts in place before construction

commences. During 2006-2008 the new units

will actively seek drilling contracts to secure cash

flow, which is expected to cause an impact on

the day rates.

The deepwater upgrade of Blackford Dolphin will

make a profitable addition to the Group’s fleet of

drilling units. When the upgrade has been com-

pleted mid 2007, the offshore fleet will consist

of two deepwater units and six mid water semi

submersible drilling rigs in addition to an ac-

commodation unit. Two of the semi submersible

units are considerably upgraded and qualified for

operations in Norway. By late 2006 the Group will

have three units operating in Norwegian waters.

Geographically, the Group currently operates in

Norway, the UK, India, Mexico and West Africa.

From 2007 the deepwater region of the US Gulf

will also be an area of operation.

The Group will continuously explore investment

opportunities to enhance shareholders’ value.

To the extent economically viable investment

projects are not found and to the extent per-

mitted by the financial situation of the Group,

dividend payments as well as share buy back

programmes will be considered.

At year-end, all of the Group’s operated units,

except Blackford Dolphin, which is being up-

graded, were on contract. During the last 15

months, the Group has secured new contracts

with a total value of approximately USD 2 200

million. At the beginning of 2006, the average

contract length of the Group’s offshore fleet was

approximately 27 months. Three units are avail-

able for new contracts in 2007, comprising Bid-

eford Dolphin, Bulford Dolphin and Borgholm

Dolphin.

Offshore Drilling

The drilling activities generated revenues of NOK

2 756 million compared to NOK 2 130 million in

2004. Within this segment, the Group achieved

an EBITDA before other items of NOK 880 mil-

lion. In 2004, the corresponding profit was NOK

576 million.

Borgland Dolphin continued operations off-

shore Norway under the current contract with

Statoil, expiring at the end of December 2006. In

September 2005 a new contract for the rig was

entered into with Statoil ASA for operations in

the Tampen area on the Norwegian continental

shelf. The contract period is for three years expir-

ing at the end of 2009.

Bideford Dolphin continued operations offshore

Norway under a contract with Norsk Hydro esti-

mated to expire in mid 2007.

The deepwater drill ship Belford Dolphin con-

tinued operations under a three-year drilling

contract with ONGC in India, expiring in early

2007. In September 2005 a contract was entered

into with Anadarko Petroleum Corporation for

three years. The new contract will follow in direct

continuation from the present Belford Dolphin

contract with ONGC.

Borgny Dolphin continued operations under a

contract with Pemex in Mexico, expiring early

2008.

Bulford Dolphin (owned by First Olsen Lim-

ited and being operated in pool with four of

the Group’s own units) commenced a drilling

programme for Equator Exploration Ltd. offshore

West Africa in November 2005. The contract is

estimated to expire in September 2007.


�



USD Interest Rate, 3 Month Libor

5 %

4

3

2

1

02.01.2004 04.04.20061

2

3

4

5

Bredford Dolphin completed a drilling program

offshore Spain for Escal and British Gas, respec-

tively, in March 2005. Subsequently, several short-

term contracts have been entered into for drilling

programs in the UK with an estimated duration to

3rd quarter 2006. In January 2006 a drilling con-

tract for the rig was entered into with Drilling Pro-

duction Technology as, on behalf of themselves

and a consortium of licensees on the Norwegian

continental shelf. The duration of the contract is

three years with estimated commencement in

second half 2006 following a compulsory class

renewal survey and upgrade for Norwegian re-

quirements. Following completion of the drilling

programs in the UK, the rig will move to Belfast

where preparation work will be carried out for the

following 3 year drilling contract in Norway.

A drilling program for Byford Dolphin com-

menced in February 2005 under a contract with

CNR International (U.K.) Limited after a compul-

sory five-year class renewal survey at the H&W

yard. CNR has exercised their options and the

contract is now estimated to expire in 2nd quar-

ter 2007. An agreement with CNR was entered

into in November 2005 on a further extension of

the contract for 275 days in direct continuation

from the present contract.

Borgsten Dolphin secured a contract with Chev-

ronTexaco North Sea Ltd. in March for a drilling

program in the UK North Sea, which com-

menced after completion of the compulsory

five-year class renewal survey at the H&W yard.

In September a new contract for the rig was

secured with CNR International (U.K) Ltd for an

approximate three months drilling programme

in the UK commencing in March 2006. In De-

cember 2005 contracts were entered into with

Nexen Petroleum UK Ltd. and Tullow Oil plc, re-

spectively, for drilling operations in the UK North

Sea. The drilling programmes have an estimated

duration of 720 days of combined activity from

approximately May 2006 in direct continuation

from the unit’s existing contract commitments.

Borgholm Dolphin continued operations under

a contract with Shell U.K. Ltd. for accommoda-

tion support in the UK sector of the North Sea

from July 2005 until January 2006. Further con-

tracts for accommodation support in the UK

were entered into with Talisman Energy (UK)

Ltd. and Shell U.K Ltd commencing in February

2006 following a short standby period. The con-

tracts will result in combined activity to the end

of October 2006 with options for a further two

months extension thereafter.

In June 2005, the Group acquired the semi-sub-

mersible drilling rig Ocean Liberator from Ense-

nada Internacional S.A., a subsidiary of Diamond

Offshore Drilling Inc., for a consideration of USD

14 mill. The unit has been renamed Blackford

Dolphin.

The Blackford Dolphin is an Aker H-3 design built

in 1974 and had been cold stacked in Saldanha

Bay north of Cape Town since November 2002.

The rig is being upgraded to a deepwater drill-

ing unit for 7000 ft. of water with a new high

capacity drilling package and an innovative

deck layout. Keppel FELS and Keppel Shipyard

in Singapore and Keppel Verolme in Rotterdam,

the Netherlands, will undertake the yard work

jointly. Delivery from the yard in Rotterdam is

mid 2007. Contracts for construction of the ac-

commodation- and power modules have been

awarded to the H&W yard. The cost for the up-

grade is estimated at USD 400 million. In March

2006 a letter of award was received for a three

years drilling contract for the rig commencing

after completion of the deepwater upgrade.

Engineering and Fabrication

Following the sale of property interests in Titanic

Properties and Titanic Quarter as well as T.I. Solu-

tions in 2004, the division consists of activities

related to the H&W shipyard located in Belfast.

Total revenues within the engineering and fab-

rication division amounted to NOK 207 million

and EBITDA was NOK 51 million. In 2004, the cor-

responding figures were total revenues of NOK

269 million and a loss before other items of NOK

8 million. Most of the improvement in EBITDA

was due to reduced costs relating to positive

changes in the valuation of the H&W pension

scheme’s assets and changes in the actuarial

assumptions used in estimating the scheme’s

liabilities. One of the changes in the actuarial as-

sumptions arose as a result of a settlement offer

with cash payments to the deferred pensioners.

The H&W yard continued its operations in en-

gineering, ship repair and shipbuilding. A large

project during the last part of the year has been

utilisation of the yard as logistics and assembly

base for Barrow Windfarm Project. During the

year the yard has carried out work related to the

class renewal surveys for several of the Group’s

drilling rigs. The core workforce was stable at 95

employees.

Financial result and balance sheet at year end

Consolidated revenues of NOK 2 883 million

represent an increase of 23% compared to 2004,

primarily reflecting increased revenues from off-

shore drilling services.

EBITDA before other items for the Group were

NOK 921 million, an increase of NOK 352 million

or 62% compared to 2004. After depreciation

and amortization of NOK 618 million and other

Fred. Olsen Energy ASA - Annual Report 2005 �

�



items of NOK 34 million, the operating profit was

NOK 269 million, compared with an operating

profit of NOK 77 million the previous year.

Net financial expense was NOK 281 million. The

corresponding items in 2004 resulted in a profit

of NOK 36 million. Net loss before taxes was NOK

12 million compared to a profit of NOK 113 mil-

lion in 2004 for continuing operations. The net

result for the year was a loss of NOK 16 million

against a profit of NOK 420 million in 2004.

At year-end, the Group had consolidated assets

of NOK 7 240 million. The ratio of net interest

bearing debt to total assets was 36 % compared

to 40 % at the beginning of the year. Book value

of the equity was NOK 2 951 million. Cash flow

generated from continuing operations was NOK

369 million against NOK 85 million in 2004. Cash

and cash equivalents increased by NOK 118 mil-

lion during the year, from NOK 599 million to

NOK 717 million at the end of the year.

Fred. Olsen Energy ASA provides holding com-

pany and management services for the subsidi-

ary companies within the Group. The Company

had NOK 1 million in revenues – the same as in

2004. EBITDA for the year was a loss of NOK 40

million compared with NOK 37 million in 2004.

Net loss was NOK 32 million compared to a loss

of NOK 106 million in 2004.

The annual accounts of the parent company

and the consolidated accounts are based on

the assumption of continued operation.

International Financial Reporting

Standards (IFRS)

The consolidated financial statements have

been prepared in accordance with the Norwe-

gian Accounting Act and International Financial

Reporting Standards (IFRS) as adopted by EU and

interpretations adopted by the International Ac-

counting Standards Board (IASB). These are the

Group’s first consolidated financial statements in

accordance with IFRS and IFRS 1: First-time Adop-

tion of International Financial Reporting Standards

has been applied. An explanation of how the

transition to IFRS has affected the reported fi-

nancial position, financial performance and cash

flows of the Group, is provided in note 27.

Investment and capital resources

Capital expenditures amounted to NOK 519 mil-

lion in the year compared to NOK 355 million

in 2004. The capital expenditures were mainly

related to the upgrade of Blackford Dolphin,

including the purchase of the rig and engineer-

ing work and the class renewal surveys of Byford

Dolphin, Borgsten Dolphin and Belford Dolphin,

respectively.

The Group’s debt consists of several loans. The

largest is a USD 300 million credit facility, which

was established in 2004 with final maturity in

2008. The outstanding amount under the credit

facility at year-end was USD 273 million. In

addition, a short-term credit facility of USD 30

million was established in 2005 with matu-

rity in March 2006. Further, the Company has

outstanding unsecured senior debt notes

totalling NOK 869 million, of which NOK 109

million are due in 2006 and NOK 760 million

in 2009. In addition, the Company has issued

NOK 435 million in subordinated convertible

bonds, due in 2009. The holders of the convert-

ible bonds have the right to convert bonds into

shares in the Company at a conversion price

of NOK 68 per share. Following conversion of

bonds into shares in Fred. Olsen Energy ASA

during 2005, the outstanding amount under

the convertible bond loan at year-end was NOK

373 million. The loan agreements contain opera-

tional and financial covenants typical for credit

arrangements of this nature.

In March 2006 the USD 300 million credit facility

will be replaced by a new 7 years credit facility

of USD 600 million. The new credit facility will

also refinance the NOK 760 million senior debt

notes mentioned above, following the exercise

of an early redemption option, and the short-

term credit facility of USD 30 million.

As per 22 March 2006, the Group is in com-

pliance with all covenants in the loan agree-

ments.

Financial risks

The Group is exposed to certain financial risks

related to its activities. These are mainly foreign

exchange risks, interest rate risks and credit risks.

The Group continually monitors its financial risks

and applies from time to time financial deriva-

tives to hedge its exposure.

Foreign exchange

The Group’s financial statements are denomi-

nated in NOK. The Group’s revenues consist pri-

marily of NOK and USD with USD as the most

dominant currency. The Group’s expenses are

primarily in NOK, GBP and USD. As such, the

Group’s earnings are exposed to fluctuations in

the currency market. The Group’s future foreign

exchange exposure is dependent upon the

currency denomination of revenues, however,

in the longer term, a substantial portion of the

USD/NOK exposure is neutralised through the

majority of the Group’s debt being denominated

in USD.

USD/NOK

7.2

7.0

6.8

6.6

6.4

6.2

6.0

02.01.2004 31.03.20066,0

6,2

6,4

6,6

6,8

7,0

7,2


10



Deepwater Units Supply > 3000 feet by area (31.03.2006)

30 Source: Fearnley

25

20

15

10

5

0

Gulf of Mexico South America West Africa North Sea Southeast Asia Indian subcontinent Mediterranean

30

20

17

6 5 4 3

Interest rate

The Group is exposed to fluctuations in interest

rates for USD and NOK. At 31 December 2005

more than 50% of the Group’s interest expense

was based on fixed interest rate through finan-

cial derivatives and fixed rate loans. The remain-

ing portion of the debt was based on floating in-

terest rates (USD LIBOR or NIBOR) plus a margin.

Credit risk

Due to the nature of the Group’s operations,

revenues and related receivables are typically

concentrated amongst a relatively small cus-

tomer base of major international oil and gas

companies. The Group continually evaluates

the credit risk associated with customers and,

when considered necessary, requires certain

guarantees. As such, the credit risk is considered

to be low.

Corporate Governance

The Company emphasizes the importance of

maintaining and further developing its corpo-

rate governance policy and supports the princi-

ples set out in the Norwegian Code of Practice

for Corporate Governance. The Company has

implemented written guidelines to the Board of

Directors as a practical tool for the Board in its

exercise of good corporate governance.

All shares in the Company have equal rights

and all shareholders have the right to attend

the shareholders’ meeting. The Company has

no restrictions on ownership or voting.

The Board of Directors has an authorization from

the Annual General Meeting in 2005 to increase

the share capital by 30 000 000 shares. The proxy

expires on 19 May 2006.

The Company provides information to the

market through quarterly and annual reports,

investor- and analyst presentations open to the

media and by making operational and financial

information available on the company’s website.

Events of importance are made available to the

stock market through notification to the Oslo

Stock Exchange in accordance with the Stock

Exchange regulations. Information is provided

in Norwegian and English.

The Board of Directors consists of 5 board mem-

bers who are elected for a two-year period. All of

the Directors are independent of the Company’s

management and two of them are independ-

ent also in relation to the Company’s main share-

holders, Ganger Rolf ASA and Bonheur ASA. The

Board of Directors had 13 meetings during the

year. Each Director is remunerated by an annual

fee.

The current composition of Directors reflects ad-

equate competence relative to the main busi-

ness areas of the Group.

The Board of Directors has appointed an Au-

dit Committee consisting of the two Directors

independent of the main shareholders of the

Company. The charter of the audit committee

is to assist the Board in fulfilling its responsibili-

ties concerning the financial reporting process,

internal controls, management of financial risks,

the audit process, and the Group’s process for

monitoring compliance with applicable laws

and regulations.

The Board of Directors has appointed a Com-

pensation Committee comprising three Direc-

tors, including the two independent Directors.

The Compensation Committee discusses and

recommends to the Board salary and benefits for

the Chief Executive Officer as well as the man-

agement incentive schemes for the Group.

The compensation to the Chief Executive Officer

comprises salary, pension scheme, company car,

stock options and performance bonus pay.

In past years, the Company has retained all earn-

ings to support and develop operations, and has

therefore not paid dividends. Going forward,

dividend payments will be considered to the

extent economically viable investment projects

are not found and to the extent permitted by

the financial situation of the Group.

Share Capital Issues

The Annual General Meeting in May 2005 au-

thorized the Board of Directors to issue up to

30 000 000 new shares in the Company for a pe-

riod of up to one year in order to strengthen its

business within the offshore segment. An increase

in the share capital may be brought about either

by issuing new shares or by raising loans with

rights to subscribe for new shares. As of 22 March

2006 the authorization had not been used.

At 1.1.2005, the Company owned 2 901 394 of

its own shares, representing 4.8 % of the share

capital. In February 2005, the Company sold

2 623 227 of those shares.

At 31.12.2005 the Company’s share capital

amounted to NOK 1 224 million, corresponding to

61 205 950 shares at par value NOK 20, - each. At

year-end the Company owned 84 336 own shares.

Safety, work environment, organization

and equal opportunities

The Group has a strong focus on safe working

environments for its employees and its custom-

Fred. Olsen Energy ASA - Annual Report 2005 11

11



Oslo, 31 December 2005 / 22 March 2006

Fred. Olsen Energy ASA

Anette S. Olsen John C. Wallace Ivar J. Saunes Mårten Lunde Øivin Fjeldstad Helge Haakonsen

Chairman Chief Executive Officer

ers. Continuous efforts involve planning, training

of personnel and careful selection of subcon-

tractors. The Group maintains a “zero accident”

objective and is closely monitoring its estab-

lished procedures for operations, projects and

worksites both onshore and offshore.

The lost time accident frequency (LTA) for off-

shore drilling and related services in 2005 was

1.8 per million working hours. In 2004 LTA was 5,

of which 4 were minor injuries.

In order to maintain and continuously improve

the working environment the Group in 2005

performed several activities related to HSE train-

ing, HSE trend analyses and established HSE

goals with corresponding improvement action

plans.

In 2005 further measures have been taken in order

to prevent spills to the external environment. The

international environmental standard ISO 14001

has been implemented whereas environmental

goals, aspects, update of management systems

and technical actions are key measures.

It is the Group’s policy to conduct business in

accordance with the letter and spirit of the law

and with the overriding ethical standards of ac-

cepted business conduct. The working environ-

ment both offshore and onshore is considered

to be good. Absence due to illness was 3.71 %

and 1.70 % for the group and the parent com-

pany, respectively. The Group continues to focus

on reducing absence due to illness.

The Group aims to be a workplace with equal

opportunities, offering challenging and motivat-

ing jobs to all personnel, regardless of national-

ity, culture, religion and gender. The division of

genders within the Group reflects the available

recruitment base for offshore work, which tradi-

tionally is dominated by men, being the nature

of the offshore industry worldwide. However,

the Group’s policy is to offer equal opportuni-

ties for males and females and in connection

with new employments efforts are made to at-

tract females for technical positions. Assuming

all other qualifications equal, the Group gives

priority to the underrepresented gender within

each job category.

One out of five Board Directors is a female, be-

ing the Chairman of the Board. At year-end 2005

the Group had 932 employees, including 10 in

the parent company. 75 of the employees were

women. Ten percent of leading personnel within

the Group are female.

Legal matters

In December 2005 the final tranche of the Navis

ASA share purchase in 2000-2001 was settled by

a final assessment of Borgarting lagmannsrett

(a Norwegian Court of Appeals) in the dispute

between the Company and an assignee to the

position of a previous minority shareholder in

Navis ASA who did not accept the offer related

to the compulsory redemption made in Febru-

ary 2001. The minority shareholder claimed dur-

ing the hearings that approximately NOK 21,-

per share would be a fair price, whilst Borgarting

lagmannsrett arrived at a redemption price of

NOK 14.50 per share. The minority shareholder

represented 8 848 140 shares, corresponding to

6.6% of the total shares in Navis ASA.

After having commenced proceedings in the

redemption case the previous minority share-

holder in 2003 commenced separate proceed-

ings against the Company seeking damages on

the basis of the Company’s mandatory bid for

Navis shares in November 2000. In December

2005 the Oslo tingrett (a Norwegian City Court)

ruled against these claims following which the

plaintiff in January 2006 appealed the ruling. See

Note 22 for further information.

External Environment

The Group’s operations may involve activities

that entail potential risks to the external environ-

ment. The discharge produced from processes

and operations in the offshore oil-and gas-drill-

ing industry, directly and indirectly through

chemical interaction can upset the balance

of our environment. The Group is careful in its

approach to the environment and continually

strives to reduce the use of hazardous chemi-

cals and materials to minimize negative effects

and continually seeks alternative products to

safeguard the environment.

Allocation of profit

The Board does not propose a dividend for 2005.

The net loss of the parent company of NOK

32 million has been covered by other equity. The

parent company’s unrestricted equity was NOK

3 175 million at year-end.

Annual General Meeting

The date of the Annual General Meeting is 29

May 2006.

Events after year-end

Operational events after year-end are included

above. For further information see note 28.


12

1�Fred. Olsen Energy ASA - Annual Report 2005

1�

Consolidated Income Statement

For the years ended 31 December 2005 2004

Continuing Continuing Discontinued

Amounts in NOK 000’s Note operations operations operations Total

Revenues 2,3,20,24 2 882 880 2 342 834 2 950 2 345 784

Materials (53 564) (129 624) 0 (129 624)

Salaries and other personnel costs 3,4 (749 848) (635 929) (1 321) (637 250)

Other operating expenses 3,5,20 (1 158 812) (1 009 230) (3 246) (1 012 476)

Operating profit before depreciation, amortisation, other

items and financing costs 920 656 568 051 (1 617) 566 434

Navis Settlement 6 (33 683) 0 0 0

Reversal of restructuring charge 6 0 20 771 0 20 771

Depreciation and amortisation 3,9,10 (618 265) (511 416) (111) (511 527)

Operating profit before financing costs 268 708 77 406 (1 728) 75 678

Financial income 118 311 414 002 0 414 002

Financial expense (398 878) (378 026) 37 (377 989)

Net financing costs 3,7,11 (280 567) 35 976 37 36 013

Profit/(loss) before tax and gain on discontinued operation (11 859) 113 382 (1 691) 111 691

Income tax expense 8 (3 820) (47 376) 0 (47 376)

Profit/(loss) after tax before gain on discontinued operation (15 679) 66 006 (1 691) 64 315

Gain on sale of discontinued operation 3 0 0 355 500 355 500

Profit/(loss) for the period (15 679) 66 006 353 809 419 815

Attributable to:

Equity holder of the parent (15 679) 66 006 353 809 419 815

Profit/(loss) for the period 14 (15 679) 66 006 353 809 419 815

Basic earnings per share 26 (0.26) 1.15 6.17 7.32

Diluted earnings per share 26 (0.26) 1.15 6.15 7.30

Consolidated statement of recognised income and expense

For the years ended 31 December

Amounts in NOK 000’s Note 2005 2004

Exchange differences on translation of foreign operations 395 385 (234 405)

Net income/(expense) recognised directly in equity 395 385 (234 405)

Profit/(loss) for the period (15 679) 419 815

Total recognised income and expense for the period 379 706 185 410

Attributable to:

Equity holders of the parent 379 706 185 410

Total recognised income and expense for the period 14 379 706 185 410

The notes represent an integral part of the financial statements.



14


Consolidated Balance Sheet

As at 31 December


Assets

Property, plant and equipment 9,16 5 391 018 4 930 495

Intangible assets 10 98 577 119 600

Other investments 17,20 8 084 973

Financial instruments 11 38 692 127 717

Deferred taxes 12 3 211 1 838

Total non-current assets 5 539 582 5 180 623

Inventories and consumable spare parts 9 177 174 129 801

Financial instruments 11 0 7 657

Trade and other receivables 20 805 946 521 499

Cash and cash equivalents 13 717 110 598 675

Total current assets 1 700 230 1 257 632

Total assets 7 239 812 6 438 255



Fred. Olsen Energy ASA - Annual Report 2005 1�

1�


Consolidated Balance Sheet

As at 31 December


Equity

Issued capital 1 224 119 1 206 022

Share premium 284 687 241 253

Capital reserves 187 171 45 475

Translation reserves 160 992 (234 393)

Treasury shares (1 687) (58 028)

Retained earnings 1 095 306 1 041 476

Total equity 14 2 950 588 2 241 805

Liabilities

Interest-bearing loans and borrowings 15,16 2 687 401 2 914 710

Employee benefits 17 268 293 303 132

Deferred taxes 12 1 683 0

Financial instruments 11 19 579 59 149

Total non-current liabilities 2 976 956 3 276 991

Interest-bearing loans and borrowings 15,16 607 909 249 260

Trade and other payables 20 198 579 156 982

Provisions 18 172 439 136 929

Financial instruments 11 2 589 0

Other accrued expenses and deferred revenue 330 753 376 288

Total current liabilities 1 312 268 919 459

Total liabilities 4 289 224 4 196 450

Total equity and liabilities 7 239 812 6 438 255



Oslo, 31 December 2005 / 22 March 2006


Anette S. Olsen John C. Wallace Ivar J. Saunes Mårten Lunde Øivin Fjeldstad Helge Haakonsen

Chairman Chief Executive Officer


1�


For the year ended 31 December


Cash flows from operating activities

Profit/(loss) before income tax (11 859) 113 382

Adjustment for:

Depreciation and amortisation 9 618 265 511 416

Interest expense 7 201 277 202 397

(Gain)/Loss on sale of property, plant and equipment 0 (247)

Unrealised currency (gains)/losses 0 (242 744)

Changes in trade and other receivables (268 296) 34 995

Changes in trade and other payables (2 949) 12 506

Changes in other balance sheet items 13 634 (415 109)

Cash generated from operations 550 072 216 596

Interest paid (178 165) (127 812)

Income taxes paid (2 579) (3 968)

Net cash from operating activities 369 328 84 816

Cash flows from investing activities

Purchases of property, plant and equipment (535 390) (277 149)

Proceeds from sale of equipment 0 4 388

Proceeds from sale of discontinued operation 0 386 780

Net cash (used)/from investing activities (535 390) 114 019

Cash flows from financing activities

Proceeds from interest bearing loans 196 239 2 805 400

Proceeds from the issue of convertible notes 0 435 000

Repayments of interest bearing loans (254 942) (3 214 073)

Sale of treasury shares 273 542 3 054

Net cash from financing activities 214 839 29 381

Net cash flow discontinued operations 0 (4 370)

Net increase in cash and cash equivalents 48 777 228 216

Cash and cash equivalents at 1 January 598 675 358 998

Effect of exchange rate fluctuations on cash held 69 658 11 461

Cash and cash equivalents at 31 December 717 110 598 675



Consolidated Statement of Cash Flows under indirect method


1�


Notes to the Consolidated Financial StatementsFred. Olsen Energy – Group

Note 1 – Significant accounting policies

Fred. Olsen Energy ASA (the “Company”) is a

company domiciled in Norway.

The consolidated financial statements of the

Company for the year ended 31 December

2005 comprise the Company and its subsidiar-

ies (together referred to as the “Group”).

The financial statements were authorised for is-

sue by the directors on 22 March 2006.

Statement of compliance

The consolidated financial statements have

been prepared in accordance with the Nor-

wegian Accounting Act, International Financial

Reporting Standards (IFRS) and interpretations

adopted by the International Accounting Stand-

ards Board (IASB) and the European Union. These

are the Group’s first consolidated financial state-

ments in accordance with IFRS and IFRS 1: First-

time Adoption of International Financial Report-

ing Standards has been applied.

An explanation of how the transition to IFRSs

has affected the reported financial position,

financial performance and cash flows of the

Group is provided in note 27.

Basis of preparation

The financial statements are presented in Nor-

wegian Kroner (NOK), rounded to the nearest

thousand. They are prepared on the historical

cost basis except that derivative financial instru-

ments and financial instruments held for trading

are stated at their fair value and the rig values

have been measured at the fair value (Broker

Assessments) at the date of transition and used

as the deemed cost.

The preparation of financial statements in con-

formity 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 as-

sumptions are based on historical experience

and various other factors that are believed to be

reasonable under the circumstances. The esti-

mates and underlying assumptions are reviewed

regularly. Actual results may differ from these

estimates.

Judgements made by management in the appli-

cation of IFRSs that have significant effect on the

financial statements and estimates with a signifi-

cant risk of material adjustment in the next year

are discussed below.

The accounting policies set out below have been

applied consistently to all periods presented in

these consolidated financial statements and in

preparing an opening IFRS balance sheet at 1

January 2004 for the purposes of the transition

to IFRSs. See note 27 for discussion of the transi-

tion to IFRS.

The accounting policies have been applied con-

sistently by Group entities.

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Com-

pany. Control exists when the Company has the

power, directly or indirectly, to govern the finan-

cial and operating policies of an entity so as to

obtain benefits from its activities.

Transactions eliminated in consolidation

All material intercompany transactions, any

unrealised gains and losses and intragroup bal-

ances have been eliminated in preparing the

consolidated financial statements.

Minority Interest

Minority interests in the net assets of consoli-

dated subsidiaries are identified separately from

the Group’s equity therein. Minority interests

consist of those interests at the date of the

original transaction and the minority’s share of

changes in equity since that date. Losses appli-

cable to the minority in excess of the minority’s

interest in the subsidiary’s equity are allocated

against the interests of the Group as there is no

obligation to make an additional investment to

cover the losses.

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).

For the purpose of the consolidated financial

statements, the results and financial position

of each entity are presented in NOK, which is

the functional currency of the Company, and

the presentation currency of the consolidated

financial statements. During 2005, certain of the

Company’s subsidiaries changed their functional

currencies due a re-evaluation of the underlying

economic environments in which the subsidiar-

ies operate. As a result, the functional currencies

changed from NOK to USD for Dolphin Interna-

tional AS and Fred. Olsen Drilling AS (now merged

into Dolphin International AS) and for Dolphin

Drilling Ltd and Perforadora Dolphin Mexicana

from GBP to USD as from 1 January 2005.

In preparing the financial statements of the in-

dividual entities, transactions in foreign curren-

cies are translated at the foreign exchange rate

at the date of the transaction. Monetary assets

and liabilities denominated in foreign curren-

cies are translated to the functional currency at

the foreign exchange rate at the balance sheet

date. Foreign exchange differences arising on

translation are recognised in the income state-

ment. 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 NOK at the foreign exchange

rate at the balance sheet date. The revenues

and expenses of foreign subsidiaries are trans-

lated 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

recognised directly as a separate component of

equity.

Financial Instruments

Financial assets and financial liabilities are rec-

ognized on the Group’s balance sheet when the

Group becomes a party to the contractual provi-

sions of the instruments.

Derivative financial instruments

The Group uses derivative financial instruments

to manage its exposure to foreign exchange

and interest rate risks arising from operational,

financing and investment activities. In accord-

ance with its treasury policy, the Group does not

hold or issue derivative financial instruments for


1�



Notes

trading purposes. However, derivates that do

not qualify for hedge accounting are accounted

for as trading instruments.

Derivative financial instruments are recognised

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 recognised in profit or loss. There

are no derivatives to which hedge accounting

is applied.

The fair value of interest rate swaps is the esti-

mated 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 quoted market price at the bal-

ance sheet date, being the present value of the

quoted forward price.

Trade and other receivables

Trade and other receivables are stated at their

amortised cost less impairment losses.

Cash and cash equivalents

Cash and cash equivalents include cash, bank

deposits and other short-term highly liquid

assets that are readily convertible to known

amounts of cash and which are subject to insig-

nificant changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued

by the Group are classified according to the sub-

stance of the contractual arrangements entered

into and the definitions of a financial liability and

an equity instrument. An equity instrument is

any contract that evidences a residual interest

in the assets of the Group after deducting all of

its liabilities. The accounting policies adopted

for specific financial liabilities and equity instru-

ments are set out below as applicable.

Interest-bearing borrowings

Interest-bearing borrowings are recognised

initially at fair value less attributable transaction

costs. Subsequent to initial recognition, interest-

bearing borrowings are stated at amortised cost

with any difference between cost and redemp-

tion value being recognised in the income state-

ment over the period of the borrowings on an

effective interest basis.

Convertible bonds

Convertible bonds that can be converted to

share capital at the option of the holder, where

the number of shares issued does not vary with

changes in their fair value, are accounted for as

compound financial instruments consisting of a

liability component and an equity component.

The equity component of the convertible bonds

is calculated as the excess of the issue proceeds

over the present value of the future interest and

principal payments, discounted at the market

rate of interest applicable to similar liabilities that

do not have a conversion option. The interest ex-

pense recognised in the income statement then

reflects the market rate for bonds without con-

version. Converted options during the year are

split between liability and equity accordingly.

The interest expense on the liability component

is calculated by applying the prevailing market

interest rate at the time of transaction for similar

non-convertible debt to the liability component

of the instrument at the time of transaction. The

difference between this amount and the inter-

est paid is added to the carrying amount of the

convertible bond.

Trade and other payables

Trade and other payables are stated at cost.

Equity instruments

Equity instruments issued by the Group are

recorded at the proceeds received, net of direct

issue costs.

Property, plant and equipment

Owned assets

Property, plant and equipment are stated at

cost less accumulated depreciation and impair-

ment losses. The cost of self-constructed assets

and modifications includes the cost of material,

direct labour and other direct attributable cost

to bring the asset to a working condition for its

intended use.

The rig values have been revalued to fair value

on 1 January 2004, the date of transition to IFRS,

and are measured on the basis of deemed cost,

being the revalued amount at the transition

date.

Where components of an item of property, plant

and equipment have different useful lives, they

are accounted for separately.

Subsequent expenditures are capitalised when

it is probable that they will give rise to future

economic benefits. Other costs are recognised

in the income statement as incurred.

Leased assets

Leases in terms of which the Group assumes

substantially all the risks and rewards of the

ownership are classified as finance leases. All

other leases are classified as operating leases.

Assets recorded under finance leases are stated

at an amount equal to the lower of its fair value

and the present value of the minimum lease

payments at inception of the lease, less accumu-

lated depreciation and any impairment losses.

Depreciation

Depreciation is charged to the income state-

ment 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. No

decommissioning costs have been recorded to

date, and the presence of any obligations is re-

viewed at each financial year end. Any changes

are accounted for prospectively as a change in

accounting estimate.

The estimated useful lives are as follows:

Rigs 15 to 25 years

Deepwater Drillship 25 years

Major components 5 to 15 years

Plant and Buildings 5 to 50 years

Machinery and Equipment 3 to 10 years

Repairs and Maintenance

Costs for special periodic surveys/class renewal

surveys (SPS/RS) on offshore units required by

classification societies are capitalised and de-

preciated over the anticipated period between

surveys, generally five years. Other maintenance

and repair costs are expensed as incurred.

Intangible assets

Goodwill

All business combinations are accounted for by

applying the purchase method. Goodwill rep-

resents amounts arising on the acquisition of

subsidiaries, and is the difference between the

cost of the acquisition and the fair value of the

net assets acquired.

In respect of acquisitions prior to the transition

to IFRS, goodwill is included on the basis of its

deemed cost, which represents the amount re-

corded under previous GAAP. The classification

and accounting treatment of business combi-

nations that occurred prior to the transition to

IFRS has not been reconsidered in preparing the

Group’s opening IFRS balance sheet at 1 Janu-

ary 2004.


1�


NotesFred. Olsen Energy – Group

Goodwill is stated at cost less any accumulated

impairment losses. Goodwill is allocated to cash

generating units and is no longer amortised but

is tested annually for impairment.

Research and development

Expenditures on research activities, undertaken

with the prospect of gaining technical know-

ledge and understanding, is recognised in the

income statement as an expense as incurred.

Other intangible assets

Other intangible assets that are acquired by the

Group are stated at cost less accumulated am-

ortisation and any impairment losses. Other in-

tangible assets consist of a management agree-

ment which is amortised over 5 years.

Inventories and consumable spare parts

The Group categorizes spare parts into two

groups, spare parts and spare assets. A spare

part is a consumable that is not depreciated,

but expensed when used against repair and

maintenance cost. A spare asset is a larger spare

item that is recorded as a rig component and

depreciated. Consumables are recorded at cost

less a reserve for overstocked items.

Impairment

The carrying amounts of the Group’s assets,

other than inventories and deferred tax assets

are reviewed at each balance sheet date to

determine whether there is any indication of

impairment. 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 day rates and broker

valuations. The recoverable amount of an asset

is the higher of its fair value less costs to sell and

value in use. The value in use is calculated as the

present value of the expected future cash flows

for the individual units.

The value in use is used for the annual impair-

ment test for goodwill, which is the present val-

ue of the future cash flows from continuing use

and ultimate disposal expected to be derived

from the cash generating unit. Fair value is not

readily determinable.

An impairment loss is recognised if the carry-

ing amount of an asset exceeds the recoverable

amount.

Employee benefits

Pensions

The Company and certain of its subsidiaries have

pension plans for employees which 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 in-

creases. The Group’s net obligation in respect of

defined benefit pension plans is calculated sep-

arately 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. The calculation is performed by a

qualified actuary.

All actuarial gains and losses as at 1 January

2004, the date of transition to IFRS, were rec-

ognised. In respect of actuarial gains and losses

that arise subsequent to 1 January 2004 in cal-

culating the Group’s obligation in respect of a

plan, to the extent that any cumulative unrec-

ognised actuarial gain or loss exceeds 10 per

cent of the greater of the present value of the

defined benefit obligation and the fair value of

plan assets, that portion is recognised in the

income statement over the expected average

remaining working lives of the employees par-

ticipating in the plan. Otherwise, the actuarial

gain or loss is not recognised.

In addition, employees of some subsidiaries

are covered by multi-employer pension plans

administered by trade unions and by plans ad-

ministered by related companies. Costs related

to these plans are expensed as incurred.

Share based payment transactions

In 1998, the Company’s shareholders resolved to

grant the Board of Directors authority to issue up

to 3 million shares to be used for an employee

incentive compensation plan designed to align

the interest of management with those of its

shareholders. All share based payment awards

are settled by the physical delivery of shares.

The company has elected to use the voluntary

exemption available for share based payment

transactions from the general requirement for

retrospective application of IFRS. The recogni-

tion and measurement requirements of IFRS 2:

Share-based Payment is therefore not applied

retrospectively to equity instruments that were

granted on or before 7 November 2002.

Social security tax is calculated for share options

in the money at year end and is recognised as

expense over the vesting period.

Provisions

A provision is recognised in the balance sheet

when the Group has a present legal or construc-

tive obligation as a result of a past event, and it

is probable than an outflow of economic ben-

efits will be required to settle the obligation.

Revenue

Charter rate contracts

Revenue derived from charter-hire contracts

or other service contracts is recognised in the

period that services are rendered at rates estab-

lished in the relevant contracts. Certain contracts

include mobilisation fees payable at the start of

the contract. In cases where the fee covers a

general upgrade of a rig or equipment which

increases the value of the rig or equipment be-

yond the contract period, the fee is recognised

as revenue over the contract period whereas

the investment is depreciated over the remain-

ing lifetime of the asset. In cases where the fee

covers specific upgrades or equipment specific

to the contract, the mobilisation fees are recog-

nised as revenue over the estimated contract pe-

riod. The related investment is depreciated over

the estimated contract period. In cases where

the fee covers specific operating expenses at the

start up of the contract the fees are recognised

in the same period as the expenses.

Long-term engineering and fabrication contracts

Revenues on long-term contracts are recognised

using the percentage of completion method

throughout the performance period of the

contract when the outcome can be measured

reliably. The percentage of completion is typi-

cally calculated based on the ratio of contract

costs incurred to date to total estimated con-

tract costs after providing for all known or an-

ticipated costs. On certain contracts the Group

may use the ratio of incurred to total estimated

direct labour hours to determine the percent-

age of completion. Costs include material, direct

labour and engineering. Selling, general and ad-

ministrative expenses are charged to operations

as incurred. The effect of changes in estimates of

contract costs is recorded currently. An expected

loss on a contract is recognised immediately in

the income statement.


20



Notes

Costs and estimated earnings in excess of bill-

ings on uncompleted contracts represent rev-

enues earned under the percentage of comple-

tion method but not yet billable under the terms

of the contract. Amounts billed in advance of

satisfying revenue recognition criteria on long

term contracts are classified as billings in excess

of costs and estimated earnings on uncomplet-

ed contracts.

Generally, contract revenues become billable

upon the Group attaining certain contract mile-

stones. The Group typically does not require

collateral from customers except in situations

where warranted due to assessments of risk

factors.

Government grants

Governmental grants related to capital expen-

ditures are deferred and recognised as income

over the useful lives of related capital expendi-

ture. Grants related to specific contracts are

recognised as income over the period contract

work is performed.

Expenses

Pool income/expense

Certain rig owning subsidiaries have entered

into a five-rig pool agreement with the owner

of the Bulford Dolphin, where net earnings be-

fore depreciation are equalised amongst the rig

owners. The net pool income or pool expenses

from the Group’s four rigs included in the pool

are netted against the bareboat/time charter

fees paid to the owner of the Bulford Dolphin.

Operating lease expenses

Payments made under operating leases are rec-

ognised in the income statement on a straight-

line basis over the term of the lease.

Finance lease payments

Minimum lease payments are apportioned be-

tween the finance charge and the reduction of

the outstanding liability. The finance charge is

allocated to each period during the lease term so

as to produce a constant periodic rate of interest

on the remaining balance of the liability.

Net financing costs

Net financing costs comprise interest payable

on borrowings calculated using the effective

interest rate method, interest receivable, foreign

exchange gains or losses, and gains and losses

on financial instruments.

Income tax

Income tax on the profit or loss for the year

comprises current and deferred tax. Income tax

is recognised in the income statement except

to the extent that it relates to items recognised

directly in equity, in which case it is recognised

in equity.

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.

Deferred tax is provided using the balance

sheet liability method. Deferred tax assets and

liabilities are recognised for the future tax conse-

quences 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 realisation

or settlement of the carrying amount of assets

and liabilities, using tax rates enacted or enacted

at the balance sheet date.

A deferred tax asset is recognised only to the

extent that it is probable that future taxable

profits will be available against which the asset

can be utilised. Deferred tax assets are reduced

to the extent that it is no longer probable that

the related tax benefit will be realised.

Segment reporting

A segment is a distinguishable component of

the Group that is engaged in either providing

products or services (business segment), or in

providing goods or services within a particular

economic environment (geographical seg-

ment), which is subject to the risks and rewards

that are different from those of other segments.

The Group provides services and operates within

the two business segments; offshore drilling and

engineering and fabrication.

Borrowing Costs

Under IFRS, borrowing costs may be capitalized

as part of the cost on certain qualifying assets,

however, the Group has not applied this op-

tion.

Earnings per share

Basic

Basic earnings per share is calculated by dividing

the profit attributable to equity holders of the

Company by the weighted average number of

ordinary shares in issue during the year, exclud-

ing ordinary shares purchased by the Company

and held as treasury shares.

Diluted

Diluted earnings per share is calculated by ad-

justing the weighted average number of ordi-

nary shares outstanding to assume conversion

of all dilutive potential ordinary shares. The Com-

pany has two categories of dilutive potential

ordinary shares: convertible bonds and share

options. The convertible bonds are assumed to

have been converted into ordinary shares and

the net profit is adjusted to eliminate the interest

expense less the tax effect. For the share options,

a calculation is done to determine the number

of shares that could have been acquired at fair

value (determined as the average annual mar-

ket share price of the Companies shares) based

on the monetary value of the rights attached

to outstanding share options. The number of

shares calculated as above is compared with

the number of shares that would have been is-

sued assuming the exercise of the share options.

Potential ordinary shares that are anti-dilutive

are excluded from the calculation.

New accounting pronouncements

At the date of authorization of these financial

statements, the following standards and inter-

pretations that were potentially applicable to

the Group were issued but not yet effective:

IAS 19 (Amendment), Employee Benefits

(effective from 1 January 2006)

This amendment introduces the option of an

alternative recognition approach for actuarial

gains and losses. It may impose additional rec-

ognition requirements for multi-employer plans

where insufficient information is available to ap-

ply defined benefit accounting. It also adds new

disclosure requirements. As the Group does not

intend to change the accounting policy adopt-

ed for recognition of actuarial gains and losses

and does not participate in any multi-employer

plans, adoption of this amendment will only

impact the format and extent of disclosures

presented in the accounts. The Group will apply

this amendment from annual periods beginning

1 January 2006.

IAS 39 (Amendment), The Fair Value Option


This amendment changes the definition of finan-

cial instruments classified at fair value through

profit or loss and restricts the ability to designate


21



financial instruments as part of this category. The

Group believes that this amendment should not

have a significant impact on the classification of

financial instruments, as the Group should be

able to comply with the amended criteria for the

designation of financial instruments at fair value

through profit and loss. The Group will apply this

amendment from annual periods beginning 1

January 2006.

IFRS 7, Financial Instruments: Disclosures, and

a complementary amendment to IAS 1, Pres-

entation of Financial Statements – Capital Dis-

closures


IFRS 7 introduces new disclosures to improve

the information about financial instruments. It

requires the disclosure of qualitative and quan-

titative information about exposure to risks

arising from financial instruments, including

specified minimum disclosures about credit

risk, liquidity risk and market risk, including sen-

sitivity analysis to market risk. It replaces IAS 30,

Disclosures in the Financial Statements of Banks

and Similar Financial Institutions, and disclosure

requirements in IAS 32, Financial Instruments:

Disclosure and Presentation. It is applicable to

all entities that report under IFRS. The amend-

ment to IAS 1 introduces disclosures about the

level of an entity’s capital and how it manages

capital. The Group assessed the impact of IFRS

7 and the amendment to IAS 1 and concluded

that the main additional disclosures will be the

sensitivity analysis to market risk and the capital

disclosures required by the amendment of IAS

1. The Group will apply IFRS 7 and the amend-

ment to IAS 1 from annual periods beginning 1

January 2007.

IFRIC 4, Determining whether an Arrangement

contains a Lease


IFRIC 4 requires the determination of whether an

arrangement is or contains a lease to be based

on the substance of the arrangement. It requires

an assessment of whether: (a) fulfillment of the

arrangement is dependent on the use of a

specific asset or assets (the asset); and (b) the

arrangement conveys a right to use the asset.

Management is currently assessing the impact

of IFRIC 4 on the Group’s operations.

Accounting estimates and judgements

Estimates and judgements are continually evalu-

ated and are based on historical experience and

other factors, including expectations of future

events that are believed to be reasonable under

the circumstances.

Critical accounting estimates and assumptions

For accounting purposes the Group makes esti-

mates and assumptions concerning the future.

The resulting accounting estimates may differ

from the eventual outcome, but are regarded as

the best estimate at balance sheet date. The es-

timates and assumptions that have a significant

risk of causing a material adjustment to the car-

rying amounts of assets and liabilities within the

next financial year are discussed below.

I) Revenue recognition

The Group uses the percentage-of-completion

method in accounting for its engineering and

fabrication contracts. Use of the percentage-of-

completion method requires the Group to esti-

mate the work performed to date as a propor-

tion of the total work to be performed.

II) Income taxes

The Group is subject to income taxes in numer-

ous jurisdictions. Significant judgement is re-

quired in determining the worldwide provision

for income taxes. There are many transactions

and calculations for which the ultimate tax deter-

mination is uncertain during the ordinary course

of business. The Group recognises 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 impact the income tax and

deferred tax provisions in the period in which

such determination is made.

III) Pension benefits

The present value of the pension obligations

depends on a number of factors that are de-

termined on an actuarial basis using a number

of assumptions. The assumptions used in de-

termining the net cost (income) for pensions

include the discount rate. Any changes in these

assumptions will impact the calculated pension

obligations. The Group determines the appropri-

ate discount rate at the end of each year. This

is at interest rate that should be used to deter-

mine the percent value of estimated future cash

outflows expected to be required to settle the

pension obligations. The rate is based on a 10

years government bonds which was 3.64% at

31 December 2005 representing the average

expected period of service. Other key assump-

tions for pension obligation are based on cur-

rent market conditions.

IV) Estimates for rigs and drill ship

At each balance sheet date judgement is used

to determine whether there is any indication of

impairment of the Group fleet of rigs and the

drill ship. If any such indication exists, the as-

set’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 day rates and broker

valuations. If an indicator of impairment is noted,

further management estimate is required to de-

termine the amount, if any, of impairment. In

order to measure for potential impairment, the

carrying amount of the rigs and drill ship would

be compared to the recoverable amount, which

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 signifi-

cant management estimates of the proper dis-

count rates as well as the length and amounts

of cash flows. An impairment loss would then be

recognised to the extent the carrying amount

exceeds the recoverable amount.

V) Estimated impairment of goodwill

In accordance with the accounting policy the

Group tests annually whether goodwill has suf-

fered any impairment. The recoverable amounts

of cash-generating unit have been determined

based on a value-in-use calculation. This calcula-

tion requires the use of estimates and is based

on assumptions that are consistent with the

market valuation of the Group.


22



Notes

Note 2 – Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the

Group’s management and internal reporting structure.

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

Business segments

The Group comprises the following main business segments:

Offshore drilling provides exploration drilling services to the offshore oil and gas industry. The operating expenses within Fred.Olsen Energy ASA is

included within the offshore drilling segment.

Engineering and fabrication provides engineering, fabrication and repair services for various offshore and transportation industries.

Geographical segments

The offshore drilling segment provides drilling services on a worldwide basis while engineering and fabrication segments provides services in UK. The seg-

ment revenue is based on the geographical location of customers.

Business segments

Engineering

Amounts in NOK 000’s Offshore drilling and fabrication Eliminations Consolidated

2005 2004 2005 2004 2005 2004 2005 2004

Revenues from external customers 2 755 797 2 129 626 127 083 213 208 0 0 2 882 880 2 342 834

Inter-segment revenues 0 0 79 861 56 105 (79 861) (56 105) 0 0

Total revenues 2 755 797 2 129 626 206 944 269 313 (79 861) (56 105) 2 882 880 2 342 834

Operating expenses before depreciation

and amortisation (1 909 075) (1 553 230) (155 673) (256 887) 68 841 56 105 (1 995 907) (1 754 012)

Segment result before depreciation

and amortisation 846 722 576 396 51 271 12 426 (11 020) 0 886 973 588 822

Depreciation and amortisation (614 395) (507 430) (3 870) (3 986) 0 0 (618 265) (511 416)

Segment result 232 327 68 966 47 401 8 440 (11 020) 0 268 708 77 406

0 0

Net financing costs (280 567) 35 976 0 0 0 0 (280 567) 35 976

Income tax expense (3 820) (47 376) 0 0 0 0 (3 820) (47 376)

Gain on sale of discontinued operation, net of tax 0 0 0 0 0 353 809 0 353 809

Profit/(loss) for the period (52 060) 57 566 47 401 8 440 (11 020) 353 809 (15 679) 419 815

Segments assets 7 143 482 6 231 716 104 294 136 700 (47 023) (57 878) 7 200 753 6 310 538

Unallocated assets 0 39 059 127 717

Total assets 7 143 482 6 231 716 104 294 136 700 (47 023) (57 878) 7 239 812 6 438 255

Segments liabilities 4 018 997 3 817 414 314 426 377 770 (47 023) (57 878) 4 286 400 4 137 306

Unallocated liabilities 2 824 59 144

Total liabilities 4 018 997 3 817 414 314 426 377 770 (47 023) (57 878) 4 289 224 4 196 450

Capital expenditure 515 735 352 691 3 379 2 752 0 0 519 114 355 443

Geographical segments

Europe Asia Americas Other regions Consolidated

2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Revenues from

external customers 1 823 217 1 122 379 764 384 826 735 205 604 281 952 89 675 111 768 2 882 880 2 342 834

Capital expenditure 184 436 323 758 334 678 31 685 0 0 0 0 519 114 355 443


2�



Note 3 – Discontinued operation

In February 2004, the Group completed the sale of property interests in Belfast, Northern Ireland to Titanic Island Limited, an associated company of the

Dublin based property development company, Harcourt Developments Ltd. On completion, the Group received GBP 37.3 million, being the remaining

part of the gross purchase price of GBP 47 million less net debt obligations and an initial payment of GBP 4.7 million which was received in 2003.

In connection with the completion, Fred.Olsen Energy ASA exercised the option to re-acquire Channel Commercial Park (CCP) following the sale of CCP to a

subsidiary of AS Borgå (wholly owned by Ganger Rolf ASA and Bonheur ASA) in 2003 for an amount of GBP 14 million, less assumption of debt obligations.

CCP was transferred to Titanic Island Limited as part of the overall transaction.

The Group recorded a gain on disposal of NOK 465 million, of which NOK 356 million was recognised in 2004. Upon completion of the sale, the Group has

no remaining real estate operations. The real estate operations were reported within Engineering and fabrication segment.

Note 4 – Salaries and other personnel costs

Amounts in NOK 000’s 2005 2004

Salary 598 446 462 766

Social security costs 68 930 66 506

Pension costs (5 894) 40 906

Other 88 367 65 751

Total 749 848 635 929

Average number of employees 861 687

Number of employees at year end 932 708

The pension costs of (NOK 5 894) include the pension settlement at Harland and Wolff of NOK 42.9 million (see note 17).

Salaries and other personnel costs to the Chief Executive Officer (CEO), the Board of Directors for the parent company and Senior Management of the

Group are as follows:

Chief Executive Officer 2005 2004

Salary 2 351 2 276

Pension costs 1 999 1 461

Other 139 533

Total 4 489 4 270

Board of directors 2005 2004

Renumeration 1 080 1 080

Pension costs 0 0

Other 281 287

Total 1 361 1 367

Senior Management 2005 2004

Renumeration 7 991 7 575

Pension costs 2 204 2 134

Other 2 936 2 367

Total 13 131 12 075

Senior Management consists of Group management, excluding the Chief Executive Officer who is disclosed separately above, and the Managing Directors

of the subsidiaries, for a total of 5 employees.

The management share option scheme implemented in 1997 was terminated from and including 2004 and replaced with a management cash bonus

scheme from 2005. The beneficiaries of the scheme are senior management and certain key personnel. Annual payments under the scheme, maximised

to one year’s salary, are subject to the Group achieving certain pre-defined financial criteria, including achieved budget goals and development of the

Company’s share price. For 2005 the Group made an accrual for the bonus scheme of NOK 16 million which at 31 December 2005 was unpaid. The accrued

bonus is not included above.


24



Notes

Note 5 – Other operating expenses


Repairs and maintenance on offshore units 266 575 229 549

Integrated services/recharged expenses 407 531 337 953

Rig overheads 208 280 236 519

General operating overheads 88 513 64 888

Insurance 58 408 56 936

Professional and operational fees 57 401 39 586

Property rental expenses 8 727 5 369

Bareboat and pool income/expenses 63 377 16 983

Loss on sale of assets 0 21 447

Total 1 158 812 1 009 230

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


Audit 3 645 2 886

Tax advisory services 497 224

Other assurance services 85 187

Other non-audit services 502 1 099

Total 4 729 4 396

Note 6 – Other items


Offshore drilling segment (33 683) 0

Engineering and fabrication segment 0 20 771

In 2004 a provision of NOK 21 million at Harland & Wolff was reversed. The provision related to various restructuring charges from 2002.

In 2005 a final judgement was entered by court in the Navis case (see note 22) against the Group of NOK 172 million, which comprised a share price com-

ponent and an interest component. The Group has made provisions of NOK 137 million in previous years and recorded NOK 34 million as an additional

cost in 2005 upon settlement.

Note 7 – Net financing costs


Financial income

Interest income 9 249 7 930

Gain financial instruments 8 168 160 820

Other financial income 336 22 593

Foreign exchange gain 100 558 222 659

Total 118 311 414 002

Financial Expense

Interest expense 201 277 202 397

Loss financial instruments 118 090 230

Other financial expense 23 530 53 589

Foreign exchange loss 55 981 121 810

Total 398 878 378 026

Net financial income / (expense) (280 567) 35 976

Net financing costs include non-cash interest on borrowings calculated using the effective interest rate method.


2�



Note 8 – Income tax expense

Amounts in NOK 000’s

Recognised in the income statement 2005 2004

Current tax expense

Current tax expense 1 178 11 078

Deferred tax expense 2 642 36 298

Total income tax expense in income statement 3 820 47 376

Deferred tax recognised directly in equity 2005 2004

Relating to convertible notes (2 332) 20 268

(2 332) 20 268

The amount for 2005 represents the tax related to the equity components share of converted bonds in 2005. In 2004 the amount represents the tax related

to the equity component of the convertible bonds at initial recognition.

Reconciliation of effective tax rate 2004

Profit before tax 113 382

Income tax using the domestic corporation tax rate 28.0 % 31 747

Permanent differences -69.6 % (78 944)

Effect of tax rate in foreign subsidiaries -31.5 % (35 682)

Change in limitation of deferred tax assets related to tax loss carryforward 114.9 % 130 255

41.8 % 47 376

Reconciliation of effective tax rate 2005

Loss before tax (11 859)

Income tax using the domestic corporation tax rate 28.0 % (3 321)

Permanent differences -84.0 % 9 967

Effect of tax rate in foreign subsidiaries 960.8 % (113 940)

Change in limitation of deferred tax assets related to tax loss carryforward -937.0 % 111 114

-32.2 % 3 820

Fred.Olsen Drilling AS (now merged with Dolphin International AS) has previously been taxed under the Norwegian Tonnage Tax Regime (NTTR), see more

information in note 28 Explanation of transition to IFRS. In the opening balance sheet as at 1 January 2004, deferred tax was calculated based on a strategy

to re-enter the NTTR in 2004. During 2004, the Group decided not to re-enter the NTTR and accounted for 28% tax of the temporary differences related to

its rigs and drillship, resulting in an increase in income tax expense.


2�



Notes

Note 9 – Property, plant and equipment

Rigs and Machinery and Plant, building

Amounts in NOK 000’s drillship equipment and land Total

Cost

Balance at 1 January 2004 5 159 775 403 440 62 418 5 625 633

Acquisitions 347 242 7 700 501 355 443

Disposals (2 035) (5 429) (32 606) (40 070)

Reclassifications (76 840) 15 845 15 944 (45 051)

Effect of movements in foreign exchange (285 635) (9 383) (1 961) (296 979)

Balance at 31 December 2004 5 142 507 412 173 44 296 5 598 976

Balance at 1 January 2005 5 142 507 412 173 44 296 5 598 976

Acquisitions 508 627 9 683 804 519 114

Disposals 0 (1 165) 0 (1 165)

Reclassifications (25 105) 3 263 0 (21 842)

Effect of movements in foreign exchange 621 757 30 244 3 012 655 013


Depreciation

Balance at 1 January 2004 0 202 189 36 390 238 579

Depreciation charge for the year 463 427 20 772 1 681 485 880

Disposals 0 (4 177) (13 661) (17 838)

Reclassifications 0 7 207 (16 710) (9 503)

Effect of movements in foreign exchange (18 891) (8 862) (884) (28 637)

Balance at 31 December 2004 444 536 217 129 6 816 668 481

Balance at 1 January 2005 444 536 217 129 6 816 668 481

Depreciation charge for the year 574 315 20 162 1 531 596 008

Disposals 0 (341) 0 (341)

Effect of movements in foreign exchange 82 898 10 331 1 701 94 930


Carrying amounts

At 1 January 2004 5 159 775 201 251 26 028 5 387 054

At 31 December 2004 4 697 971 195 044 37 480 4 930 495

At 1 January 2005 4 697 971 195 044 37 480 4 930 495

At 31 December 2005 5 146 037 206 917 38 064 5 391 018

Capitalised costs on the rigs in 2005 included NOK 80 million (2004: 56 million) related to services and materials provided by the Group’s engineering and

fabrication segment.

On 31 December 2005, the Group reclassified NOK 25 million of spare parts previously included in the cost of the rigs of which NOK 3 million relates to parts

included in machinery and equipment and NOK 22 million of consumable spare parts included in inventories. In 31 December 2004, the Group reclassified

NOK 77 million of critical spare parts of which NOK 64 million relates to consumable spare parts and NOK 13 million of rotable assets that are expected

to replace parts that will be refurbished. An additional NOK 3 million has been reclassified from spare part inventories to rotable spare parts included in

machinery and equipment. Consumable spare parts are shown on the balance sheet as inventories and consumable spare parts.


2�



Decommissioning costs

There is no decommissioning liability on the drillship 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 rebuilt when no longer useful, laid up in dry dock or scrapped. For a standard vessel specialised demobilising yards pay for

a vessel to be scrapped per light displacement tonne (LDWT) of the vessel.

Residual values

The residual value is reviewed at each year end, with any change in estimate accounted for as a change in estimate and therefore prospectively.

The most common method to estimate residual values for ships is to use scrap price which is publicly noted by brokers in USD per LDWT of a complete ves-

sel with all normal machinery and equipment on board. This method is used to determine the residual value for the drillship Belford Dolphin. The estimated

residual value for Belford Dolphin as at 31 December 2005 is USD 10.5 million.

Drilling rigs are much more complicated to scrap than ships and have much less metal and scrapable/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 since if the assets were disposed of in their expected ages and conditions at the end of their useful lives, at current prices no

material net amount would be recovered.

Useful lives

The useful lives of the assets are reviewed at each year end. Management has reviewed each of the rigs by expected usage and considered the scheduled

5 years class renewal surveys (RS) going forward and has determined that an extension of expected lifetime for most of the units is appropriate. The Group’s

2nd generation units (Byford, Borgny, Borgsten and Bredford) will be fully depreciated between 2008 and 2012 according to present accounting estimates.

New estimates of the lifetimes for these units are based on the assumption that they will carry out their next forthcoming class RS and continue to operate

five years thereafter. Belford, Bideford, Borgland and Borgholm are either new or substantially upgraded, and have longer expected useful lifetimes than

the 2nd generation rigs. Using the same principle for these units, two more scheduled class renewal surveys have been assumed followed by five years

operation. The effect of these revised useful lives will begin on 1 January 2006.

Estimates

New remaining Net book value as at

In million of NOK Old remaining lifetime lifetime as at 1 Jan 31 December

2006 2005 2004

Belford 18 20 1 743.7 1 594.3

Bideford 13 14 1 014.5 981.9

Borgland 14 14 1 092.3 1 050.6

Byford 3 9 285.9 307.4

Borgny 7 8 161.5 180.3

Borgsten 3 9 254.4 213.4

Bredford 5 11 115.5 149.7

Borgholm 12 12 265.9 220.4

Blackford Under construction 212.3 0.0

Total rigs and drillship 5 146.0 4 698.0

Impairment

There are no indications of possible impairment for any of the Group’s units.


2�



Notes

Note 10 – Intangible assets

Management

Amounts in NOK 000’s Goodwill agreement Total

Cost

Balance at 1 January 2004 98 577 113 921 212 498

Effect of movements in foreign exchange 0 (369) (369)

Balance at 31 December 2004 98 577 113 552 212 129

Balance at 1 January 2005 98 577 113 552 212 129

Effect of movements in foreign exchange 0 6 285 6 285

Balance at 31 December 2005 98 577 119 837 218 414

Amortisation

Balance at 1 January 2004 0 68 486 68 486

Amortisation charge for the year 0 25 647 25 647

Effect of movements in foreign exchange 0 (1 604) (1 604)

Balance at 31 December 2004 0 92 529 92 529

Balance at 1 January 2005 0 92 529 92 529

Amortisation charge for the year 0 22 257 22 257

Effect of movements in foreign exchange 0 5 051 5 051

Balance at 31 December 2005 0 119 837 119 837

Carrying amounts

At 1 January 2004 98 577 45 435 144 012

At 31 December 2004 98 577 21 023 119 600

At 1 January 2005 98 577 21 023 119 600

At 31 December 2005 98 577 0 98 577

Goodwill

The goodwill relates entirely to Dolphin AS, included in the offshore drilling segment.

Impairment

The Group performs an impairment test of the goodwill in December of each year. The value in use is used for the impairment test, which is the present

value of the future cash flows from continuing use and ultimate disposal expected to be derived from the cash generating unit which is Dolphin AS. Fair

value is not readily determinable.

Five years of operating cash flow is used and is based on future budgets based on expected day rates and operating expenses for the rigs being operated

by Dolphin AS. The discount rate used is 10 percent.

Management agreement

The management agreement relates to the purchase of Navis management from Reading and Bates in 2000. The management agreement was purchased

in parallel to the purchase of the drill ship Navis Explorer 1 and has been amortised over its 5 year term, which ended in 2005.


2�



The Group is exposed to credit-, interest rate-

and foreign currency risks in its operations. De-

rivative financial instruments are from time to

time entered into to hedge against fluctuations

in foreign currency rates and interest rate levels.

Credit risk

Due to the nature of the Group’s operations, rev-

enues and related receivables are typically con-

centrated amongst a relatively small customer

base of international oil and gas companies. The

Group continually evaluates the credit risk as-

sociated 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 reputable money

market funds and cash deposits in the Group’s re-

lationship banks. Derivative financial instruments

are normally entered into with the Group’s main

relationship banks. As such, the Group considers

its exposure to credit risk to be low.

At 31 December 2005 there was no significant

concentration of credit risk. Maximum exposure

to credit risk is reflected in the carrying value of

each financial asset, including derivative finan-

cial instruments, in the balance sheet.

Interest rate risk

The Group is exposed to fluctuations in interest

rates for USD and NOK. The Group has used inter-

est rate derivatives to achieve a satisfactory mix

of exposure to fixed and floating interest rate on

its debt instruments. During the recent years, the

Group has had between 50% and 70% of its inter-

est expenses based on fixed rates, either as fixed

rate loans or through interest rate derivatives.

At 31 December 2005, the Group’s USD denomi-

nated debt amounted to USD 421 million, of

which USD 85 million is based on fixed interest

rates through financial derivatives, USD 34 mil-

lion are fixed rate loans and USD 110 million is

related to a fixed rate bond loan of NOK 760 mil-

lion which has been swapped into USD through

currency derivatives agreements. The remaining

portion of the USD debt, amounting to USD 192

million, is based on floating interest rates (USD LI-

BOR) plus a margin. The Group’s NOK debt consist

of a bond loan of NOK 108,5 million maturing in

2006, a bond loan of NOK 760 million maturing in

2009 which has been swapped into USD, and a

convertible bond loan maturing in 2009. The NOK

108,5 million bond loan carries interest based

on floating interest rate (NIBOR) plus a margin

of 1.5% p.a. The NOK 760 million bond loan car-

ries a fixed interest rate of 8.75% p.a. to maturity;

however, the fixed USD based interest rate of the

swapped loan is 9.01% p.a. The NOK 760 million

bonds have been called for redemption on 26

March 2006 including a call premium of 4.5%. The

corresponding currency swaps will be terminated

at the time of the redemption. The convertible

bond loan of approximately NOK 373 million car-

ries a fixed interest rate of 4.5% p.a. to maturity.

At 31 December 2005 the Group had interest rate

derivatives in the aggregate of USD 285 million

(2004: USD 510 million). All interest rate derivatives

as per 31 December 2005 mature in November

2007. When entered into, the duration of the inter-

est rate derivatives were aligned to the duration of

the Group’s major loans, however, following exten-

sions of the maturity of the corresponding loans,

the interest rate derivatives mature earlier.

The fair value of interest rate swaps is the esti-

mated amount that the Group would receive or

pay to terminate the swap at the balance sheet

date. Net fair market value of interest rate deriv-

atives at 31 December 2005 was NOK 20 million

(2004: NOK 59 million) recorded as a liability, of

which none was recorded as current.

Foreign currency risk

The Group is exposed to foreign currency risks re-

lated to its operations and debt instruments. The

Group’s financial statements are denominated in

Norwegian kroner (NOK) and some of the sub-

sidiaries use US dollar (USD) as their functional

currency. Some subsidiaries also used the British

Pound (GBP) as their functional currency in 2004.

The Group’s revenues consist primarily of NOK

and USD with USD as the most dominant cur-

rency. 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 ex-

posure is dependent upon the currency denomi-

nation of future operating contracts. In 2005,

approximately 75% of revenues and 49% of op-

erating expenses are in USD. In the longer term,

a substantial portion of the USD/NOK exposure

is neutralised due to the majority of the Group’s

debt being denominated in USD. At 31 Decem-

ber 2005, approximately 62% of the outstanding

debt was in USD. In addition, the Group has en-

tered into currency swaps totalling NOK 760 mil-

lion of debt denominated in NOK into USD. These

currency swaps increase the USD denominated

portion of total debt to approximately 85% as per

31 December 2005. The market value of the cur-

rency swaps was NOK 39 million at 31 December

2005 (2004: NOK 128 million) recorded as an as-

set, of which none was recorded as current.

At 31 December 2005 the Group had outstand-

ing currency derivative contracts for forward sale

of USD 25 million, of which USD 20 million were

against GBP at an average rate of 1.73 and USD 5

million were against NOK at the spot rate as long

as the spot rate does not exceed 6.98, in which

case the forward rate will be 6.20. All outstand-

ing foreign exchange contracts expire in 2006.

The fair value of forward exchange contracts is

their quoted market price at the balance sheet

date, being the present value of the quoted

forward price. Net fair market value of currency

forward contracts as per 31 December 2005 was

NOK 2.6 million (2004: NOK 7.7 million recorded

as asset) recorded as a liability, of which NOK 2.6

million as current.

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

permanent changes in currency exchange rates

and interest rate levels will have an impact on

the Group’s earnings.

At 31 December 2005 it is estimated that 1 – one

percent incremental change in USD LIBOR and

NIBOR is estimated to have an effect on the net

result before tax of approximately NOK 10 mil-

lion (2004:17 million), taking into account the

impact of interest rate derivatives.

Based on the 2005 year-end results and opera-

tions of the Group, 10 – ten percent incremental

change in the NOK/USD exchange rate is esti-

mated to have an effect on the operating result

of NOK 121 million and on the net result before

tax of approximately NOK 35 million (2004: 44

million). 10 – ten percent incremental change

in the NOK/GBP exchange rate is estimated to

have an effect on the operating result of NOK

26 million and on the net result before tax of ap-

proximately NOK 26 million (2004: 24 million).

Note 11 – Financial instruments

Fred. Olsen Energy ASA - Annual Report 2005�0

�0



Notes

At 31 December 2005, the Group had the following interest rate and currency derivative positions:

Amount Type Level Expiring

Currency contracts

$5 000 000 Forward USD against NOK 6.2 26.05.2006 Spot up to 6.98

$5 000 000 Forward USD against GBP 1.7536 18.10.2006






Notional amount Receive rate Pay rate Duration

Currency swap agreements

$13 571 000 NOK 95 000 000 8.75 % 9.08 % March 2009

$13 792 000 NOK 95 000 000 8.75 % 8.98 % March 2009

$18 202 000 NOK 126 667 000 8.75 % 8.94 % March 2009

$36 582 000 NOK 253 333 000 8.75 % 9.08 % March 2009

$14 245 000 NOK 95 000 000 8.75 % 8.97 % March 2009

$13 571 000 NOK 95 000 000 8.75 % 9.05 % March 2009

Fixed rate agreements

$25 000 000 3 month LIBOR 5.195 % Nov 2007

$10 000 000 3 month LIBOR 4.73 % Nov 2007

$25 000 000 3 month LIBOR 4.88% Nov 2007

$25 000 000 3 month LIBOR 4.93% Nov 2007

$25 000 000 3 month LIBOR 5.01% Nov 2007

$50 000 000 3 month LIBOR 5.02% Nov 2007

Floating rate agreements with addendum

$50 000 000 6 month LIBOR 12 month LIBOR Nov 2007

$25 000 000 5.01 % 3 month LIBOR +1.84% Nov 2007

$50 000 000 5.02 % 3 month LIBOR +1.84% Nov 2007


Non-current assets

Currency swap agreements 38 692 127 717

Current assets

Currency contracts 0 7 657

Total assets 38 692 135 374

Non-current liabilities

Interest rate swaps 19 579 59 149

Current liabilities

Currency contracts 2 589 0

Total liabilities 22 168 59 149

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

Fair values

Financial assets and liabilities in the balance sheet have carrying values equal to their fair values except for financial lease obligations and convertible debt.

Fred. Olsen Energy ASA - Annual Report 2005 �1

�1



Note 12 – Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets Liabilities Net

Amounts in NOK 000’s 2005 2004 2005 2004 2005 2004

Property, plant and equipment (3 122) (3 577) 59 377 108 942 56 255 105 365

Interest bearing loans and borrowings (697) (602) 13 416 150 211 12 719 149 609

Provisions (9 777) (21 327) 3 198 0 (6 579) (21 327)

Other items (18 099) (14 292) 11 283 13 707 (6 816) (585)

Tax value of loss carry-forward recognised (57 107) (234 900) 0 0 (57 107) (234 900)

Tax (assets)/liabilities (88 802) (274 698) 87 274 272 860 (1 528) (1 838)

Set off tax 1) 85 591 272 860 (85 591) (272 860) 0 0

Net tax (assets)/liabilities (3 211) (1 838) 1 683 0 (1 528) (1 838)

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 liabilites relate to income tax levied to the same taxable entity.

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:


Deductible temporary differences 54 181 72 151

Tax losses 746 505 557 393

Total unrecognised deferred tax assets 800 686 629 543

As at 31 December 2005, the tax losses carried forward totaling NOK 2.7 billion are primarily from the UK and Norway. Approximately NOK 1.6 billion of

these tax losses carried forward are available only to offset the taxable income, if any, of a certain subsidiary of Harland & Wolff Group PLC and are conse-

quently not recorded as a deferred tax asset in the accompanying consolidated financial statements. A certain portion of losses carried forward in Norway

are also not recorded as a deferred tax asset due to uncertainty of the level of the future suitable taxable profits.

The tax losses carried forward have no expiry date.

Note 13 – Cash and cash equivalents


Cash related to payroll tax withholdings 13 579 13 771

Other restricted cash 193 475 212 426

Total restricted cash 207 054 226 197

Unrestricted cash 499 125 332 476

Short-term interest bearing investments 10 931 40 002

Total cash & cash equivalents 717 110 598 675

Other restricted cash relates primarily to cash restricted for previous shareholders of Navis ASA and certain driling contract obligations. See additional

information in note 22.

Short-term interest bearing investments consists of deposits in short-term money market accounts.


�2



Notes

Note 14 – Capital and reserves

Share Share Capital Translation Reserve for Retained

Amounts in NOK 000’s capital premium reserve reserve own shares earnings Total

Balance at 1 January 2004 1 206 000 241 200 0 0 (59 711) 613 661 2 001 150

Total recognised income and expense 0 0 (6 641) (234 405) 0 426 456 185 410

Own shares sold 0 0 0 0 1 683 1 371 3 054

Recognition of equity component of

convertible loan notes, net of tax 0 0 52 116 0 0 0 52 116

Conversion of convertible bonds 22 53 0 0 0 0 75

Balance at 31 December 2004 1 206 022 241 253 45 475 (234 405) (58 028) 1 041 488 2 241 805

Balance at 1 January 2005 1 206 022 241 253 45 475 (234 405) (58 028) 1 041 488 2 241 805

Total recognised income and expense 0 0 (8 346) 395 385 0 (7 333) 379 706

Own shares sold 0 0 156 038 0 56 341 61 163 273 542

Conversion of convertible bonds 18 097 43 434 0 0 0 61 531

Derecogniton of equity component of convertible

loan notes due to conversions, net of tax 0 0 (5 996) 0 0 0 (5 996)

Balance at 31 December 2005 1 224 119 284 687 187 171 160 980 (1 687) 1 095 318 2 950 588

Share capital and share premium

Par value per share NOK 20

Number of shares authorized 96 697 040

Number of shares issued 61 205 952

Outstanding shares 2005 2004

As at 1 January 57 399 708 57 314 439

Own shares sold 2 817 058 84 167

Conversion of convertible bonds 904 850 1 102

As at 31 December 61 121 616 57 399 708

As at 31 December 2005 bondholders have converted convertible bonds of NOK 61 531 giving an increase in the number of shares by 904 850.

Capital reserve

This reserve represents the equity component of convertible debt instruments and gain from sales of own shares.

2005 2004

Component of convertible debt instruments net of tax 31 133 45 475

Balance as at 31 December 187 171 45 475

The convertible loan bonds were issued in March 2004. The bonds are convertible into ordinary shares of the Company at any time between the date of issue

of the bonds and their loan maturity date. The bonds are convertible at a conversion price of NOK 68 per share. The net proceeds received from the issue of the

convertible bonds have been split between the liability element and an equity component, calculated as the excess of the issue proceeds over the present value

of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option.

The recognition in income and expense of NOK 8 346 (2004: NOK 6 641) represents the difference between the nominal interest rate for the convertible

bonds (4.5%) and the market rate for bonds without conversion (8.75%) net of tax.

Translation reserve

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

Reserve for own shares

The own shares reserve as at 31 December 2005 represents the cost of shares Fred. Olsen Energy ASA purchased in the market and held by the Company to

settle share options under the Group’s share options schemes. (see note 23). The Company held 84,336 shares as at 31 December 2005 (2004: 2 901 394).

Fred. Olsen Energy ASA - Annual Report 2005 ��

��



Note 15 – Interest-bearing loans and borrowings

Current Non-Current Liability

Interest rate Liability 2010 and

Amounts in NOK 000’s 2005 31.12.05 2006 2007 2008 2009 thereafter

Parent company facilities

FOE Bonds (NOK) 108 500 3.99 % 108 500 0 0 0 0

FOE Bonds (NOK) 760 000 8.75 % 0 0 0 760 000 0

FOE Convertible Bonds (NOK) 373 394 4.50 % 0 0 0 373 394 0

Discount related to the equity component

Convertible Bonds (43 240) 0.00 % 0 0 0 0 0

Total Parent company facilities 1 198 654 108 500 0 0 1 133 394 0

Project / Asset financing

Fleet loans (USD) 1 616 986 6.15 % 240 323 261 091 1 115 572 0 0

Fleet loan (USD) 227 485 6.20 % 33 810 36 731 156 944 0 0

Fleet loan (USD) 203 061 5.22 % 203 061 0 0 0 0

Slender-Well (USD) 59 155 5.42 % 17 640 18 133 18 642 4 740 0

Total Project / Asset financing 2 106 687 494 833 315 956 1 291 158 4 740 0

Government loan stock (GBP) 7 050 0.00 % 3 554 1 748 1 748 0 0

Other 9 665 5.00 % 1 022 8 643 0 0 0

Capitalised transaction costs (26 746) 0.00 % 0 0 0 0 0

Total Interest bearing loan and borrowings 3 295 310 607 909 326 347 1 292 906 1 138 134 0

Current interest bearing loans and borrowings 607 909

Non-Current interest bearing loan and borrowings 2 687 401

Total interest bearing loans and borrowings 3 295 310

Of the interest bearing debt of the Group at 31 December 2005, NOK 2 106 million or USD 311 million is denominated in US dollars. USD 272.5 million of

the amount is related to a USD 300 million credit facility (“the Facility”).

The Group’s debt portfolio consists of several loans, both secured, unsecured and subordinated. The most significant are the Facility agreement and the

senior unsecured bonds totaling NOK 108.5 million and NOK 760 million, maturing in June 2006 and March 2009, respectively. The NOK 760 million loan has

a call option in March 2006. These bonds carry interest at NIBOR plus a margin of 1.5% p.a. for the NOK 108.5 million bonds and an interest rate of 8.75% p.a.

for the NOK 760 million bonds. In March 2004, the Group issued NOK 435 million in 5-year subordinated, convertible bonds. The convertible bonds carry

interest at 4.5% p.a. and a right to convert into shares at a conversion price of NOK 68 per share. The various loan agreements contain several covenants

typical for credit arrangements of this nature. All project/asset financing and capital leases are secured in the related assets.

As of 31 December 2005, the Group was in compliance with its loan covenants.


�4



Notes

Note 16 – Mortgages and Guarantees

The following liabilities are secured by certain assets:


Interest bearing debt 2 106 687 1 943 187

Other guarantees and liabilities 20 306 42 270

Total 2 126 993 1 985 457

The net book value of assets pledged as security:

Rigs and drillship 4 933 848 4 697 971

Other property, plant & equipment 155 680 168 026

Total 5 089 528 4 865 997

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

Note 17 – Employee benefits

Pension Plans

Fred. Olsen Energy ASA and its subsidiaries Dolphin AS and Harland & Wolff Group Ltd/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 2005 was 455. The

pension plan assets consist primarily of bank deposits, investments in fixed income and equity securities and real estate. 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.

Fred. Olsen Energy ASA has an extended pension plan agreement for senior management, in which the beneficiaries will receive 70% of their final year

salary with an option for early retirement at the age of 65.

The funded status of the defined benefit obligations is as follows:


Projected benefit obligation 1 668 204 1 815 804

Plan assets at market value 1 576 762 1 509 573

Funded status (91 442) (306 231)

Unrecognised net experience loss/(gain) (170 851) 3 099

Net liability for defined benefit obligations (262 293) (303 132)

The projected benefit obligations have been reduced significantly mainly due to Harland & Wolff Group has done a detailed review of the financial and

demographic assumptions as at 31 December 2005. In addition significant proportions of their deferred members were given an offer of an enhanced

transfer value and/or a cash payment to be made by H&W.


��



Movements in the net liability for defined benefit obligations recognised in the balance sheet


Net liability for defined benefit obligations at 1 January (303 132) (300 189)

Pension contribution 24 592 29 283

Net benefit/(expense) recognised in the income statement 16 506 (30 330)

Foreign currency translation (258) (1 896)

Net liability for defined benefit obligations at 31 December (262 293) (303 132)

Other investments 6 000 0

Employee benefits (268 293) (303 132)

Net liability for defined benefit obligations at 31 December (262 293) (303 132)

Major categories of plan assets

2005 2004

Equity instruments 50 % 50 %

Bonds 30 % 26 %

Annuities 19 % 24 %

Other assets 1 % 0 %

Plan assets 100 % 100 %

Expense recognised in the income statement


Current service costs 24 487 23 048

Interest on obligations 87 766 92 912

Expected return of plan assets (87 096) (85 630)

Amortisation expense 1 247 0

Deferred pensioner settlement (42 910) 0

Net pension cost/(benefit) for defined benefit plans (16 506) 30 330

The expense is recognised in the line for personnel expenses in the income statement.

The deferred pension settlement of NOK 42.9 million is the result of an irrevocable settlement offer made by the Board and Pension Trustees at Harland

and Wolff to plan participants. Letters were issued to deferred members offering them the option of being transferred out of the pension scheme either by

cash payment or move of their value to an alternative external scheme. An estimate was made by H&W Group of the probable number of participants that

will ultimately accept the offer, and the resulting impact on the pension plan. The estimate was made by the plan actuary based on the responses received

and experience with other similar plans.

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

2005 2004

Assumed salary increases 2.5-3.0% 2.9-3.0%

Discount rates 4.3-4.7% 5.2-5.5%

Interest rates 4.3-4.7% 5.-5.5%

Expected rates of return on pension plan assets 5.3-6.2% 6.5%

The Norwegian group companies have used a discount rate of 4.3% for the calculation of the benefit obligations. The rate is based on 10 years government

bonds which was 3.64% at 31 December 2005 and estimated the discount rate for longer maturity representing the average expected period of pension

commitments.

Fred. Olsen Energy ASA - Annual Report 2005��

��



Notes

Note 18 – Provisions


Provision opening balance 136 929 134 993

Adjustments in the period 35 510 1 936

Provision at year end 172 439 136 929

The increase in provision during 2004 is related to increased interest cost due to the time extention of the Navis court case. The increase in provision for

2005 is due to the Navis court settlement (see note 22) in December were the call price and final interest was decided.

Note 19 – Rental & Leases

Leases

The Group has certain long-term operating leases expiring on various dates, some which contain renewal options. The operational lease cost was NOK 5.8

million and 5.2 million in 2005 and 2004, respectively.

Non-cancellable operating lease rentals are payable as follows:


Less than one Year 4 018 4 310

Between one and five years 14 402 14 612

More than five years 264 034 266 311

282 454 285 232

The Group does not have any financial leases with future commitments beyond 2005. The Group subsidiary Compact Properties in Belfast has a property

lease contract that expires in 2115.

Note 20 – Related Parties

In the ordinary course of business, the Group recognises revenues and expenses with related companies, which may have a significant 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. Revenues, purchases, interest income and expenses from such

companies were as follows:


Revenues

Other related parties 9 533 586

Total 9 533 586

Operating expenses

Other related parties 73 193 21 141

Total 73 193 21 141


��




Accounts receivable


Total 11 310 8 423

Accounts payable

Subsidiaries


Total 36 919 8 382

Loan to employees

Chief Executive Officer 615 0

Loan to employees 995 979

Total 1 610 979

The Group and Bulford Dolphin Pte Ltd owned by First Olsen Tankers (an associated company of Ganger Rolf ASA and Bonheur ASA) entered into a pool

agreement in August 2001 which has been subsequently amended to reflect changes in ownership of the five rigs included in the pool, four of which are

owned by the Group and the fifth, Bulford Dolphin, owned by First Olsen Ltd. See note 1 for additional information.

Other related parties relate entirely to Ganger Rolf ASA and Bonheur ASA and their subsidiaries and Fred. Olsen & Co.

The loan of NOK 615 to the Chief Executive Officer was a short term loan from late November 2005 until February 2006. The interest rate was 2,5 percent p.a.

The loan to employees are cash advances related to business travel.

Note 21 – Capital commitments

Blackford

In June 2005 the Group purchased the semi-submersible drilling rig Ocean Liberator for USD 14 million. The Group renamed the rig Blackford Dolphin and

entered into an upgrade project with projected expenditures of USD 400 million. At year-end 31 December 2005 the value of expenditures represented

7.1% of the total project budget including the rig investment. The Group has contractually committed 75.8% of the total budget of the project, although

related amounts are not reflected in the 2005 annual statements.

Note 22 – Contingencies

Navis Shares

In December the final tranche of the Navis ASA share purchase in 2000-2001 was settled by a final assessment of Borgarting lagmannsrett (a Norwegian

Court of Appeals) in the dispute between the Company and an assignee to the position of a previous minority shareholder in Navis ASA who did not accept

the offer related to the compulsory redemption made in February 2001. The minority shareholder claimed during the hearings that approximately NOK 21, - per

share would be a fair price, whilst Borgarting lagmannsrett arrived at a redemption price of NOK 14.50 per share. The minority shareholder represented 8

848 140 shares, corresponding to 6.6% of the total shares in Navis ASA.

After having commenced proceedings in the redemption case the previous minority shareholder in 2003 commenced separate proceedings against the

Company seeking damages on the basis of the Company’s mandatory bid for Navis shares in November 2000. In December 2005 the Oslo Tingrett (a Nor-

wegian City Court) ruled against these claims following which the plaintiff in January 2006 appealed the ruling.

It is the Group’s opinion, based on legal advice, that there is no support for this claim and no provision has been recognized in these financial statements

as the Group believes the probability of additional loss is remote.


��



Notes

Note 23 – Share based payments

In 1998, the Group’s shareholders resolved to grant the Board of Directors authority to issue up to 3 million shares to be used for an employee incentive

compensation plan designed to align the interest of management with those of its shareholders. All share based payment awards are settled by the physi-

cal delivery of shares. The Group has elected to use the voluntary exemption available for share based payment transactions from the general requirement

for retrospective application of IFRS’s. The recognition and measurement requirements of IFRS2: Share-based Payment is therefore not applied retrospec-

tively to equity instruments that were granted on or before 7 November 2002. The fair value of options granted after the adoption of IFRS2: Share-based

Payment, determined using a Black-Sholes option pricing model, has been insignificant taking into account the terms and conditions upon which the

options were granted. The stock option plan was discontinued in 2004, and no grants have been made under the plan in 2004 or 2005. All options carry an

exercise price which was determined by the market price of the stock price on the date of grant. A summary of options granted is as follows:

Stock options plans 2003 2002 2001 2000 Total

Options awarded 141 000 193 000 167 500 102 500 604 000

Outstanding as of 31.12.05 45 336 35 000 0 0 80 336

Strike price 7.90 40.00 85.00 61.00

Expiry date 05.02.2007 02.02.2006 01.03.2005 Expired

Under the terms of the 2000 plan, the options are not exercisable until one year after grant at which point one third of the options become exercisable and

expire in each of the subsequent 3 years. As of February 2004, all remaining shares expired in accordance with the terms of the 2000 plan.

Under the terms of the 2003, 2002 and 2001 plans, the options are not exercisable until one year after grant at which point one third of the options become

exercisable in each of the subsequent years and expire on the 4th anniversary from the date of grant.

During 2005, 35 998, 55 333 and 102 500 options were exercised by management in accordance with the terms of the 2003, 2002 and 2001 plans respec-

tively. During 2004, 41 667, 38 334 and 22 500 options were exercised by management in accordance with the terms of the plans.

The number and weighted average exercise prices of share options are as follows:

Weighted Weighted

average Number average Number of

exercise prices of options exercise prices options

2005 2005 2004 2004

Outstanding at the beginning of the period 46.55 279 501 38.22 497 832

Forfeited during the period 7.90 5 334 40.79 54 998

Exercised during the period 57.83 193 831 36.83 102 501

Expired during the period - 61.00 60 832

Oustanding at the end of period 21.89 80 336 46.55 279 501

Exercisable at the end of the period 40.00 45 000 73.19 133 833

The weighted average share price at the date of exercise was NOK 97.20 and NOK 60.22 during 2005 and 2004, respectively.

The company does not have any agreement with its senior corporate management that would result in any benefit accruing to them upon termination

of employment.


��



Note 24 – Uncompleted Contracts

At 31 December 2005 the Groups engineering and fabrication division had uncompleted activities on various ship repair, manufacturing and engineering

activities at Harland & Wolff.

Profit recognised of estimated earnings and net outstanding receivables on uncompleted contracts (with unconsolidated entities) are as follows:


Contract Revenue during the period, external 127 083 213 208

Contract Revenue during the period, internal 79 861 56 105

Contract cost incurred plus recognised profit on uncompleted contracts 37 147 23 554

Less progress billings to date (36 960) (14 228)

Accrued and (deferred) revenue, net 186 9 326

The accrued and (deferred) revenue is included in the accompanying Group balance sheet under the following captions:


Accounts receivable 1 934 9 326

Accounts payable (1 748) 0

Accrued and (deferred) revenue, net 186 9 326

Note 25 – Shareholder Information

The shareholders, who hold more than 1% of the shares at 31 December 2005 are as follows:

Shareholder Percent of shares Number of shares

Bonheur ASA 29.59 % 18 111 500

Ganger Rolf ASA 29.59 % 18 111 500

Bank of New York 2.97 % 1 817 734

Fidelity Funds-Europ. Growth/Sic 2.61 % 1 600 000

State Street Bank & Trust Co. (nominee) 2.35 % 1 439 924

JP Morgan Chase Bank 1.41 % 863 280

Morgan Stanley & Co. Inc. (nominee) 1.40 % 859 791

JP Morgan Chase Bank (nominee) 1.24 % 760 293

Others 28.82 % 17 641 930

Total 100.00 % 61 205 952

Shares and options owned by the Company’s directors and senior corporate management at 31 December 2005:

Convertible

Name Title Shares Options bonds (NOK)

Anette S. Olsen Chairman 100 - -

John C. Wallace Director 1 000 - -

Øivin Fjeldstad Director 1 000 - 100 000

Mårten Lunde Director - - -

Ivar J. Saunes Director - - -

Stephen Knudtzon Deputy Director - - -

Helge Haakonsen CEO / Managing Director 10 100 55 000 -

Jan Peter Valheim Chief Financial Officer - 5 000 -


40



Notes

Note 26 – Earnings per share

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

Earnings


Earnings for the purposes of basic and diluted earnings per share being net profit

attributable to equity holders of the parent (15 679) 419 815

Adjustments to exclude profit for the period for discountinued operations 0 (353 809)

Earnings from continuing operations for the purpose of basic and dilutives earnings

per share excluding discontinued operations (15 679) 66 006

Number of shares

In thousands of shares 2005 2004

Weighted average number of ordinary shares for the purposes of basic earnings per share 60 459 57 356

Effect of dilutive potential ordinary shares:

Share options 0 142

Weighted average number of ordinary shares for the purposes of diluted earnings per share 60 459 57 498

Earnings per share

2005 2004

From continuing operations

Basic (0.26) 1.15

Diluted (0.26) 1.15

From discontinued operations

Basic N/A 6.17

Diluted N/A 6.15

In 2004 the other potentially dilutive securities, being the common shares issuable upon conversion of convertible debt, are excluded from the dilutive

earnings per share calculation since they were anti-dilutive.

In 2005 all potentially dilutive securities, being the common shares issuable upon conversion of convertible debt and share options, are excluded from the

dilutive earnings per share calculation since they were anti-dilutive to the loss.


41



As stated in note 1, these are the Group’s first

consolidated financial statements prepared in

accordance with IFRSs.

The accounting policies set out in note 1 have

been applied in preparing the financial state-

ments for the year ended 31 December 2005,

the comparative information presented in these

financial statements for the year ended 31 De-

cember 2004 and in the preparation of an open-

ing balance sheet at 1 January 2004 (the Group’s

date of transition).

In preparing its opening IFRS balance sheet, the

Group has adjusted amounts reported previ-

ously in financial statements prepared in accord-

ance with its old basis of accounting (Norwegian

GAAP). An explanation of how the transition

from Norwegian GAAP to IFRS has affected the

Group’s financial position, financial performance

and cash flows is set out in the following tables

and the notes that accompany the tables.

a) Under IFRS 1: First-time Adoption of Interna-

tional Financial Reporting Standards, the Group

has elected to recognise the cumulative actuarial

gains and losses for defined benefit plans at the

date of transition. This effect is an increase in

employee benefit liabilities accrued in the con-

solidated balance sheet at 1 January 2004 of NOK

290 989 and reduced salaries and other person-

nel costs of NOK 4 490 for the year ended 31 De-

cember.

b) In the past, the Group has measured its rigs

and drillship at historical costs and depreciated

the units over their economic useful lives. Under

IFRS 1, the Group has elected to use the fair mar-

ket value (brokers’ valuation) of the units at the

date of transition as deemed cost. The brokers’

valuation reflects expected sales price in a trans-

action between a willing buyer and a willing

seller. These independent valuations are usu-

ally used within offshore- and shipping. The ag-

gregated fair value used as of 1 January is NOK

5 159 775. The effect is a reduction in property,

plant and equipment as of 1 January 2004 of

NOK 2 698 819 and a reduction of depreciation

expense of NOK 188 300 for the year ended 31

December 2004.

c) IFRS 3 prohibits the amortisation of goodwill

acquired in a business combination an instead

requires the goodwill to be tested for impairment

annually. The effect is a reduced amortisation of

NOK 8 146 for the year ended 31 December 2004.

The impairment test at 1 January and 31 Decem-

ber 2004 showed that there was no need for

impairment.

d) Currency swap agreements entered into

in 2004 are classified as financial assets at fair

value through profit and loss and resulted in an

increase in financial income of NOK 31 745 for

the year ended 31 December 2004 and a corre-

sponding increase in other investments as of 31

December 2004. The fair value as at 31 Decem-

ber 2004 was NOK 127 717 while the nominal

value was NOK 95.973.

e) Borrowing costs have previously been amor-

tised on a straight line basis. According to IAS 39

these costs should be amortised using the effec-

tive interest rate method. The effect is a reduc-

tion in other investments of NOK 39 006 as of 1

January 2004, a decrease in interest-bearing debt

and borrowings of NOK 22 663 as of 1 January

2004 and a reduction in financial expense of NOK

15 018 for the year ended 31 December 2004.

Financial instruments not qualifying for hedge ac-

counting under IAS 39 are classified as financial

instruments measured at fair value through profit

and loss as of 1 January 2004. This resulted in an

increase in other non-current liabilities of NOK

81 249 as of 1 January and a reduction of net fi-

nancing costs by NOK 81 249 for the year ended

31 December 2004.

Convertible bonds issued in 2004 are accounted

for as compound instrument and includes both

liability and equity components. The equity com-

ponent of the convertible notes is calculated as

the excess of the issue proceeds over the present

value of the future interest and principal pay-

ments, discounted at the market rate of interest

applicable to similar instruments without a con-

version option. This was calculated NOK 362 616

as liability and NOK 72 384 as equity at the initial

recognition. The interest expense recognised in

the income statement then reflects the market

rate for notes without conversion resulted in an

increase in financial expense of NOK 9 224 for the

year ended 31 December 2004.

f ) Fred.Olsen Drilling AS has previously been

taxed under the Norwegian Tonnage Tax Regime

(NTTR). The rules of the NTTR provide qualifying

entities, subject to certain conditions, deferral of

corporate income taxes and alternatively levy a

tax based on the net registered tonnage of ap-

plicable vessels. As a result, the calculation of

deferred taxes in prior years included untaxed

profits from entities taxed under the Tonnage Tax

Rules. Due to the estimated time-span until these

profits will be distributed as dividends and thus

become taxable, the related deferred tax liabilities

have been discounted by the Group using a tax

rate of 5%. Under IFRS the full tax at 28% should

be accrued for when there is a legal liability to

pay dividends to shareholders of the Company.

Accordingly, the Group has used 0% until such

dividends are declared. This resulted in a decrease

in deferred tax liability of NOK 76 556 as of 1 Janu-

ary 2004. During 2004, the Group decided not to

re-enter the NTTR and accounted for 28% tax of

the temporary differences related to its rigs and

drillship, resulting in an increase in income tax for

the year ended 31 December 2004.

Deferred tax assets related to pension adjust-

ments as of 1 January 2004 amounts to NOK

5 800. Deferred tax related to adjustments on

financial instruments as of 1 January amounts

to NOK 27 308.

g) Other exemptions from full retrospective ap-

plication elected by the Group

I. Business combinations exemption

The Group has applied the business combina-

tions exemption in IFRS 1. It has not restated

business combinations that took place prior to

the 1 January 2004 transition date.

II. Share-based payment transaction exemption

The Group has elected to apply the share-

based payment exemption. It applied IFRS 2

from 1 January 2004 to those options that were

issued after 7 November 2002 but that have

not vested by 1 January 2005. See note 24.

III. Cumulative translation differences exemption

The Group has elected to set the previously ac-

cumulated cumulative translation to zero at 1

January 2004. This exemption has been applied

to all subsidiaries in accordance with IFRS 1.

h) There is no material change in net cash from

operating, investing or financing activities related

to the transition to IFRSs.

Note 27 – Explanation of transition to IFRSs

...continued


42



Notes

i) Summary of equity adjustments:

Amounts in NOK 000’s Note 1 January 2004 31 December 2004

Equity NGAAP 4 978 886 4 940 548

Pension liabilities a (290 989) (289 923)

Property plant and equipment b (2 698 819) (2 510 558)

Intangible assets 0 8 146

Borrowing cost e (16 343) (1 325)

Financial instruments e (81 249) 31 745

Convertible bonds e 0 63 160

Tax f 109 664 12

Equity IFRS 2 001 150 2 241 805

Reconciliation of the consolidated income statement for 2004

Effect of

Continuing operations NGAAP transition to IFRS IFRS

Amounts in NOK 000’s Note Year ended 31 December 2004

Revenues 2 342 834 0 2 342 834

Materials (129 624) 0 (129 624)

Salaries and other personnel costs a (640 419) 4 490 (635 929)

Other operating expenses (1 009 230) 0 (1 009 230)

Operating profit before depreciation, amortisation,

other items and financing costs 563 561 4 490 568 051

Reversal of restructuring charge 20 771 0 20 771

Depreciation and amortisation b,c (707 862) 196 446 (511 416)

Operating profit/(loss) before financing costs (123 530) 200 936 77 406

Financial income 352 761 61 241 414 002

Financial expense (435 573) 57 547 (378 026)

Net financing costs d,e (82 812) 118 788 35 976

Profit/(loss) before tax and gain on discontinued operation (206 342) 319 724 113 382

Income tax (expense)/income f 42 011 (89 387) (47 376)

Profit/(loss) after tax before gain on discontinued operation (164 331) 230 337 66 006

Gain on sale of discontinued operation 0 0 0

Profit/(loss) for the period (164 331) 230 337 66 006


4�



Reconciliation of the consolidated balance sheet at 1 January 2004

Effect of

Continuing operations NGAAP transition to IFRS IFRS

Amounts in NOK 000’s Note 1 January 2004

Assets

Property, plant and equipment b 8 085 873 (2 698 819) 5 387 054

Intangible assets c 144 012 0 144 012

Other investments 2 309 0 2 309

Financial instruments e 39 006 (39 006) 0

Deferred taxes f 0 58 393 58 393

Total non-current assets 8 271 200 (2 679 432) 5 591 768

Inventories and consumable spare parts 66 665 0 66 665

Financial instruments 0 0 0

Trade and other receivables 511 494 0 511 494


Total current assets 937 157 0 937 157

Net assets - discontinued operations 51 892 0 51 892

Total assets 9 260 249 (2 679 432) 6 580 817

Equity

Issued capital 1 206 000 0 1 206 000

Share premium 241 200 241 200

Capital reserves 0 0

Translation reserves 0 0

Treasury shares (59 711) 0 (59 711)

Retained earnings 3 591 397 (2 977 736) 613 661

Total equity i 4 978 886 (2 977 736) 2 001 150

Liabilities

Interest-bearing loans and borrowings e 2 847 254 (22 663) 2 824 591

Employee benefits a 9 200 290 989 300 189

Deferred taxes f 51 271 (51 271) 0

Financial instruments e 89 215 81 249 170 464

Total non-current liabilities 2 996 940 298 304 3 295 244

Interest-bearing loans and borrowings 651 289 0 651 289


Provisions 0 0 0

Financial instruments 0 0

Other accrued expenses and deferred revenue 478 018 0 478 018

Total current liabilities 1 284 423 0 1 284 423

Total liabilities 4 281 363 298 304 4 579 667

Total equity and liabilities 9 260 249 (2 679 432) 6 580 817


44



Notes

Note 28 – Events after the balance sheet date

Stock options

Subsequent to 31 December 2005 a total of 74 002 options were exercised by management in accordance with the terms of the 2001, 2002 and 2003 stock

option plans.

FOE 01 Bond loan

In February Norsk tillitsmann ASA was notified that the Group will exercise the option to redeem the “FOE 01” bond loan of NOK 760 million. The Group will

redeem the bonds on 26 March 2006 at a redemption price of 104.5%. See also note 15.

Group Re-financing

On 21 March 2006 the Group signed a 7 years bank credit facility of USD 600 million. The credit facility will refinance the USD 300 million credit facility and

the NOK 760 million bond loan.

Note 29 – Previous financial statements

The balance sheets as of 31 December 2004 and 2003 and the income statements for the year ended 31 December 2004 prepared under the previous basis

of accounting (Norwegian GAAP) are presented below.

Consolidated income statement


Revenues 2 342 834 1 696 626

Materials (129 624) (105 222)

Salaries and other personnel costs (640 419) (603 160)

Other operating expenses (1 009 230) (598 482)

Operating profit (loss) before depreciation 563 561 389 762

Exceptional items and write downs 20 771 (54 695)

Depreciation and amortisation (707 862) (709 316)

Operating profit (loss) (123 530) (374 249)

Net financial income (expense) (82 812) (212 378)

Profit (loss) before income taxes (206 342) (586 627)

Income tax (expense) benefit 42 011 (27 061)

Net profit (loss) after tax from continuing operations (164 331) (613 688)

Income (loss) from discontinued operations (1 691) (3 596)

Gain on disposals of discontinued operations 355 500 153 014

Hereof minority interests

Hereof majority interests 189 478 (464 270)

Basic Earnings Per Share (NOK)

Continuing operations (2.9) (10.7)

Discontinued operations 6.2 2.6

Total 3.3 (8.1)

Diluted Earnings Per Share (NOK)

Continuing operations (2.9) (10.7)

Discontinued operations 6.2 2.6

Total 3.3 (8.1)


4�



Consolidated balance sheet - As at 31 December


Assets

Long term assets:

Deferred tax benefit 1 826 -

Goodwill and other intangible assets 111 454 144 012

Rigs 5 204 692 5 558 277

Deepwater drillship 2 003 837 2 300 317

Machinery and equipment 195 044 201 251

Plant, buildings and land 37 480 26 028

Investments in subsidiary companies - -

Other long-term assets 131 081 41 315

Total long-term assets 7 685 414 8 271 200

Current assets:

Inventories and consumable spare parts 129 801 66 665

Accounts receivable 396 718 449 406

Other receivables 132 438 62 088

Cash and cash equivalents 598 675 358 998

Total current assets 1 257 632 937 157

Net Assets - discontinued operations - 51 892

Total assets 8 943 046 9 260 249

Liabilities and Equity

Equity:

Share Capital 1 206 022 1 206 000


Share Premium Reserve 241 200 241 200

Other equity 3 551 354 3 591 397

Minority interests - -

Total equity 4 940 548 4 978 886

Provisions:

Deferred tax liabilities - 51 271

Pension Liabilities 13 209 9 200

Total Provisions 13 209 60 471

Long-term liabilities:

Long-term debt, net of current portion 3 010 681 2 847 254

Other long-term liabilities 59 149 89 215

Total long-term liabilities 3 069 830 2 936 469

Current liabilities:

Accounts payable 156 982 155 116

Short-term and current portion of long-term debt 249 260 651 289

Other accrued expenses and deferred revenue 513 217 478 018

Total current liabilities 919 459 1 284 423

Total liabilities and equity 8 943 046 9 260 249


4�


Income StatementFred. Olsen Energy ASA

For the years ended 31 December

Amounts in NOK 000’s Note 2005 2004 2003

Revenues 799 726 554

Salaries and other personnel costs 3 (23 975) (20 620) (20 155)

Other operating expenses 4 (16 445) (17 426) (28 585)

Operating profit before depreciation, amortisation, other items and financing costs (39 621) (37 320) (48 186)

Depreciation and amortisation 7 (525) (670) (1 015)

Operating profit before financing costs (40 146) (37 990) (49 201)

Financial income 454 758 146 562 230 700

Financial expense (299 176) (294 540) (994 033)

Net financing costs 5 155 582 (147 978) (763 333)

Profit (loss) before tax 115 436 (185 968) (812 534)

Income tax (expense) benefit 6 (147 587) 80 446 16 427

Profit (loss) for the period (32 151) (105 522) (796 107)

Proposed allocation of net profit/coverage of loss:

Other equity (32 151) (105 522) (796 107)



4�


Balance SheetFred. Olsen Energy ASA

As at 31 December


Assets

Property, plant and equipment 7 758 966

Investments in subsidiary companies 16 2 914 533 3 264 533

Other investments 8, 15 3 020 742 2 495 815

Deferred tax assets 6 - 147 226

Total non-current assets 5 936 033 5 908 540

Other investments 419 12 350

Trade and other receivables 9, 15 99 560 36 396


Total current assets 288 308 401 538

Total assets 6 224 341 6 310 078

Equity

Issued Capital 1 224 119 1 206 022


Share Premium 284 687 241 200

Other equity 3 176 535 2 991 538

Total equity 11 4 683 654 4 380 732

Liabilities

Interest-bearing loans and borrowings 12 1 133 394 1 303 425

Other non-current liabilities 13 246 34 438

Total non-current liabilities 1 146 640 1 337 863

Interest-bearing loans and borrowings 12 108 500 382 137


Other accrued expenses 14 252 921 206 124

Total current liabilities 394 047 591 483

Total liabilities 1 540 687 1 929 346

Total equity and liabilities 6 224 341 6 310 078


Oslo, 31 December 2005 / 22 March 2006, Fred. Olsen Energy ASA

Anette S. Olsen John C. Wallace Ivar J. Saunes Mårten Lunde Øivin Fjeldstad Helge HaakonsenChairman Chief Executive Officer


4�



Consolidated Statement of Cash Flows under indirect method

For the year ended 31 December

Amounts in NOK 000’s 2005 2004 2003

Cash flows from operating activities

Profit (loss) before income taxes 115 436 (185 968) (812 534)

Adjustment for:

Depreciation and amortization 525 670 1 015

Loss on sale of property, plant and equipment 9 44 482 10

Unrealised currency (gains)/losses (239 640) 116 451 19 664

(123 670) (24 365) (791 845)

Changes in trade and other receivables (51 233) (86 883) 93 405

Changes in trade and other payables 76 201 62 370 81 325

Changes in other balance items 61 225 (703) -

Taxes paid (refunded) (361) 340 -

Net cash from operating activities (37 838) (49 241) (617 115)

Cash flows from investing activities

Proceeds from sales of property, plant and equipment 200 195 -

Purchase of property, plant and equipment (526) (104) -

Net investment in subsidiary (32 137) - -

Sale of business - 52 576 -

Proceeds from sale of discontinued operations - 386 780 417 962

Net cash from investing activities (32 463) 439 447 417 962

Cash flows from financing activites

Borrowing of interest bearing loans - 1 195 000 -

Repayments of interest bearing loans - (435 500) -

Intercompany loans (367 704) (984 781) 65 841

Sale of treasury shares 273 542 3 054 -

Net cash from financing activites (94 162) (222 227) 65 841

Net increase (decrease) in cash and cash equivalents (164 463) 167 979 (133 312)

Cash and cash equivalents at 1 January 352 792 184 813 318 125

Cash and cash equivalents at 31 December 188 329 352 792 184 813



4�


Notes to the Financial StatementsFred. Olsen Energy ASA

Note 1 – Basis of Presentation

Fred. Olsen Energy ASA (the Company) is domi-

ciled in Norway. The financial statements of the

Company have been prepared in accordance

with generally accepted accounting principles

in Norway.

The financial statements which have been pre-

pared by the Company’s Board of Directors and

management should be read in conjunction

with the report of the board of directors and

the audit report. The financial statements have

been prepared in accordance with the require-

ments of the Norwegian Accounting Act 1998.

The notes and accounting policies refer to the

Company’s financial statements unless specified

otherwise.

Note 2 – Summary of Significant Accounting Policies

Pool Income/Expense

Certain rig owning subsidiaries have entered

into a five-rig pool agreement with the owner

of the Bulford Dolphin, where net earnings be-

fore depreciation are equalised amongst the rig

owners. The Company is established as the pool

manager and is receiving a management fee.

Foreign Currency

Gains and losses on transactions denominated

in foreign currencies are included in financial in-

come (expense). Assets and liabilities are trans-

lated at the exchange rate on the balance sheet

date when they are not hedged or covered by

forward contracts.

Property, plant and equipment

Equipment are recorded at cost and are depre-

ciated on a straigt-line basis over 3-5 years.

Investments in subsidiaries and associates

Investments in subsidiaries are accounted for

using the cost method in the Company’s ac-

counts. The investments are valued at cost less

impairment losses. Write downs to fair value are

recognised when the impairment is considered

not to be temporary.

Classification and valuation of other

balance-sheet items

Current assets and current liabilities include

items due within one year. The rest is 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

Cash and cash equivalents includes cash and

bank deposits that are readily convertible to

cash.

Presentation

The Company has in 2005 adapted to a similar

presentation form as the Group accounts. The

impact of this has been to revise the titles of cer-

tain accounts and to present financial income

and financial expense seperately on the face of

the income statement, rather than net, although

this information was previously presented in the

footnotes. There have been no other material re-

classifications or items effecting consistency.

Long-Lived Assets

The carrying amount of the Company’s 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 rec-

ognised whenever the carrying amount of an

asset exceeds its recoverable amount. The recov-

erable amount is determined by the higher of

value or estimated future discounted cash flows.

In estimating future discounted cash flows, cer-

tain assumptions are made concerning discount

rates which vary depending on the asset, terms

of relevent contracts, foreign currencies, life of

the assets and market growth. Impairment loss-

es are recognised in the income statement.

Financial Instruments

Interest derivatives

The Company uses derivative financial instru-

ments to manage the Group’s exposure to for-

eign exchange and interest rate risks arising from

operational, financing and investment activities.

In accordance with its treasury policy, the Com-

pany does not hold or issue derivative financial

instruments for trading purposes. However, de-

rivative that do not qualify for hedge accounting

are accounted for as trading instruments. Gains

on interest derivatives agreements are recog-

nised throughout the term of the related agree-

ment as payments are settled. Unrealised gains

are deferred until contract amounts are settled.

Unrealised losses on interest rate derivatives are

recognised currently.


The Company has entered into currency swaps

totalling NOK 760 million of debt denominated

in NOK into USD in 2004. The currency swaps

are recorded at the lowest of nominal value and

fair market value.

Forward exchange contracts

The Company enters into forward currency

contracts throughout the year to reduce the

currency exposure on the day-rate and engi-

neering and fabrication income and expenses

in Great British pounds (GBP) and United States

dollars (USD). Unrealised gain/losses on foreign

exchange contracts used to offset the effect of

anticipated transactions are normally marked to

market and recognised as financial income or

expenses.

Income Taxes

Deferred tax assets and liabilities are recog-

nised for the future tax consequences attrib-

utable 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 ap-

ply to taxable income in the years in which the

differences are expected to be recovered or

settled. Deferred tax assets are recognised in the

balance sheet to the extent that is more likely

than not that benefits will be recognised.

...continued


�0


Notes NotesFred. Olsen Energy ASA Fred. Olsen Energy ASA

Note 3 – Salaries and Other Personnel costs

Amounts in NOK 000’s 2005 2004 2003

Salary 14 961 12 917 12 959

Social security costs 2 977 2 463 2 373

Pension costs 3 623 3 284 3 331

Other 2 414 1 956 1 492

Total 23 975 20 620 20 155

Average number of employees 10 12 14

Salaries and other personnel expenses to the Chief Executive Officer (CEO), Board of Directors and Senior management (Chief Financial Officer) for the

Company are as follows:

Chief Executive Officer

Amounts in NOK 000’s 2005 2004 2003

Salary/Remuneration 2 351 2 276 2 028

Pension costs 1 999 1 461 2 024

Other 139 533 122

Total 4 489 4 270 4 174

Board of directors


Remuneration 1 080 1 080

Pension costs - -

Other 281 287

Total 1 361 1 367

Senior management


Remuneration 1 342 1 329

Pension costs 118 107

Other 636 408

Total 2 096 1 844

Use of Estimates

In the preparation of the financial statements,

management is required to make estimates and

assumptions affecting reported amounts of as-

sets and liabilities and disclosure of contingent

assets and liabilities at the date of the financial

statements and the reported amounts of reve-

nue and expenses during the reporting period.

Actual results could differ from those estimates.

Pensions

The Company’s pension plans for employees

provide for a defined pension benefit upon

retirement. The benefit to be received by em-

ployees generally depends on many factors in-

cluding length of service, retirement date and

future salary increases. The Company accounts

for defined benefit pension plans in accordance

with the Norwegian standard for accounting for

pensions. Costs related to these plans are ex-

pensed as incurred.

The management stock option scheme imple-

mented in 1997 was terminated from and in-

cluding 2004 and replaced with a management

cash bonus scheme from 2005. The beneficiaries

of the scheme are management and certain key

personnel. Annual payments under the scheme,

maximised to one year’s salary, are subject to the

Group achieving certain pre-defined financial

criteria, including achieved budget goals and

development of the Company’s share price.

For 2005 the Company made an accrual for the

bonus scheme of NOK 6.3 million, which is not

included in the above figures as it has not been

paid.

Pension Plans

Fred. Olsen Energy 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 sal-

ary upon retirement. The total number of em-

ployees involved in the pension plans as of 31

December 2005 was 11. The pension plan assets

consist primarily of bank deposits, investments

in fixed income and equity securities and real

estate.


�1


The Company has an extended pension plan

agreement for CEO and senior management, in

which the beneficiaries will receive 70% of their

final year salary with an option for early retire-

ment at the age of 65.

The Company is listed, and is therefore required

to present group accounts in accordance with

IFRS as from 2005. In the IFRS opening bal-

ance, the Group used the seperate transition

rules in IFRS for first time use of IAS 19, where

it is allowed to adjust the accumulated actuarial

gain/losses to equity in the opening balance.

According to NRS 6A, an entity can elect to

present pension liabilities in NGAAP accounts in

accordance with IAS 19. The resulting change in

liability can be treated as change in accounting

principle and ajusted to equity. The Company

has used these transitional rules in 2005, which

has resulted in reduction of equity of NOK 9.2

million for 2004 and 2005. Comparable figures

for 2004 have been restated accordingly.

The funded status of the defined pension plans is as follows:


Projected benefit obligation 39 135 30 366

Plan assets at market value 28 393 25 651

Funded status (10 742) (4 715)

Unrecognised net experience loss 5 173 (1 403)

Net pension asset/(liability) (5 569) (6 118)

At 31 December 2005 the net pension liability is presented in the balance sheet as a pension asset of NOK 6 million and as a pension liability NOK 11.5 million.

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

2005 2004 2003

Assumed salary increases 3.0% 3.0% 3.0-5.0%

Discount rates 4.3% 5.5% 7.0%

Interest rates 4.3% 5.5% 8.0%

Expected rates of return on pension plan assets 5.3% 6.5% 8.0%

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

Amounts in NOK 000’s 2005 2004 2003

This period’s earned pensions 3 568 3 497 3 698

Interest expense on pension liabilities 1 444 1 362 1 584

Earnings on pension funds (1 493) (1 413) (1 512)

Amortisation expense 104 (162) 673

Net pension cost for defined benefit plans 3 623 3 284 4 443

The following loans were outstanding to members of the Board of Directors, CEO, management and employees of the Company:


Loan to CEO 615 1) -

Loan to employees - -

Total 615 -

1) Repaid in February 2006

Loans comply with company law requirements and are adequately secured, when required.

Share based payment

In 1998 the Company’s shareholders resolved to grant the Board of Directors authority to issue up to 3 million shares to be used for an employee incen-

tive compensation plan designed to align the interest of management with those of its shareholders. All share based payment awards are settled by the

physical delivery of shares.



�2



Note 4 – Other operating expenses

Amounts in NOK 000’s 2005 2004 2003

General operating overheads 15 276 16 162 27 397

Insurance 11 35 22

Property rental expenses 1 149 1 145 1 156

Loss on sale of assets 9 84 10

Total 16 445 17 426 28 585

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

Amounts in NOK 000’s 2005 2004 2003

Audit 1 060 1 444 932

Other assurance services 57 - -

Tax advisory services 84 151 166

Other non-audit services 310 411 390

Total 1 511 2 005 1 488

Note 5 – Net financing costs

Amounts in NOK 000’s 2005 2004 2003

Financial Income

Interest income 146 466 71 939 44 065

Other financial income 53 968 73 281 181 378

Foreign exchange gains 254 324 1 342 5 257

Total 454 758 146 562 230 700

Financial Expense

Interest expense 111 248 76 196 40 448

Write down of shares in subsidiaries 17 785 - 839 430

Other financial expense 165 070 53 288 36 311

Foreign exchange losses 5 073 165 056 77 844

Total 299 176 294 540 994 033

Net financial income (expense) 155 582 (147 978) (763 333)

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

Other financial income and expense relates primarily to realised and unreailsed gains and losses on various financial instruments.

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


��


Note 6 – Income tax expense

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


Long-term differences decreasing future taxable income 4 674 (29 914)

Long-term differences increasing future taxable income 0 -

Net temporary difference 4 674 (29 914)

Losses carried forward (393 326) (495 893)

Limitation of deferred tax assets 388 652 -

Basis for deferred tax liabilities 0 (525 807)

Net deferred tax (assets) liabilities 0 (147 226)

A certain portion of tax losses carried forward is not recorded as a deferred tax asset due to uncertainty of the level of future suitable taxable profits.

The provision for income taxes is as follows:

Amounts in NOK 000’s 2005 2004 2003

Income taxes payable (refundable) for the period - - -

Income taxes payable (refundable) from previous year 361 (307) -

Deferred income tax (benefit) expense 147 226 (80 139) (16 427)

Income tax expense (benefit) 147 587 (80 446) (16 427)

Taxes payable are as follows:

Amounts in NOK 000’s 2005 2004 2003

Profit (loss) before income tax 115 436 (185 968) (812 538)

Change in temporary differences (34 588) (16 465) 855 769

Group contribution - - (2 279)

Permanent differences 21 719 (293 460) 275 764

Utilisation of tax loss carryforwards (102 567) - (316 716)

Basis taxes payable 0 (495 893) 0

Tax rate 28 % 28 % 28 %

Effective tax rate:


Expected income tax expense according to statutory tax rate (28%) 32 322 28 % (52 071) 28 %

Permanent differences 6 081 (82 169)

Reversed temporary differences related to write offs of shares - 58 926

Changes in limitation of deferred tax assets 108 823 -

Corrections from previous year 361 (5 132)

Income tax expense (benefit) 147 587 128 % (80 446) 43 %



�4



Note 7 – Property, plant and equipment


Cost

Balance at 1 January 4 618 4 954

Additions during the period 526 104

Disposals during the period (457) (440)

Balance at 31 December 4 687 4 618

Depreciation

Balance at 1 January 3 652 3 143

Depreciation during the period 525 670

Disposals during the period (248) (161)

Balance at 31 December 3 929 3 652

Net book value as of 31 December 758 966

Note 8 – Other non-current assets


Pension assets (see note 3) 6 000 5 820

Long-term receivables (see note 15) 2 989 562 2 381 602

Financial instruments (see note 18) 15 688 95 972

Capitalised borrowing costs 9 492 12 421

Total 3 020 742 2 495 815

Financial instruments relate to currency swaps of NOK 760 million into USD at an average NOK/USD rate of 6.46. The swaps are aligned with the Company’s

NOK 760 million bond loan (see note 12 for furter information about loans). Capitalised borrowing costs relate to expenses incurred in connection with

establishing the Company’s interest-bearing loans and borrowings.

Note 9 – Trade and other receivables


Trade and other receivables 1 456 1 399

Related parties (note 15) 98 104 34 997

Total 99 560 36 396

Note 10 – Cash and cash equivalents


Payroll taxes 566 1 015

Other restricted cash 131 974 130 147

Total restricted cash 132 540 131 162

Unrestricted cash 55 789 181 628

Short-term interest bearing investments 0 40 002

Total cash and cash equivalents 188 329 352 792

Other restricted cash relates primarily to cash restricted for previous shareholders of Navis ASA.

Short-term interest bearing investments consisted of deposits in short-term money market accounts.


��


Note 11 – Capital and reserves

Share Paid in

Share Treasury premium other Other

Amounts in NOK 000’s capital shares reserve equity equity Total

Balance at 1 January 2004 1 206 000 (59 711) 241 200 2 338 3 100 432 4 490 259

Changes of principles - - - - (7 134) (7 134)

Net loss for the period - - - - (105 522) (105 522)

Conversion of convertible notes 22 - - 53 - 75

Treasury shares - 1 683 - - 1 371 3 054

Balance at 31 December 2004 1 206 022 (58 028) 241 200 2 391 2 989 147 4 380 732

Balance at 1 January 2005 1 206 022 (58 028) 241 200 2 391 2 989 147 4 380 732

Net loss for the period - - - - (32 151) (32 151)

Conversion of convertible notes 18 097 - 43 434 - - 61 531

Treasury shares - 56 341 - 156 038 61 163 273 542

Other changes - - 53 (53) - -

Balance at 31 December 2005 1 224 119 (1 687) 284 687 158 376 3 018 159 4 683 654

Changes in principles see note 3.

Treasury shares

The Company holds 84 336 of its own shares at 31 December 2005. During 2005 the Company sold 2 817 058 treasury shares.

Par value

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

Conversion of convertible notes

For the year ended 31 December 2005 convertible bondholders have converted 904 850 shares.

Unrestricted equity

The unrestricted equity of the parent Company is as follows:

Amounts in NOK 000’s

Other equity 3 018 159

Paid in other equity 158 376

Treasury Shares (1 687)

Total 3 174 848



��



Note 12 – Interest-bearing loans and borrowings

Scheduled repayments

Interest rate 2010 &

Amounts in NOK 000’s 2005 31.12.05 2006 2007 2008 2009 Thereafter

Parent company facilities

FOE Bonds (NOK) 108 500 3.99 % 108 500 - - - -

FOE Bonds (NOK) 760 000 8.75 % - - - 760 000 -

FOE Convertible Bonds (NOK) 373 394 4.50 % - - - 373 394 -

Total parent company facilities 1 241 894 108 500 - - 1 133 394 -

At 31 December 2005 the Company has outstanding unsecured senior bonds totalling NOK 868.5 million, of which NOK 108.5 million are due in June 2006

and NOK 760.0 million in March 2009. In addition, the Company in 2004 issued NOK 435 million in subordinated convertible bonds, due in March 2009.

The holders of the convertible bonds have the right to convert bonds into shares in the Company at a conversion price of NOK 68 per share. Following

conversion of bonds into shares in Fred. Olsen Energy ASA during 2004 and 2005, outstanding amount under the convertible bond loan at 31 December

2005 was NOK 373.4 million.

In March 2006 the NOK 760 million senior bonds were redeemed, following the exercise of an early redemption option. See note 20.

As of 31 December 2005 the Company was in compliance with all covenants in the loan agreements.

Note 13 – Trade and other payables


Trade 6 093 3 177

Related parties (note 15) 26 533 45

Total 32 626 3 222

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

Note 14 – Other accrued expenses


Navis settlement (note 24) 172 439 136 929

Accrued interest expense 64 680 62 800

Accrued wages 9 074 3 921

Other 6 728 2 474

Total 252 921 206 124


��


Note 15 – Related Parties

In the ordinary course of business, the Company recognises revenues and expenses with related companies, which may have a significant impact on the

Company’s financial statements. The Company 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. Revenues, purchases, interest income and expenses from such companies

were as follows:

Amounts in NOK 000’s 2005 2004 2003

Revenues

Subsidiaries 646 578 416

Other related parties 153 148 138

Total 799 726 554

Operating expenses

Other related parties 4 326 4 158 5 574

Total 4 326 4 158 5 574

Interest income

Subsidiaries 144 757 67 603 38 457

Other related parties - - 81

Total 144 757 67 603 38 538

Interest expenses

Subsidiaries 9 315 777 760

Total 9 315 777 760

See note 4, 5, 9, 13 for further information on transactions with related parties.

Amounts in NOK 000’s 2005 2004 2003

Trade and other receivables

Subsidiaries 89 051 32 294 10 921

Other related parties 9 053 2 703 -

Total 98 104 34 997 10 921

Other non-current assets

Subsidiaries 2 988 946 2 381 602 1 106 585

Other related parties 616 - -

Total 2 989 562 2 381 602 1 106 585

The subsidiaries will pay back the loans based on the “pay-as-you earn” principle.

Trade and other payables

Subsidiaries 26 533 45 721

Other related parties - - 1 087

Total 26 533 45 1 808

Current interest-bearing loans and borrowings

Subsidiaries - 382 137 91 772

Total - 382 137 91 772

Other related parties relate entirely to Ganger Rolf ASA and Bonheur ASA and their subsidiaries and Fred. Olsen & Co.



��



Note 16 – Shares in Subsidiaries and Other Equity Investments

Amounts in NOK 000’s % of holding & Net profit Historical Accumulated Book

Subsidiaries Business Offices voting shares Equity (loss) Cost Write downs Value

Dolphin AS Tananger 100 % 179 659 (8 761) 750 611 555 693 194 918

Dolphin International AS Oslo 100 % 1 441 489 457 475 2 717 264 - 2 717 264

Atlan Shipping Co. Ltd. Hamilton Bermuda 100 % (45 046) (2 170) 855 491 855 491 2 279

Navis Drilling Ltda. Brazil 2 % (333) - 72 - 72

Total 4 323 438 1 411 184 2 914 533

The subsidiary Fred. Olsen Drilling AS has with effect of 1 January 2005 been merged into subsidiary Dolphin International AS.

Note 17 – Shareholder Information

The shareholders, who hold more than 1% of the shares at 31 December 2005 are as follows:

Shareholder Percent of shares Number of shares

Bonheur ASA 29.59 % 18 111 500

Ganger Rolf ASA 29.59 % 18 111 500

Bank of New York 2.97 % 1 817 734

Fidelity Funds-Europ. Growth/Sic 2.61 % 1 600 000

State Street Bank & Trust Co. 2.35 % 1 439 924


Morgan Stanley & Co. Inc. 1.40 % 859 791


Others 28.82 % 17 641 930

Total 100.00 % 61 205 952

Each share has one vote.

Shares and options owned by the Company’s directors and senior management at 31 December 2005:

Convertible

Name Title Shares Options bonds (NOK)

Anette S. Olsen Chairman 100 - -

John C. Wallace Director 1 000 - -

Øivin Fjeldstad Director 1 000 - 100 000

Mårten Lunde Director - - -

Ivar J. Saunes Director - - -

Stephen Knudtzon Deputy Director - - -

Helge Haakonsen CEO / Managing Director 10 100 55 000 -

Jan Peter Valheim Chief Financial Officer - 5 000 -


��


Note 18 – Financial Instruments


The Company is exposed to interest rate- and

foreign currency risks in its operations. Deriva-

tive financial instruments are from time to time

entered into to hedge against fluctuations in for-

eign currency rates and interest rate levels.

Interest rate risk

The Company is exposed to fluctations in inter-

est rate for NOK. The Company has used interest

rate derivatives to achieve a satisfactory mix of

exposure to fixed and floating interest rate on it’s

debt instruments.

The Company’s NOK debt as of 31 December

2005 consists of a bond loan of NOK 108.5

million maturing in 2006, a bond loan of NOK

760 million maturing in 2009 which has been

swapped into USD, and a convertible bond loan

maturing in 2009. The NOK 108.5 million bond

loan carries interest based on floating interest

rate (NIBOR) plus a margin of 1.5% p.a. The NOK

760 million bond loan carries a fixed interest

rate of 8.75% p.a. to maturity; however, the fixed

USD based interest rate of the swapped loan is

9.01% p.a. The NOK 760 million bonds have been

called for redemption on 26 March 2006 includ-

ing a call premium of 4.5%. The corresponding

currency swaps may be terminated at the time

of the redemption. The convertible bond loan

of approximately NOK 373 million carries a fixed

interest rate of 4.5% p.a. to maturity.

At 31 December 2005 the Company had interest

rate derivatives of USD 35 million (2004: USD 260

million). The interest rate derivatives mature in

November 2007.

The fair value of interest rate swaps is the es-

timated amount that the Company’s would

receive or pay to terminate the swap at the bal-

ance sheet date. Net fair market value of interest

rate derivatives at 31 December 2005 was NOK

1.7 million (2004: NOK 22.5 million) recorded as a

liability, of which none was recorded as current.


The Company has entered into currency swaps

totalling NOK 760 million of debt denominated

in NOK into USD. The market value of the cur-

rency swaps was NOK 39 million at 31 December

2005 (2004: NOK 128 million). The nominal value

in the Company is NOK 16 million at 31 Decem-

ber 2005 (2004: NOK 95 million) and recorded as

non-current assets in the balance sheet.

Forward exchannge contracts

At 31 December 2005 the Company had out-

standing currency derivative contracts for for-

ward sale of USD 25 million, of which USD 20

million were against GBP at an average rate of

1.73 and USD 5 million were against NOK at the

spot rate as long as the spot rate does not ex-

ceed 6.98, in which case the forward rate will be

6.20. All outstanding foreign exchange contracts

expire in 2006.

The fair value of forward exchange contracts is

their quoted market price at the balance sheet

date, being the present value of the quoted

forward price. Net fair market value of currency

forward contracts at 31 December 2005 was

NOK 2.6 million (2004: NOK 7.7 million recorded

as assets) recorded as a liability, of which NOK 2.6

million is current.

At 31 December 2005 the Company had the following interest rate and currency derivative positions:

Fixed rate agreements


USD 25 000 000 3 month LIBOR 5.195 % Nov 2007

USD 10 000 000 3 month LIBOR 4.73 % Nov 2007

Currency swap agreements


USD 13 571 000 NOK 95 000 000 8.75 % 9.08 % March 2009

USD 13 792 000 NOK 95 000 000 8.75 % 8.975 % March 2009

USD 18 202 000 NOK 126 667 000 8.75 % 8.94 % March 2009

USD 36 582 000 NOK 253 333 000 8.75 % 9.08 % March 2009

USD 14 245 000 NOK 95 000 000 8.75 % 8.97 % March 2009

USD 13 571 000 NOK 95 000 000 8.75 % 9.045 % March 2009

Foreign exchange contracts

Notional amount Level Expiring

USD 5 000 000 6.2000 26.05.2006

USD 5 000 000 1.7536 18.10.2006

USD 5 000 000 1.7537 18.10.2006

USD 2 500 000 1.7064 28.02.2006

USD 2 500 000 1.7075 31.05.2006

USD 2 500 000 1.7096 31.08.2006

USD 2 500 000 1.7112 30.11.2006


�0


Notes

Note 19 – Contingencies

Navis Shares

Borgarting lagmannsrett (a Norwegian Court of

Appeals) gave their final assessment in the dis-

pute between the Company and an assignee to

the position of a previous minority shareholder

in Navis ASA (Navis) who did not accept the offer

related to the compulsory redemption made in

February 2001.

The minority shareholder was redeemed at NOK

12.49 per share, whilst Borgarting lagmannsrett

arrived at a redemption price of NOK 14.50 per

share.

The minority shareholder represented 8,848,140

shares, corresponding to 6.6% of the total shares

in Navis.

None of the parties have appealed the ruling by

Borgarting lagmannsrett, following which it was

effective as of 4 January 2006.

After having commenced proceedings in the

redemption case described above the previous

minority shareholder in 2003 commenced sepa-

rate proceedings against the Company seeking

damages on the basis of the Company’s manda-

tory bid for Navis shares in November 2000. In

December 2005, the Oslo tingrett (a Norwegian

City Court) ruled against these claims following

which the plaintiff in January 2006 appealed the

ruling.

It is the Company’s opinion, based on legal ad-

vice, that there is no support for this claim and

no provision has been recognized in these finan-

cial statements as the Company belives the pos-

sibility of additional loss is remote.

Note 20 – Subsequents events

Events after the balance sheet date

Stock options

Subsequent to the year-end 2005 a total of

74 002 options were exercised by management

in accordance with the terms of the 2001, 2002

and 2003 stock option plans.

FOE 01 Bond loan

In February Norsk tillitsmann ASA was notified

that the Company will exercise the option to re-

deem the “FOE 01” bond loan of NOK 760 million.

The Company will redeem the bonds on 26th

March 2006 at a redemption price of 104.5%. See

also note 12.

Guarantee

In March 2006 the Company’s 100% owned sub-

sidiary, Dolphin International AS, refinanced its

USD 300 million credit facility, dated 15 July 2004

by raising a new 7 years credit facility of USD 600

million. The new credit facility will also refinance

the NOK 760 million senior debt notes, follow-

ing the exercise of the early redemption option,

and the short-term credit facility of USD 30 mil-

lion. The new USD 600 million Loan Agreement

will be structured similar to the USD 300 million

Loan Agreement, including vessel mortgages,

and will contain a set of undertakings usual for

loan agreements of this nature. The Loan Agree-

ment will have a parent company guarantee

from the Company.

NotesFred. Olsen Energy ASA


�1


Auditor’s Report


�2


Investor Information

20 largest shareholders

31.03.2006 Country Shares Interest

1 Bonheur ASA Norway 18 111 500 29.52 %

2 Ganger Rolf ASA Norway 18 111 500 29.52 %

3 Morgan Stanley And Co.Intl.Limited United Kingdom 2 280 750 3.72 %

4 Fidelity Funds-Europ. Growth/Sicav Luxembourg 1 602 000 2.61 %

5 State Street Bank & Trust Co. USA 1 339 462 2.18 %

6 JP Morgan Chase Bank United Kingdom 1 114 404 1.82 %

7 Morgan Stanley & Co. Inc. United Kingdom 664 830 1.08 %

8 Bank Of New York, Brussels Branch Belgium 655 526 1.07 %

9 Folketrygdfondet Norway 597 450 0.97 %

10 Odin Norden Norway 494 300 0.81 %

11 Dresdner Bank AG Germany 489 621 0.80 %

12 Fortis Gobal Custody Neterlands 399 197 0.65 %

13 Fortis Bank Luxembourg Luxembourg 390 188 0.64 %

14 Avanse Norge (II) Norway 379 800 0.62 %

15 Clearstream Banking S.A. Luxembourg 349 562 0.57 %

16 Deutsche Bank AG London United Kingdom 338 687 0.55 %

17 Vital Forsikring ASA Norway 337 200 0.55 %

18 Bnp Parisbas Sec.services Paris France 297 600 0.48 %

19 DnbNOR Norge (IV) V Norway 291 136 0.47 %

20 Bank Of New York, Brussels Branch Belgium 287 100 0.47 %

Total 20 Largest 48 531 813 79.09 %

The FOE share price continued its strong

development in 2005

Shareholder policy

The Company’s long-term objective is to provide

a competitive return for its shareholders. Being

listed on Oslo Stock Exchange the Company

works actively to promote the liquidity of its

shares in the marketplace. Emphasis is placed in

its investor relation activities on creating a good

understanding of the Company and relevant

sector-specific issues, and the Company en-

deavors to make the share attractive to a broad

investor base.

Information policy

The Company aims to provide relevant informa-

tion in a coordinated and effective manner at

the same time to all market participants. The

Company’s management is conscious of the

market requirements for openness and trans-

parency in addition to the compliance require-

ments of Oslo Stock Exchange.

The Company informs the market through

quarterly and annual reports, presentations to

investors and analysts and through publication

of operational and financial information on the

company’s Internet site. Price-sensitive events

are timely reported to the market through stock

exchange notices in accordance with the pro-

visions of the Stock Exchange Regulations. The

Company’s quarterly results are published im-

mediately after they have been considered and

approved by the Company’s Board, followed by

a presentation to the finance market. In addition,

the Company holds presentations at investor

conferences and attends regular meetings with

analysts and investors at which the Company’s

business is reviewed within the limits set by the

Stock Exchange’s recommendations on contact

with analysts.

Share information

The Company has been listed on the Oslo Stock

Exchange since 15 October 1997. In 2005, the

share capital increased by NOK 17,361,720 to

NOK 1,223,383,760, which equals 61,169,188

shares. The change is due to conversion of

868,086 shares from the convertible bond loan

(FOE 02) during the year.

Per 31.12.05

Total issued shares 61 169 188

Nominal value (NOK) 20

Share capital (NOK) 1 223 383 760

Indices (see comments below);

OSEAX Oslo Børs All-share Index

OBX index

OSE10GI Energy

OSE1010GI Energy

The Company’s share is traded on Oslo Stock Ex-

change under the symbol FOE and is included

in Oslo Stock Exchange’s Energy Indices (OS-

E10GI and OSE1010GI), OBX index (OBX) and

the All Share Index (OSEAX). As at year-end 2005

the Company was no. 7 (up from no. 8) largest

measured by market value of the 57 companies

in the energy sector on Oslo Stock Exchange

and ranked no. 14 (up from no. 24) in terms of

market value of all companies on Oslo Stock

Exchange.

Shareholder structure

The 20 largest shareholders of Fred. Olsen En-

ergy ASA owned 79.1 per cent of the outstand-

ing shares in the Company at 31 March 2006,

while the comparable figure for 2004 was 81.6

percent. By the end of March 2006 the Company

owns 6,334 treasury shares.

At 31 March 2006 Fred. Olsen & Co. related com-

panies (Bonheur ASA and Ganger Rolf ASA) con-

trolled a total of 36,223,000 (59%) shares in Fred.

Olsen Energy ASA, which is unchanged since the

listing of the Company on Oslo Stock Exchange

in 1997.

Disregarding the Fred. Olsen & Co. related com-

panies there have been significant changes on

the top 20 list of shareholders from 2004 to 2005.


��



Share Development

2005 2004 2003 2002 2001 2000

Transactions

Shares traded 106 239 000 61 949 000 68 942 000 17 857 000 29 445 000 38 733 000

Value (MNOK) 16 393 3 628 1 153 535 1 960 2 789

No. of transactions 77 244 24 428 12 495 5 534 10 338 16 218

Average daily trading volume 419 917 244 858 290 895 73 184 118 730 154 932

Average volume traded per transaction 1 375 2 536 5 518 3 227 2 848 2 388

Average daily turnover 64 796 411 14 339 921 4 611 384 2 141 076 7 840 344 11 156 584

No. of trading days 253 253 237 244 248 250

Turnover velocity 1.74 1.03 1.14 0.30 0.49 0.64

Price and return

Share price at year end 243 87.5 28.5 9.5 43.5 64.5

Share price high/low 243/84,25 87,75/29,30 29 / 6,4 48 / 8,5 88 / 36,5 88 / 58

Market value year end 14 864 5 276 1 719 573 2 623 3 889

Total return 177.7 % 207.0 % 200.0 % -78.2 % -32.6 % 0.0 %

Dividend - - - - - -

Distribution of shares - 2005

Size group Number of % of shareholders Shares % of total shares

1 - 10 000 2808 92.70 % 1 838 836 3.01 %

10 000 - 100 000 164 5.41 % 5 219 211 8.53 %

100 000 - 1 000 000 51 1.68 % 13 030 483 21.30 %

1 000 000 < 6 0.20 % 41 080 658 67.16 %

Total 3 029 100 % 61 169 188 100 %

0

1000000

2000000

3000000

4000000

5000000

6000000

FOE share price and volume

300 NOK shares (‘000) 6 000

250 5 000

200 4 000

150 3 000

100 2 000

50 1 000

0 0

2000 2006

Development in FOE share against index from 2000

500 % Index FOE Index OSEBX Index OSE10GI

400

300

200

100

0

01.2000 03.2006

0

50

100

150

200

250

300

0

100

200

300

400

500

Especially the number of non-Norwegian share-

holders increased during 2005.

In total the Company had 3,029 shareholders at

the end of 2005. This represents a reduction of

5.1 per cent compared with 2004 (3,193). 234

foreign investors owned in aggregate 27.56 per

cent of the total shares. The corresponding fig-

ure at the end of 2004 was 113 investors and

10.91 per cent. At the end of March 2006, non-

Norwegian shareholders have increased to 247

with a total shareholding of approximately 28.5

per cent.

The Company has wide shareholder represen-

tation from institutional investors such as pen-

sion funds, life insurance companies and mutual

funds. 92.7 per cent of the shareholders have

less than 10,000 shares in the Company.

Share development

At the end of 2005 the Company had a market

capitalisation of NOK 14.9 billion. The share rose

during the year from NOK 87,50 to NOK 243,

corresponding to an increase in value of 178

per cent. The Oslo Stock Exchange Main Index

(OSEBX) and the Energy Index (OSE10GI) rose

during the same period by 40.5 per cent and

79.5 per cent respectively.

Liquidity

106,239,000 FOE shares were traded in 77,244

transactions in 2005. The turnover figures for

the year represent an increase of 70 per cent


�4


0

5000

10000

15000

20000

25000

30000

35000

96

97

98

99

100

101

102

103

0

3000

6000

9000

12000

15000

18000

21000

50

100

150

200

250

300

350

400


from the previous year. The share turnover velo-

city came in at 174% which is well above the 5

years average of 94%. The total turnover value

increased by 352% to NOK 16,3 billion.

Bond loans

In February Norsk Tillitsmann ASA was notified

that the Company would exercise the option to

redeem the bond loan (FOE 01) NOK 760 million

of unsecured bonds. The Company redeemed

the bond loan FOE 01 on 26th March 2006 at a

redemption price of 104.5%.

After the redemption of FOE 01 the Company

has two bond loans. NOK 435 million of subor-

dinated convertible bonds (FOE 02) issued in

March 2004 and maturing in March 2009 and

NOK 108.5 million of unsecured bonds (FOE 00)

issued in 2001 and maturing in June 2006.

Holders of the convertible bonds (FOE 02) have

the right to convert to shares at a price of NOK

68 per share. If the bonds are fully converted to

shares, the Company will issue 6,397,058 new

shares. The conversion right expires on 28 Febru-

ary 2009. By end March 2006 approximately NOK

72 million had been converted into 1,061,833

shares.

Fred Olsen Energy ASA bonds as per March 2006

Subordinated

Loan Unsecured convertible

Symbol FOE 00 FOE 02

Issue date 21 June 2001 30 March 2004

Outstanding Loan 108 500 000 362 794 000

Interest 3 months NIBOR + 1.5% 4.5%

Interest terms Floating Fixed

Maturity Date 21 June 2006 30 March 2009

Interest rate 31.03.06 3.99% 4.50%

Interest payment Quarterly Yearly

FOE 00

103 % Volume (million) 35

102 30

101 25

100 20

99 15

98 10

97 5

96 0

09.2004 04.2006

FOE 02 Convertilble 4.5%

400 % Volume (million) 21

350 18

300 15

250 12

200 9

150 6

100 3

50 0

09.2004 04.2006

NOK 3m Nibor

2.90 Nibor rate

2.75

2.60

2.45

2.30

2.15

2.00

1.85

09.2004 04.2006

1,85

2,00

2,15

2,30

2,45

2,60

2,75

2,90


��



Risk

Norwegian tax rules require that, in calculating

sales gains, shareholders who are taxable in Nor-

way must adjust the historical cost price of the

shares by a RISK amount (Regulation of open-

ing value by taxed capital). The RISK amount

corresponds to the result for tax purposes after

tax and dividends. In this way double taxation

of that part of the sales gain which relates to

earlier retained taxed profits is avoided. Share-

holders who are not taxable in Norway are not

affected by the rules. Set out below are the RISK

amount per share calculated for 2005 and the 7

previous years:

Year RISK-amount per share

2005 0.00 NOK

2004 0.42 NOK

2003 1.54 NOK

2002 -1.83 NOK

2001 0.39 NOK

2000 0.84 NOK

1999 0.17 NOK

1998 0.00 NOK

Financial calendar

Annual General Meeting

The Annual General Meeting for 2006 is to be

held on 29 May. Notices including proxy forms

will be mailed to the shareholders no later than

14 days prior to that date. All material relevant to

the General Meeting will be posted on the Com-

pany’s home page (www.fredolsen-energy.no).

Quarterly results

Presentations for the finance market are held in

connection with the results. The following dates

have been set for publication of quarterly results

for 2006:

1st quarter 2006: 28 April

Annual General Meeting: 29 May

2nd quarter 2006: 18 July

3rd quarter 2006: 25 October

4th quarter 2006: February 2007

Investor contacts

The Company’s managers responsible for inves-

tor relations maintain an ongoing dialogue with

investors and analysts. Important events for the

group are announced through stock exchange

notices and press releases. Enquiries from share-

holders may be addressed to the Company’s

managers responsible for investor relations.

Jan Peter Valheim

Chief Financial Officer

Telephone: +47 22 34 12 41

e-mail: [email protected]

Hjalmar Krogseth Moe

Finance Manager/IR

Telephone: +47 22 34 12 49


Sølvi van Spronsen

Secretary

Telephone: +47 22 34 12 43



��



The Company emphasizes the importance of

maintaining and further developing its corporate

governance policy and supports the principles

set out in the Norwegian Code of Practice for

Corporate Governance. The Company has imple-

mented written guidelines to the Board of Direc-

tors as a practical tool for the Board in its exercise

of good corporate governance.

Business

According to the Articles of Association, the Com-

pany’s purpose is to carry on shipping business,

including the ownership and leasing of floating

platforms and everything related thereto, includ-

ing owning shares and interests in companies

with similar or related business. In carrying out

their duties, assignments or appointments for the

Company, all employees are expected to behave

in an ethical and non-discriminatory manner.

Equity and dividends

To the extent it considers it necessary, the Com-

pany may raise new equity in the capital market.

In this connection the Board of Directors has an

authorization from the Annual General Meeting

in 2005 to increase the share capital by 30 000

000 shares. The proxy expires on 19 May 2006.

At 31.12.2005 the Company held 84 336 shares of

the outstanding share capital as treasury shares.

In past years, the Company has retained all earn-

ings to support and develop operations, and

has therefore not paid dividends. Going forward,

dividend payments will be considered to the ef-

fect economic viable investment projects are not

found and to the extent permitted by the finan-

cial situation of the Group.

Equal treatment of shareholders, transactions with

close associates and freely negotiable shares

The Company’s shares are listed on the Oslo Stock

Exchange. Shares have been issued in only one

share class. All shares in the Company have equal

rights and all shareholders have the right to par-

ticipate in general meetings. The Company has

no restrictions on ownership and voting rights. A

competent Board consisting of the independent

Board members deals with matters involving the

Company’s main shareholders, Ganger Rolf ASA

and Bonheur ASA.

General meetings

The annual general meeting is normally held in

May each year. Invitations are sent to sharehold-

ers or to the shareholder’s security deposit bank.

Shareholders registered in VPS (the Norwegian

Registry of Securities) can vote in person or by

proxy. The general meeting of shareholders elects

the Board of Directors, nominates the external

auditor, determines the auditor’s remuneration,

approves the annual result and dividend pro-

posed by the Board of Directors and determines

the remuneration to the Board of Directors.

Nomination committee

In view of the main shareholders of the Company

controlling a majority of the shares, the Company

has decided not to appoint a nomination com-

mittee.

The Board Of Directors

In accordance with Norwegian law, the Board

of Directors is responsible for administering the

Company’s affairs and for ensuring that the Com-

pany’s operations are organised in a satisfactory

manner.

The Company’s Articles of Association provide

that the Board of Directors shall have no fewer

than three members and no more than seven

members. In accordance with Norwegian law,

the CEO and at least half of the members of the

Board must either be resident in Norway, or be

citizens of and resident in an EU/EEA country.

The general meeting of shareholders elects the

members of the Board.

The Board of Directors consists of 5 board mem-

bers who are elected for a two-year period. All of

the Directors are independent of the Company’s

management and two of them are independent

also in relation to the Company’s main share-

holders, Ganger Rolf ASA and Bonheur ASA. In

2005 the Board of Directors had 13 meetings. An

annual fee remunerates each Director.

The Board of Directors consists of:

Anette S. Olsen, Chairman. Ms. Olsen has been

chairman of the Board since the inception of the

company in 1997. Since 1994, Ms. Olsen has been

the sole owner of Fred. Olsen & Co., the manage-

ment company of the stock listed companies

Bonheur ASA and Ganger Rolf ASA, which she

joined in 1981. Ms. Olsen holds chairman and

board positions with a number of companies in-

cluding First Olsen Ltd., Fred. Olsen Renewables

Ltd., Fred. Olsen Cruise Lines Ltd., Timex Corpora-

tion and A/S Norges Handels og Sjøfartstidende.

In addition, she is a member of the Norwegian

Shipping Association’s Advisory Board and the

Council of Det Norske Veritas. Ms. Olsen has a BA

in Business Organization and an MBA. Ms. Olsen

is a Norwegian citizen, resident in Oslo, Norway.

Øivin Fjeldstad, Director. Mr Fjeldstad served as

a deputy to the Board for several years and has

been a director since 2002. He is now active as

an independent consultant and board member.

He was for 4 years senior adviser to HSH Nord-

bank, Hamburg/Kiel. In the period 1993 – 98 he

was Managing Director of DnB Luxembourg SA.

He has previous experience as deputy manag-

ing director of Bergen Bank/Den norske Bank,

and served 4 years as group finance director in

Akergruppen. At present he holds chairman and

board positions with a number of companies

including The Anders Jahre Humanitarian Foun-

dation, AL Industrier ASA and Dextra Musica

AS, and he has previous experience from many

boards both in Norwegian and foreign compa-

nies. Mr. Fjeldstad has political experience as a

former member of the Norwegian parliament.

He is a graduate of the Norwegian School of Busi-

ness and Economics. Mr. Fjeldstad is a Norwegian

citizen, resident in Ringerike, Norway.

Mårten Lunde, Director. Mr. Lunde has been a

member of the Board since 2002 after he resigned

from the position as Chief Financial Officer (CFO)

of the Company and joined Fred. Olsen & Co. as

CFO. Prior to joining FOE in 2001, Mr. Lunde had

been working as a Finance Director at Petroleum

Geo Services ASA from 1994 until 1999 and af-

ter that, as an independent consultant. His past

working experience also includes several years

within banking and finance. Mr. Lunde holds

board positions with a number of Fred. Olsen re-

lated companies including First Olsen Ltd., Fred.

Olsen Cruise Lines Ltd. and Fred. Olsen S.A. Mr.

Lunde is a graduate of the Norwegian School of

Business and Economics and is a Norwegian citi-

zen, resident in Bærum, Norway.

Ivar J. Saunes, Director. Mr. Saunes has been a

member of the board since 1997. Mr. Saunes has

worked as an independent consultant since retir-

ing in 1996 as the chief executive officer of Norsk

Skibs Hypothekbank A/S, which he headed for

seven years. He has previously held the positions

as senior and executive vice president in charge

of shipping, shipyard, offshore and oil exploration

with Den norske Creditbank in Oslo, and senior

positions with Norwegian shipping companies.

Mr. Saunes is presently a member of the boards

of maritime and industrial companies in and

outside Norway,and has served as vice chairman

of the Norwegian Rigowners Association. Mr.


��



Saunes is a graduate of the Norwegian School of

Business and Economics and received a Master

of Arts in International Finance from the Univer-

sity of Oregon. Mr. Saunes is a Norwegian citizen,

resident in Bærum, Norway.

John C. Wallace, Director. Mr. Wallace has been a

member of the board since 1997. He is chairman

of Fred. Olsen Limited, London, and a member of

the boards of directors of Ganger Rolf ASA and

Bonheur ASA. Mr. Wallace received a Bachelor of

Commerce degree from McGill University in 1959

and was admitted to the Institute of Chartered

Accountants of Quebec, having qualified with

PricewaterhouseCoopers in Canada in 1963, fol-

lowing which he joined Baring Brothers & Co.

Limited in London. In 2004 he successfully com-

pleted the International Uniform Certified Public

Accountant Qualification Examination for a CPA

in the United States and holds a CPA Certificate

for Illinois. Mr. Wallace is a Canadian citizen resi-

dent in London in the United Kingdom.

The Board of Directors has appointed an Au-

dit Committee consisting of the two Directors

independent of the main shareholders of the

Company. The charter of the audit committee

is to assist the Board in fulfilling its responsibili-

ties concerning the financial reporting process,

internal controls, management of financial risks,

the audit process, and the Company’s proc-

ess for monitoring compliance with applicable

laws and regulations. The Audit Committee has

regular meetings with the management and the

external auditor. Parts of the meetings with the

external auditor are without participation of the

management.

The Board of Directors has appointed a Compen-

sation Committee comprising three Directors,

including the two independent Directors. The

Compensation Committee discusses and recom-

mends to the Board salary and benefits for the

Chief Executive Officer as well as the manage-

ment incentive schemes for the Group.

The Company has implemented guidelines for

the work of the Board of Directors.

The purpose behind these guidelines is to estab-

lish a practical tool for the Board in its exercise of

good corporate governance.

The current composition of Directors reflects

adequate competence relative to the main busi-

ness areas of the Group.

Executive Management

The Chief Executive Officer (CEO) is appointed by

and serves at the discretion of the Board of Direc-

tors. He is responsible for the daily management

and the operations of the Company. The CEO is

not a member of the Board of Directors.

The executive management consists of:

Helge Haakonsen, Chief Executive Officer. Mr.

Haakonsen has been President and Chief Execu-

tive Officer of the Company since 1997. Mr. Haa-

konsen joined Fred. Olsen & Co. in 1972, and has

held a number of senior project and manage-

ment positions within the offshore and tanker

industries, including offshore drilling and floating

production operations. Mr. Haakonsen received a

Bachelor of Science degree in engineering from

the University of Newcastle in 1969 and a degree

in business administration from the Norwegian

School of Management in 1973. Mr. Haakonsen is

a Norwegian citizen, and resides in Oslo, Norway.

Jan Peter Valheim, Chief Financial Officer. Mr. Val-

heim has been Chief Financial Officer since 2002.

He has previously held positions in Scribona

Norge AS, Scribona AB, PC Lan ASA and Saga

Petroleum ASA. Mr. Valheim is a graduate from BI

Norwegian School of Management. He is a Nor-

wegian citizen and resides in Bærum, Norway.

Joakim Kleppe, Chief Executive Officer of Dol-

phin a.s since June 2002. Mr. Kleppe was previ-

ously Snr. Vice President HR/QHS&E & ICT with

Dolphin as and had been working within similar

responsibilities and professions for 16 years for

Kværner/Kværner Oil & Gas. Mr. Kleppe is a gradu-

ate from University of Bergen as well as Personnel

Administration from Rogaland Distriktshøyskole,

Stavanger. Mr. Kleppe is a Norwegian citizen and

resides in Stavanger, Norway.

Per Johansson, Managing Director Dolphin Drill-

ing Ltd. Per Johansson has been Managing Direc-

tor for Dolphin Drilling Ltd since 2003. Mr. Johans-

son has worked in the oil industry since 1977. He

joined Dolphin Drilling Ltd. in 1990 and has been

a member of the management in Dolphin Drill-

ing Ltd. since 1995. Mr. Johansson is a graduate

from Technical School and holds all drilling re-

lated certificates. Mr. Johansson is a Norwegian

citizen and resides in Aberdeen, Scotland.

John A. Sydness, Managing Director Dolphin

Drilling Pte. Ltd. since January 2004. Mr. Sydness

joined Fred. Olsen Energy ASA in May 1999 as SVP

Chief Group Controller, and has previously held

positions in Alvern ASA and Norske Fina AS. Mr.

Sydness is a graduate from Heriot Watt University

in Edinburgh and holds a BA in Business Admin-

istration. Mr. Sydness is a Norwegian citizen, and

resides in Singapore.

Robert J Cooper, Chief Executive Officer, Harland

and Wolff Group Plc. Mr. Cooper was appointed

CEO of Harland and Wolff Group PLC in February

2003. He was appointed financial director in Har-

land and Wolff Group in 1993. Mr. Cooper joined

the Company in 1983 as a trainee accountant,

and after completing his ICMA professional ex-

aminations he held a number of positions within

the finance department. Mr. Cooper is a UK citi-

zen residing in Northern Ireland.

Remuneration of the executive management

In 1998 the Company’s Annual General Meeting

resolved to grant the Board of Directors authority

to issue up to 3 million shares to be used for em-

ployee incentive compensation plans designed

to align the interest of management with those

of its shareholders. Under the terms of the stock

option plan, the options are not exercisable until

one year after grant at which point one third of

the options become exercisable in each of the

subsequent 3 years. All options under the stock

option plan carry a strike price that was deter-

mined by the market price of the stock on the

date of the grant.

At the end of March 2006, 2 key employees had

in total 2 334 options outstanding.

The management share option scheme was ter-

minated from and including 2004 and replaced

with a management cash bonus scheme from

2005. The beneficiaries of the scheme are the ex-

ecutive management and certain key personnel.

Annual payments under the scheme, maximized

to one year’s salary, are subject to the Group

achieving certain pre-defined financial criteria,

including achieved budget goals and develop-

ment of the Company’s share price. See also

notes 4 and 23.

Information and communications

The Company provides information to the mar-

ket through quarterly and annual reports, in-

vestor- and analyst presentations open to the

media and by making operational and financial

information available on the company’s website.

Events of importance are made available to the

stock market through notification to the Oslo

Stock Exchange in accordance with the Stock

Exchange regulations. Information is provided in

Norwegian and English.


��


Contract Overview

Name/ Built year/ Water

Ownership Type Location upgrade depth Features

ONGCBelford Dolphin Drill ship India 2000 10 000 ft 80 000 barrels storage (100%) 15 000 psi

Deepwater upgradeBlackford Dolphin Aker H-3 1974/-07 7 000 ft 2*85 t deck cranes (100%) 15 000 psi

Norsk HydroBideford Dolphin Aker H-3 Norway, 1975/-99 1 500 ft 1*40 t + 1*50 t deck cranes(100%) North Sea 10 000 psi

StatoilBorgland Dolphin Aker H-3 Norway, 1976/-99 1 500 ft 1*40 t + 1*70 t deck cranes (100%) North Sea 15 000 psi

Tullow/Nexen2)Borgsten Dolphin Aker H-3 UK, 1975 1 500 ft 1*50 t +1*40 t deck cranes (100%) North Sea /-85/-95/-00 10 000 psi

PemexBorgny Dolphin Aker H-3 Mexico 1977 2 300 ft 2*50 t deck cranes (100%) /-85/-91/-92/-97/-02 10 000 psi

CNRByford Dolphin Aker H-3 UK, 1973 1 500 ft 2*40 t deck cranes (100%) North Sea /-85/-90/-96/-98 15 000 psi

Various Peak 1)Bredford Dolphin Aker H-3 UK, 1976 1 500 ft 2*40 t deck cranes (100%) North Sea /-81/-97/-01 10 000 psi

SMC/Pemex ShellBorgholm Dolphin Aker H-3 UK, 1975/-02 2*49 t deck cranes (100%) North Sea

PemexBulford Dolphin Aker H-3 West Africa 1977/-03 1 500 ft 2*40 t deck cranes (Owned by FOL) 10 000 psi


��


Name/ Built year/ Water

Ownership Type Location upgrade depth Features

Contract Overview

20082007200620052004

1) Total 2) ChevronTexaco 3) CNR class renewal survey

ONGCBelford Dolphin Drill ship India 2000 10 000 ft 80 000 barrels storage (100%) 15 000 psi

Deepwater upgradeBlackford Dolphin Aker H-3 1974/-07 7 000 ft 2*85 t deck cranes (100%) 15 000 psi

Norsk HydroBideford Dolphin Aker H-3 Norway, 1975/-99 1 500 ft 1*40 t + 1*50 t deck cranes(100%) North Sea 10 000 psi

StatoilBorgland Dolphin Aker H-3 Norway, 1976/-99 1 500 ft 1*40 t + 1*70 t deck cranes (100%) North Sea 15 000 psi

Tullow/Nexen2)Borgsten Dolphin Aker H-3 UK, 1975 1 500 ft 1*50 t +1*40 t deck cranes (100%) North Sea /-85/-95/-00 10 000 psi

PemexBorgny Dolphin Aker H-3 Mexico 1977 2 300 ft 2*50 t deck cranes (100%) /-85/-91/-92/-97/-02 10 000 psi

CNRByford Dolphin Aker H-3 UK, 1973 1 500 ft 2*40 t deck cranes (100%) North Sea /-85/-90/-96/-98 15 000 psi

Various Peak 1)Bredford Dolphin Aker H-3 UK, 1976 1 500 ft 2*40 t deck cranes (100%) North Sea /-81/-97/-01 10 000 psi

SMC/Pemex ShellBorgholm Dolphin Aker H-3 UK, 1975/-02 2*49 t deck cranes (100%) North Sea

PemexBulford Dolphin Aker H-3 West Africa 1977/-03 1 500 ft 2*40 t deck cranes (Owned by FOL) 10 000 psi

20102009

Anadarko

Reliance Industries Ltd.

Drilling Production Technology as

3)

Talisman/Shell

Equator

Mob.


�0


40

50

60

70

80

90

0

5

10

15

20

25

The Offshore Drilling Market

By Iain Mitchell, SVP Marketing Dolphin Drilling Ltd.

Excess Crude Production capacity smaller

90 million barrels per day Escess Capacity (mbpd) World Oil Demand (mbpd) Excess Capacity % 25

80 20

70 15

60 10

50 5

40 0

1971 Source: Energy Information Administration (US), Pareto Securities estimates 2005

Introduction

2005 has been a year in which recovery in the

offshore drilling market has exceeded most

expectations both in terms of increased demand

and higher rig dayrates.

Activity has recovered on a global basis and an

immediate ongoing shortage of offshore units

is an accepted position by most oil companies.

As a result the lead time for new projects and

the duration of new contracts increased on an

ongoing basis throughout 2005. This in turn

lays the foundations for a degree of stability and

confidence in future activity that has not been

experienced for a very long time.

Behind this lies a further increase in world

energy consumption in 2005 along with fore-

casting of further future increased consump-

tion by most of the leading energy reporting

authorities.

Macro Economic Background

The sharp rise in crude oil prices has had only

a nominal impact on consumption during the

last year and most of the energy reporting

organisations still forecast continued growth in

the coming years. In other words, whilst some

oil consumption forecasts have been reduced

slightly in recent months as a result of sustained

high prices, the overall assumption remains

that growth can be sustained even with today’s

crude pricing.

The key background is continued strong eco-

nomic growth on a global basis with the SE

Asian market in general and China and India in

particular being regarded as the key markets.

This growth is largely being underpinned by

energy growth based on the use of fossil fuels

and increased alternative energy supplies are

not at this stage expected to have a significant

impact.

The International Energy Agency’s most recent

view on this situation is that whilst there might

now be some justification for a moderation in

crude pricing that the longer term road ahead

‘is far from smooth’.

Sustained high crude prices mean that oil com-

panies are generally cash rich and at the same

time have confidence that product prices will be

high for some time to come. As a result, invest-

ment budgets have been ramped up both for

field development activity and for new explo-

ration drilling. For many operators the require-

ment for more drilling is driven both by a need

to sustain existing production levels and also to

discover new reserves in order to offer growth

potential for the future. For the offshore drilling

market the effect has been simple; more activity

on a global basis and a pace of recovery that has

been dramatic in many cases.

Rig market specifics

Activity has risen steadily throughout 2005. Glo-

bal offshore rig demand is around 587 today.

The floater market has seen demand rise from

around 145 a year a go to just fewer than 180

today. Most importantly, this increase in floater

demand has been enough to push effective


�1


The Offshore Drilling Market

utilisation of actively marketed units to close to

100% during the last year.

Deepwater Floaters

Sustained chartering activity in 2005 means that

the ultra deepwater fleet is already committed

into 2008 and beyond in many cases. Operators

quickly seemed to accept the need for longer

term charters and two to three year commit-

ments have been the norm for some time. At the

high end of the market rates have risen to above

$400,000; and we have actually observed dayrates

above $500,000. Though more recently there ap-

pears to be something of a ‘ceiling’ emerging at

around the $450,000 level for term contracts. In

part this is no doubt linked to the entry of new-

build unit from 2008/2009 onwards.

Key growth areas have been in West Africa and

the US Gulf of Mexico. Other areas have also

played their part including India, Latin America

and to a limited extent in South East Asia.

As the ultra deepwater market tightened there

has been a corresponding uplift in activity for

slightly lower specification mid deepwater units.

This market segment typically covers the 3,000

to 6,000 ft water depth range and in many cases

includes upgraded semis and drillships of vary-

ing capability. As the ultra deepwater fleet has

become increasingly committed, operators

have had little choice but to contract some of

these slightly lower specification units in order

to secure project timetables. This means that

some of the most recent contracts for mid deep-

water units have been in the range $350,000

to $400,000, and in several cases have been at

higher levels than some of the earlier fixtures of

ultra deepwater units.

Now, even this mid deepwater segment is close

to being sold out with few obvious additional

candidates to be reactivated or upgraded to

help satisfy outstanding demand in the coming

one to two years.

One key feature of the deepwater market in

2005 has been the high level of newbuilding

orders that have been placed. Today there are

approximately 24 newbuild units on order of

which only seven or eight have confirmed con-

tracts. This represents the most significant level

of newbuilding activity in over twenty years and

will mark a major expansion in available capacity

from 2008 onwards.

Shallow Water Floaters

The shallow water floater market has to a large

extent followed the trend set by the deepwater

market. Demand has continued to rise led by

the North Sea, SE Asia, West Africa and to an

extent the US Gulf. In particular there was a

significant switch to longer term contracting as

2005 progressed and this has helped accelerate

growing concern about rig availability amongst

operators. Rates for standard water depths semis

rose from around $130,000 per day in the early

part of the year to above $200,000 by late 2005.

These rates have been achieved on a general

international basis with more specific fixtures in

the UK and Norway being set at above $300,000

per day.

To an extent, rising rates have been helped

by some of the earlier consolidation that has

occurred in the drilling contracting business.

Many of the larger established contractors have

been observed to take a disciplined approach to

the market recovery, pushing for rate increases

where possible and not rushing to reactivate

every idle semi at the earliest opportunity.

For a rig owner this combination is of course very

promising and has lead to more than one ana-

lyst writing of the strongest long term outlook

for the offshore drilling business that there has

ever been. Given the long term nature of many

current contracts it is relatively easy to look out

two or three years with some confidence, par-

ticularly for those drilling contractors with a rea-

sonable level of contract backlog.

Dayrates Floaters

500 USD/Day 5G International 3G Norway Standard semis UK

400

300

200

100

0 Source: Pareto

01.2003 03.20060

100

200

300

400

500

Fred. Olsen Energy ASA - Annual Report 2005 Fred. Olsen Energy ASA - Annual Report 2005

Management Report

The Group provides services and operates with-

in the two business segments (i) offshore drill-

ing and (ii) engineering and fabrication. Within

the offshore drilling segment the Group owns

and/or operates one deepwater drill-ship and 9

semi submersible units including one accom-

modation unit. Through its subsidiary Harland

and Wolff plc. in Belfast, the Group is engaged

in ship repair, ship building, steel fabrication and

engineering services.

OFFSHORE DRILLING

Dolphin Drilling Ltd, based in Aberdeen, Scot-

land, Dolphin AS in Stavanger and Dolphin

Drilling Pte. Ltd in Singapore form the Com-

pany’s drilling division (together referred to as

“Dolphin”). Dolphin is recognized as a medium-

sized international drilling contractor and has a

leading position in Europe in providing offshore

drilling services for more than 35 years. The

fleet includes 8 semi-submersible drilling-units,

one semi-submersible accommodation unit

and one ultra-deepwater drill-ship. The semi-

submersible drilling-unit Blackford Dolphin,

will be upgraded to a deepwater unit capable

of operating in up to 7000 feet of water when

the upgrade is completed in mid 2007. One of

the drilling units, Bulford Dolphin, is owned by

First Olsen Ltd. and is operating in a profit shar-

ing pool together with four similar drilling-units

owned by the Company. Two units, Bideford

Dolphin and Borgland Dolphin, respectively,

have received Acknowledge of Compliance

(AOC) certificates qualifying for operations in

Norway. The Bredford Dolphin will receive an

AOC in August/September prior to commenc-

ing a long term drilling contract in Norwegian

waters. As of date, the units operated by the

Company work in the Norwegian and British

sectors of the North Sea, in the Gulf of Mexico,

offshore India and offshore Nigeria.

Bideford Dolphin

The semi-submersible drilling-unit Bideford

Dolphin was built in 1975 and was converted

to fourth generation technological capabilities

in 1999. Bideford Dolphin is specially designed

for completion work in the North Sea and has

a drilling depth capacity of 20,000 feet and

a water depth capability of 1,500 feet, and is

equipped with a Ram Rig, an 8 point mooring

system assisted by two thrusters and a 10,000 psi

blow-out preventer. Bideford Dolphin has been

operating in Norway for Norsk Hydro Produksjon

since 1999. The last contract was entered into in

October 2004 with Norsk Hydro in direct con-

tinuation with the previous contract. The new

contract is currently estimated to last into the

fall of 2007. Bideford Dolphin has been working

for Norsk Hydro for the entire of 2005 and has

primarily carried out drilling and completions

operations on the Oseberg J structure (Tampen

area).

Borgland Dolphin

The semi submersible drilling-unit Borgland

Dolphin was built in 1977 and converted to

fourth generation technological capabilities in

1999. Borgland Dolphin has a drilling depth ca-

pacity of 25,000 feet and a water depth capa-

bility of 1,500 feet, and is equipped with a Ram

Rig, fixed eight point K4 chain anchor mooring

system and a 15,000 psi blow-out preventer.

Borgland Dolphin is specially designed for com-

pletion work in the North Sea and has been op-

erating in Norway for Statoil. The last contract

was signed in 2005 bringing Borgland Dolphin’s

commitment with Statoil until the end of De-

cember 2009. Borgland Dolphin has been work-

ing for Statoil for the entire of 2005. For most of

the year Borgland Dolphin has been located at

the Gullfaks field.

�2

�2

Fred. Olsen Energy ASA - Annual Report 2005 Fred. Olsen Energy ASA - Annual Report 2005

Management Report

Belford Dolphin

Belford Dolphin was built in 2000 as a 5th gen-

eration DP3 ultra deepwater drill-ship with wa-

ter depth capacity of 10,000 feet, drilling depth

capacity of 30,000 feet, a 15,000 psi blow out

preventer and with 80,000 barrels of oil storage.

The Company acquired Belford Dolphin in 2001.

In 2003, Belford Dolphin was awarded a three-

year contract by ONGC in India. The contract

with ONGC is an integrated services contract,

i.e. Dolphin is responsible for all operational co-

ordination activities, such as helicopter services,

supply vessels, mud, logging, well testing, ROV

operations, cementing and well design, includ-

ing delivery of well heads. ONGC supply casing

and drilling bits. Belford Dolphin commenced

the drilling campaign for ONGC in November

2003 on the west coast and drilled several wells

in water depths ranging from 1,200 meters up

to 2,860 meters. The initial drilling campaign on

the west coast was completed late December

2004. Thereafter, the ship moved to the east

coast of India where it has continued its opera-

tion. In September 2005 the Company entered

into a three years drilling contract with Anadarko

commencing early 2007 primarily for operations

in US waters.

Borgny Dolphin

The semi-submersible drilling unit Borgny Dol-

phin was built in 1977 and modified for subsea

development programs and was last upgraded

in 2003. The Borgny Dolphin has a drilling depth

capacity of 25,000 feet and a water depth ca-

pability of 2,300 feet and is equipped with a

12 point mooring system and an active heave

compensation system, making Borgny Dolphin

suitable for subsea field development work. The

blow out preventer has a capacity of 10,000 psi.

Borgny Dolphin was awarded a contract for op-

erations in Mexican waters in 2003 for Pemex for

a period of 4 years until January 2008.

Bulford Dolphin

The semi-submersible drilling unit Bulford Dol-

phin was built in 1977 and was last upgraded

in 2003. The unit has a water depth capacity of

1,500 feet and drilling capacity of 25,000 feet

and is equipped with an 8 point mooring sys-

tem. The blow out preventer has a capacity of

10,000 psi. The unit is owned by First Olsen Ltd.

and is operated by Dolphin in a profit sharing rig

pool with four similar units owned by the Com-

pany. Bulford Dolphin was awarded a contract

in Mexico for Pemex in 2003 for a period of 2

��

��


�4


Management Report

years. The Bulford Dolphin subsequently secured

a contract with Equator in Nigeria for an esti-

mated period of 9 months which later has been

extended by one year and is currently estimated

to expire in the fall of 2007.

Borgholm Dolphin

The semi-submersible accommodation unit

Borgholm Dolphin was built in 1975 and ac-

quired by the Company in 2001. The unit has a 12

point mooring system and an accommodation

capacity of 600 beds. After having been upgrad-

ed and classed in 2002, the Borgholm Dolphin

mobilized to the Gulf of Mexico in November

2002 to be used as a flotel under a contract with

the national oil company Pemex Exploration and

Production. The contract, originally for a period

of six months, was later renewed for one ad-

ditional year until the summer of 2004. The ac-

commodation unit thereafter demobilized from

Mexico to the North Sea. Borgholm Dolphin has

been working for Shell U.K.Ltd. from July 2005.

The Company entered into contracts with Talis-

man Energy (UK) and Shell U.K. Ltd for 260 days,

commencing February 2006.

Bredford Dolphin

The semi-submersible drilling unit Bredford

Dolphin was built in 1976 and later upgraded,

latest in 2001. The Company acquired the rig in

2000. The rig has a water depth capacity of 1,500

feet and a drilling capacity of 25,000 feet and is

equipped with an eight point mooring system.

The blow out preventer has a capacity of 10,000

psi. In December 2004 the unit commenced a

drilling program offshore Spain for Escal and

British Gas, respectively. After mobilization to the

UK sector of the North Sea the unit in April 2005

entered into a contract of three months with To-

tal, followed by a contract with Peak Well Man-

agement Ltd. for a drilling programme which is

estimated to be finished in June/July. Bredford

Dolphin was in January 2006 awarded a three

years contract by Drilling Production Technol-

ogy a.s, a company within the AGR Group, on

behalf of themselves and a consortium of sev-

en oil companies. Operation area will be the

Norwegian Continental Shelf and the unit will

mainly be utilized for exploration work. Bredford

Dolphin will carry out its compulsory five-year

class renewal and necessary modification to ob-

tain an AOC for Norwegian operations prior to

commencement of the three years contract in

the 4th quarter 2006.

Byford Dolphin

The semi-submersible drilling unit Byford Dol-

phin was built in 1973 and later upgraded latest

in 1996. Byford Dolphin has a water depth ca-

pacity of 1,500 feet, a drilling capacity of 25,000

feet and is equipped with a 12-point mooring

system. The blow out preventer has a capac-

ity of 15,000 psi. Byford Dolphin completed its

five-year class renewal service in February 2005.

In October 2004, Byford Dolphin entered into

a contract with an estimated duration of 14

months with CNR offshore UK. The drilling pro-

gram commenced in February 2005. The con-

tract has later been extended and is currently

estimated to last until early 2008.

Borgsten Dolphin

The semi-submersible drilling unit Borgsten Dol-

phin was built in 1975 and was last upgraded

in 1995. The unit has a water depth capacity of

1,500 feet, a drilling depth capacity of 25,000 feet

and is equipped with a 12 point mooring system

and a 10,000 psi blow-out preventer, and a sub-

sea handling system. Borgsten Dolphin com-

pleted its five-year class renewal service in April

2005. The unit has been working for Chevron-

Texaco North Sea Ltd. for six months from July

2005, followed by a 3 months contract with CNR.

Thereafter the unit commenced a 720 days con-

tract with Tullow Oil plc. and Nexen Petroleum

UK Ltd. witch is expected to end March 2008.

Blackford Dolphin

In June 2005 the Company purchased an Aker H-

3 semi-submersible drilling unit from Diamond

Offshore Drilling Inc. for USD 14 million. The unit,

which originally was built in 1974, will be up-

graded to a deepwater unit. The upgrade will be

carried out under a contract with Keppel FELS,

primarily at their Verolme yard in Rotterdam,

the Netherlands. Contracts for construction of

the accommodation and power module have

been awarded to the H&W yard. Delivery of the

unit from Keppel FELS is expected in mid 2007.

The upgraded unit will become a state of the

art deepwater drilling unit, which will be able

to operate in 7000 ft. of water with a new high

capacity drilling package and an innovative deck

layout. In March 2006 the Company secured a

three years drilling contract for the unit, com-

mencing after the completion of the deepwater

upgrade for operations with Reliance in India.

The revenue contribution to the Group from the

offshore drilling segment in 2005 was NOK 2,756

million. For comparability purposes, the figures

for 2003 and 2004 are shown net of discontin-

ued operations.

(NOK million) 2003 2004 2005

Revenues 1520 2130 2756

Operating expenses (1109) (1554) (1876)

Operating profit before depreciation (EBITDA) 411 576 880

Exceptional items and write downs (55) - -

Depreciation and amortization (705) (704) (614)

Operating profit (loss) (EBIT) (349) (129) 232

Capital expenditure 96 355 516

Revenues

3 000 NOK million

2 750

2 500

2 250

2 000

1 750

1 500

1 250

1 000

2003 2004 2005

EBITDA

900 NOK million

800

700

600

500

400

300

200

100

2003 2004 2005


��


Management Report

ENGINEERING AND FABRICATION

Harland and Wolff was founded as a shipyard

in1852 and became a subsidiary of the Com-

pany in 1997. During recent years, Harland and

Wolff has refocused its operations to a single,

technically led project management offering a

broad range of services to the offshore and ma-

rine industries, with a particular focus on:

Shipbuilding, Ship repair and conversion

Structural engineering

Design engineering

The principal activities of Harland & Wolff are the

design and construction/conversion of floating

production and drilling vessels for the offshore

oil and gas industry, shipbuilding, heavy engi-

neering and ship repair.

In 2005, Harland & Wolff continued to fine tune

its organisation and facilities to better meet its

markets and, in the first half of the year, further

reduced its core employment to 95 people,

while retaining its key core skills and recruiting

on a temporary basis to meet peak workload

requirements.

Shipbuilding, Shiprepair and Offshore

During 2005, the yard provided services to some

forty four vessels ranging from short duration

emergency repairs (both on and off site), normal

maintenance repair dockings and longer dura-

tion major refits.

H&W continued its strong relationship with

Stena, docking two HSS vessels and a standard

ferry, and for the first time, were contracted by

Irish Ferries for the docking of their four cross

channel ferries. It also docked two large coal

carriers for Meridian and increased the number

of vessels being docked and berthed from

various owners operating out of the port of

Belfast.

In the first half of the year, H&W completed the

survey and upgrade work on three offshore drill-

ing rigs, the semi submersible units Borgholm

Dolphin, Byford Dolphin and Borgsten Dolphin.

The main building dock and surrounding areas

were fully occupied from March to the end of

the year as a Logistics and Assembly Base for

MPI’s (‘Marine Project International’) installation

of the Barrow Windfarm.

Heavy Engineering

During the year, four bridges totaling some 1,000

tonnes of steel were fabricated and installed at

locations as diverse as Cork in the Republic of

Ireland, West Taunton in South West England,

Montrose in Scotland and Omagh in Northern

Ireland.

Further steelwork structures were fabricated

and installed in relation to the MPI contract. In

addition, H&W secured and commenced the

(NOK million) 2003 2004 2005

Revenues 177 213 127

Operating expenses (198) (225) (87)

Operating profit before depreciation (EBITDA) (21) (12) 40

Exceptional items and write downs - 21 -

Depreciation and amortization (4) (4) (4)

Operating profit (loss) (EBIT) (25) 5 36

Capital expenditure 14 3 3

Revenues

200 NOK million

175

150

125

100

75

50

25

0

2003 2004 2005

EBITDA

50 NOK million

40

30

20

10

0

(10)

(20)

(30)

2003 2004 2005

contract for the fabrication of a prototype

‘Wavebob’ wave power generator and com-

menced work on the fabrication of large steel

trusses for a major shopping center develop-

ment at Victoria Square in Belfast.

Design

In addition to providing ongoing support for the

marine and heavy engineering projects being

undertaken by the Group, H&W’s design team

continued to secure further external contracts

from existing and new customers.

The ongoing work for Lloyds in relation to

Marspec, Tonnage and Ship Emergency Re-

sponse Service (‘SERS’) was supplemented by

a number of larger design packages. Work also

continued for Thales on the CVF project in Bris-

tol and H&W recommenced its relationship with

Nassco providing on site support in San Diego.

H&W also secured significant work from Gren-

land Framnes of Norway in relation to engineer-

ing work for an oil rig conversion and provided

engineering support to sister companies within

the Fred. Olsen Energy Group.

Financial figures Engineering and Fabrication

The revenue contribution to Fred. Olsen Energy

in 2005 was NOK 127 million. For comparabil-

ity purposes, the figures for 2004 and 2003 are

shown net of discontinued operations.


��

Quality, Health, Safety and Environment

Dolphin Drilling Ltd, based in Aberdeen, Scot-

land, Dolphin AS in Stavanger and Dolphin Drill-

ing Pte. Ltd in Singapore form the Company’s

drilling division (together referred to as “Dol-

phin”). Quality, Health, Safety and Environmen-

tal (QHS&E) is an integrated part of Dolphin’s

worldwide operations within offshore drilling

and accommodation services.

The standards upon which Dolphin’s QHS&E

Management system are based are the Inter-

national Safety Management (ISM) Code for the

safe operation of ships (including MODU) and

for Pollution Prevention, the International Ship

and Port Security Code (ISPS), Norwegian HSE

Regulations in the Petroleum Industry, Health

and Safety Executive publication HSG 65, the

Safety Case Regulations and ISO 9001:2000. Fol-

lowing these standards a QHS&E Plan is created

annually, defining measurable and time-related

goals to allow for continuous improvement and

development.

Goals

The Company’s goals for every shift, every day

and every week of operation are:

Injury-free day-to-day operations.

No major incidents, which could have caused

injuries.

No spills to sea/ground water.

To operate and maintain equipment in a safe

and efficient manner.

Quality, Health, Safety and Environment (QHS

&E), which include social and environmental

performance, are an integrated part of all the

Company’s activities. The objective of the QHS&E

plan is to establish and maintain a culture where

there is no incident or accident, damage to the

environment, break down or operational losses.

In 2004 Dolphin reviewed the QHS&E Manage-

ment System, completed all necessary changes

to comply in all countries and received BS-EN-

ISO 9001-2000 Management System Certificate

for the Provision, Management and Support of

Deepwater Drillship, Mobile Offshore Drilling

and Accommodation Unit Operations. In Janu-

ary 2006 a scheduled ISO 9001-2000 Periodic

Audit was conducted by the Certifying Author-

ity and no major non-conformances were identi-

fied. During 2005 all Dolphin operating vessels

changed to Singapore flag. Subsequently all

vessels were successfully re-audited in line with

the ISPS International Ship Security Code and

ISM Code.

Dolphin’s combined 2005 goals and objectives

particularly focused on:

Safe, Trouble Free Operations

Achieved through application of our key

QHS&E processes:

1. Hazard Identification and Risk Assessment.

2. Active Monitoring and Audit (Routine, Man-

agement, Worksite Visit Reports).

3. Lifting Operations.

4. Control of Non-conformance and Follow-

up Process.

5. Safety Critical Maintenance.

Leadership – ‘Compliance and Consequence’

Programmes and Procedures.

Understanding, Communication and Enforce-

ment.

External Environment

In order to improve the focus on prevention of

harm to the external environment Dolphin has

decided to develop an Environmental Manage-

ment System in compliance with EN-ISO 14001.

The plan is to obtain the EN-ISO 14001 Certifi-

cate in 2006. The purpose of the Environmen-

tal Management System will be to ensure that

all activities, processes and services in Dolphin,

which may effect the environment, are control-

led and monitored.

Dolphin’s policy is to reduce, reuse and recycle as

far as reasonably practicable. Dolphin’s Disposal

of Waste procedure provides guidance on the

disposal of solid and liquid waste arising from

Dolphin offshore operations. In addition, imple-

mentation ensures consistently high standards

of waste management in order to:

Minimise damage to the environment.

Ensure effective use of resources.

Reduce occupational health and safety risks.

Minimise costs.

Competence

Dolphin’s competence assurance process was

put in place during 2004 to ensure that all em-

ployees, irrespective of position within the Com-

pany, are trained and competent in relation to

individual jobs and Dolphin’s health, safety and

environmental responsibilities.

Identified positions within Dolphin have an ap-

propriate Standard of Competence applying to

all such employees in that position. Additionally,

optional units and/or elements representing

unique operational requirements for that posi-

tion may be defined.

HSE-results

Personal Injuries

Dolphin had during 2005 a positive trend related

to personal injuries. The combined frequency in

2005 was 1.8 compared to the combined fre-

quency for 2004 of 8.5 (statistics measured by

incidents per 1,000,000 working hours).

Serious Incidents

Dolphin had during 2005 a positive trend related

to serious incidents. The combined serious inci-

dent frequency was 5.8 for the rigs at the end of

the year compared to 7.25 for 2004.

Damage to the External Environment

Dolphin had during 2005 a satisfactory result re-

lated to discharge to the external environment.

Only 2 minor spills to the external environment is

registered, however the spills were less than 1m3

and as such not reported to the authorities.

HSE Culture

Dolphin’s internal HSE culture measurements

also show a positive trend.

In 2005 Dolphin AS participated in the Petro-

leum Safety Agency’s HSE culture project. The

results from this project will be available 2nd

quarter of 2006. In order to keep up the good

culture trend Dolphin AS has continued Statoil’s

Safe Behaviour Programme for all employees.

Reduction of chemicals and implementation

of further noise reduction measures have also

been key projects in 2005.

Dolphin Drilling Ltd.’s offshore/onshore employees

have in 2005 and continuing through 2006 partici-

pated in IADC STEP Change programme regard-

ing Personal Responsibility for Safety (PRfs). PRfS

seminars have been developed and delivered by

Dolphin Drilling Ltd with involvement of person-

nel from all levels of the workforce and third parties

e.g. HSE, Client Company Representatives etc.

PRfs is focusing on each individual working

safely as well as the safety of others involved,

emphasizing the need for intervening when

unsafe behaviour or conditions is observed. The

nine key factors are:

Clear Expectations

Effective Communication

Personal Leadership

Personal Risk Awareness

Planning

The Right and Duty to Intervene

Accountability

Self Evaluation

Develop, Encourage and Sustain Safe

Behaviours

��

��Fred. Olsen Energy ASA - Annual Report 2005

��

Annual Report 2005

Reporter Print: RK Grafisk

Fred. Olsen Energy ASAEnterprise number: 977 388 287Fred. Olsens gate 2N-0152 Oslo, NorwayTelephone: +47 22 34 10 00Fax: +47 22 41 18 40E-mail: [email protected]

Helge Haakonsen, Chief Executive Officer

Jan Peter Valheim,Chief Financial Officer

Dolphin a.sEnterprise number: 920 473 210Platformveien 5N-4056 Tananger, NorwayTelephone: + 47 51 69 43 00Fax: + 47 51 69 61 [email protected] www.dolphin.as

Joakim Kleppe, Managing Director

Dolphin Drilling Ltd. UK Registration number: 1017560Howe Moss Dr., Kirkhill Industr. Est.Dyce, Aberdeen AB2 OGL, ScotlandTelephone: +44 1224 411 411Fax: +44 1224 723 267E-mail: [email protected]

Per Johansson, Managing Director

Dolphin Drilling Pte. Ltd.Enterprise number: 200303833E3 Temasek Avenue #34-38 Centennial Tower Singapore 039190Telephone: +65 6549 7739FAX: +65 6549 7575E-mail: [email protected]

John A. Sydness, Managing Director

Harland and Wolff Group Plc.UK Registration number: NI 38422Queen’s Island, Belfast BT3 9DUNorthern IrelandTelephone: +44 2890 458 456Fax: +44 2890 458 515E-mail: [email protected]

Robert Cooper, Managing Director

annual report 2005 - dolphindrilling.no · bideford dolphin continued operations offshore norway...

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