annual report - farstad.com · report of the board of directors 8 profit and loss account 13...
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F A R S T A D S H I P P I N G A S AA N N U A L R E P O R T
2
C O N T E N T S
T h i s i s F a r s t a d S h i p p i n g 3
1 9 9 8 P o s i t i v e s - N e g a t i v e s 4
M a i n f i n a n c i a l f i g u r e s 6
R e p o r t o f t h e B o a r d o f D i r e c t o r s 8
P r o f i t a n d l o s s a c c o u n t 1 3
B a l a n c e s h e e t 1 4
C a s h f l o w s t a t e m e n t 1 6
A c c o u n t i n g p r i n c i p l e s 1 7
N o t e s t o t h e a c c o u n t 1 9
A u d i t o r ’ s r e p o r t 2 4
A n a l y t i c a l i n f o r m a t i o n 2 5
S h a r e h o l d e r m a t t e r s 2 8
S t r a t e g y 3 0
T h e N a r k e t f o r o f f s h o r e s u p p l y v e s s e l s 3 2
O r g a n i s a t i o n a n d a d m i n i s t r a t i o n 3 8
H e a l t h , S a f e t y a n d E n v i r o n m e n t 4 0
F a r S o v e r e i g n 4 4
F l e e t g a l l e r y 4 6
T h e F a r s t a d f l e e t 4 7
L o c h n a g a r 4 9
In 1973, Farstad Shipping ASA began its offshore activity as one of thepioneers in the North Sea. At that time, the Company acquired its firstsupply vessel, a model UT 704, which was the first design from theUlstein Group. Today, it has acquired a total of 28 vessels. Currently,there are three vessels under construction.
Buying and selling tonnage in periods where it has been profitable todo so has been a vital part of building today’s business. The Company’sshares have traded on the Oslo Stock Exchange since 1988. It was fullyconsolidated in 1993 when all activities were consolidated under oneentity. In 1998, Farstad Shipping increased its international effortsthrough a joint venture with P&O, Australia.
Farstad Shipping aims to be one of the leading operators of large,modern anchor handling vessels (AHTS) and platform supply vessels(PSV) world-wide.
The Company’s fleet is managed in a manner that reflects thecustomer’s expectation for high quality. All vessels rate higher than theminimum national and international requirements with respect tosafety and environmental regulations and standards. The fleet ismaintained through a program that is designed in accordance withrecommendations from manufacturers, classification companies andauthorities as well as the Company’s own experience.
The Company’s objective is to maintain a long-term charter strategy.Current contracts make up 80% of activities in 1999 and 65% ofactivities in 2000.
The Company’s fleet consists of 32 vessels. Of these, there are 14 PSVvessels, 17 AHTS and an additional vessel designed for laying flexiblepipelines. Geographically, there are 18 vessels in the North Sea, 6 inBrazil, 6 in Australia and 2 in the Far East. There is approximately 700crew.
The Company’s activities are managed from Ålesund and Aberdeen,with a total of 40 employees. P&O Maritime Services in Melbourne
manage vessels that are employed in Australia and the Far East.
There are currently 2,750 shareholders. The share price at the end ofthe year was NOK 21.00, which values the Company at NOK 950million.
3
T H I S I S
F A R S T A D S H I P P I N G
4
P O S I T I V E S
• Another good year economical ly.
• No fatal accidents .
• Good operat ional qual i ty.
• More new long-term contracts .
• Good contract coverage for the Company’s f leet .
• St i l l a high level of demand in the North Sea.
1 9 9 8
5
• Continued high contract ing act iv i ty.
• Financial cr ises in the Far East and
the Lat in America.
• Decl ining oi l pr ice.
• Fal l ing demand in some regions at the end
of the year.
• High Norwegian interest level .
• Strong decrease in the pr ice of the Company’s
shares .
N E G A T I V E S
1998
45.321.00
951.943.0019.80
5.303.948.156.781.00
-1.00
1997
45.342.00
1,903.850.5024.00
5.303.658.126.411.00
-1.00
(NOK)
Share capital (NOK mill.)
Market price at 31.12Market capitalisation (4) (NOK mill.)
Share price highShare price lowEarning per share including sales profit (5)Earning per share excluding sales profit Cash flow per share including sales profit (6)Cash flow per share excluding sales profit Dividend per share (7)RISK-amount (8)
1996
79.324.25
1,099.224.5014.95
1.301.303.973.970.750.00
1995
113.314.95
677.715.5012.30
3.141.545.473.880.750.00
1994
113.313.10
593.813.5010.50
2.181.354.223.400.60
-0.23
1994
390.237.3
(191.3)236.2
(104.1)132.1(26.7)105.4
266.91,218.61,485.5
87.5795.3602.7
171.9179.4191.6
1,485.5602.7
40.6%
1,103.3720.7
1997
598.375.1
(275.0)398.5
(124.5)274.0(33.6)240.4
259.31,709.21,968.5
114.3877.3976.9
167.6145.0368.3
1,968.5976.9
49.6%
1,579.0875.9
PROFIT AND LOSS ACCOUNT (NOK mill.)
Operating income ex. sale of fixed assetsProfit on sale of fixed assetsOperating expensesOperating profit before depreciationDepreciationOperating profitNet financial itemsPre-tax profit
BALANCE SHEET
Current assetsFixed assetsTotal assetsShort-term liabilitiesLong-term liabilitiesEquity capital
LIQUIDITY
Liquid assetsWorking capital (1)Cash flow (2)
CAPITAL
Total assetsEquity capitalEquity ratio (3)
FLEET
Book value of vessels, interest in vesselsMortgage debt
1996
458.80.2
(242.5)216.5
(120.1)96.4
(37.9)58.6
273.61,319.81,593.4
66.0813.9713.5
197.5207.7180.0
1,593.4713.5
44.8%
1,264.7710.8
1995
442.872.2
(220.0)295.0
(116.9)178.1(35.2)142.9
311.81,271.61,583.5
56.1822.1705.3
238.1255.8248.1
1,583.5705.3
44.5%
1,224.4736.3
FARSTAD SHIPPING ASA - GROUP
S H A R E K E Y F I G U R E SM A I N F I N A N C I A L F I G U R E S
DEFINITIONS:(1) Current assets - short-term liabilities.(2) Pre-tax profit - taxes paid + depreciation + change in revaluation of liabilities + losses on receivables.(3) Equity capital as a % of total assets.(4) Total share outstanding x share price.(5) Pre-tax profit - taxes paid, divided by average number of shares outstanding.(6) (2) divided by the average shares outstanding.(7) For 1995 and 1996 by write-downs of the share capital in 1996 and 1997.(8) 01.01. of the year shown in the actual column.
6 7
1. quarter 2. quarter 3. quarter 4. quarter 1. quarter 2. quarter 3. quarter 4. quarter
OPERATING INCOME(EXCL. PROFIT ON SALES)
CASH FLOW(BEFORE TAX AND PROFIT ON SALES OF VESSELS)
mill. NOK mill. NOK100
80
60
40
20
0
250
200
150
100
50
0
1998
706.762.0
(347.6)421.1
(118.9)302.2(59.9)242.3
281.42,087.72,369.1
133.11,063.91,172.1
133.4148.3369.5
2,369.11,172.149.5%
1,866.21,061.8
19971996
199519941993
1998 19971996
199519941993
1998
T H E B O A R D
O F D I R E C T O R S
Bjørn Havnes (52), Director
Engineering degree, University of Newcastle upon Tyne. Associate Director in AS Toluma, Oslo. Various shipping experience from 1973, withthe last 15 years mainly being in offshore. Previously responsible for marketing inWilhelmsen Offshore Services (service vessels) and Wilh. Wilhelmsens rig division.
Per Erik Dalen (45),Director
Managing Director in MMC GROUP.Managment experience from aviation, shipbuilding and manufacturing of equipment forfishing industry. Various Board appointments.
Sverre A. Farstad (46), Director
Business degree - Heriot Watt University, Edinburgh, Scotland. Managing Director of Farstad Shipping ASA. Chairman of the Board of Tyrholm &Farstad AS. Various Board appointments and other positions in banking, insurance andthe Shipowners Association.
Bjarne Sælensminde (52), Director
Business degree NHH, Bergen. Underwriter, Regional Manager Vesta Forsikring AS, Marine & Energy Division.Varied finance- and shipping background. Previously Director of A/S Investa’s shippingand offshore section.
Sigmund Borgundvåg (60), Director
Engineer/marine architect. Design manager in the Ulstein Group since 1972. Designer of Ulstein’s UT 700 series offshore service vessels.
Per Norvald Sperre (52), Chairman of the Board
High Court lawyer. Law degree from Oslo, 1972. Experience from banking etc. Established his own law firmin 1977. Holds a number of Board appointments in industry and shipping.
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DEVELOPMENT 1998Farstad Shipping ASA is pleased to announce that the financial results for1998 are above expectations. The combination of having a majority of thefleet on long-term contracts, yet some vessels available to reap the benefitsof a tight spot market, has given results that are on level with the recordyear 1997. The Company’s international efforts continued in 1998. Only30% of revenues in 1998 came from the Norwegian sector. Investmentsthat are complete as well as those investments that are in process put theCompany in an excellent position to meet future market changes. TheBoard of Directors is satisfied with the development that took place in1998.
RESULTS AND DIVIDENDIn 1998, Farstad Shipping achieved revenues of NOK 768.7 million,including gains from the sale of vessels of NOK 62.0 million. Thecorresponding numbers for 1997 were NOK 673.4 million and NOK 75.1million, respectively. Net income before tax was NOK 242.3 million,compared to NOK 240.4 million in 1997. Net cash flow for the concernduring this period was NOK 309.3 million, or NOK 6.82 per share. Thecorresponding cash flow per share in 1997 was NOK 6.47.
Net finance costs totalled NOK 59.9 million (NOK 33.6 million). Anadjustment in the Company’s mortgage debt in USD caused an unrealisedcurrency loss of NOK 10.1 million (NOK 3.4 million).
Operating costs were NOK 347.6 (275.0 million). Operating marginsbefore depreciation and finance, excluding gains from the sale of vessels,was NOK 359.1 million in 1998 (NOK 323.3 million). Ordinarydepreciation in 1998 totalled NOK 118.9 million (NOK 124.5 million).
The Company changed the depreciation schedule in 1998, extending theuseful life of the vessels from 20 to 25 years, which is standard in theindustry. With this change, 1998 earnings were boosted by NOK 30million.
The Board will propose the following use of the parent company’s profits ofNOK 323,674,036
Charged to reserve funds NOK 278,344,666Dividend per share 1.00 NOK 45,329,370
FINANCING AND CAPITAL STRUCTUREInterest earning short-term assets made up NOK 141.2 million at the end of1998. Interest carrying mortgage debt made up NOK 1,061.8 million at theend of 1998. Of the mortgage debt at the end of the year, 66% isdenominated in USD; the rest is in NOK. Debt denominated in USD isserviced with revenues from long-term contracts that are paid in USD. In1998, there was a mortgage debt reduction of NOK 155.7 million.
Equity totalled NOK 1,172.1 million at the end of 1998, equal to NOK25.86 per share. At the end of the year, the Company received estimates onthe value of the fleet from 3 shipbrokers. These values give an adjustedequity estimate of NOK 48.72 per share. The element of uncertaintyassociated with these estimates is larger than in prior years.
ADMINISTRATIONThe Company operates two independent administrative offices. The officein Ålesund has 29 employees, the one in Aberdeen has 11 employees.Together, these offices manage approximately 510 sailing crew. The P&OMaritime Services, based in Australia, manage the operation of vessels inthe Asia/Pacific region.
In 1998, the compensation to the Board was NOK 730,000. Compensationto the Managing Director was NOK 2,001,700, of which NOK 903,500 waspaid as bonus. Auditors fees are estimated at NOK 297,000, of which NOK167,000 is for audits and NOK 130,000 is for consulting fees.
R E P O R T O F
T H E B O A R D
O F D I R E C T O R S
9
*) Cash flow here defined as EBIT + depreciation + disagio (loss from adjusting the value ofdebt in USD)
92 93 94 95 96 97 98
92 93 94 95 96 97 98
0
200
400
600
800(NOK mill.)
Operating income(before profit on sales of vessels)
Cash flow (before tax and profit on saleof vessels)
0
4
2
6
8
10(NOK)
Cash flow per share (excl. profit on sales of vessels)
Cash flow per share(incl. profit on salesof vessels)
SHAREHOLDER MATTERSAt the end of the year, the Company had 2,769 shareholders vs. 1,967 inthe previous year. There were 52 foreign shareholders owning 4.9% ofshares outstanding. Please see page 28 for listing of shareholders withmore than 20% ownership, in addition to an overview of Management andBoard members. No stock options have been given to the Board or to theManagement. The share price has declined from NOK 42.00 to NOK 21.00during 1998. A NOK 1.00 dividend per share has been proposed for 1998.
The Company’s Board has the authority to raise capital by issuing shares ofup to 6 million shares before the shareholders’ pre-emptive rights comeinto play. This authority is valid until the Annual Meeting 1999. At thesupplementary Annual Meeting on 17 December, a decision was made togive the Board authority to buy back up to 10% of outstanding shares.This authority is valid for 18 months from 01.01.99.
THE FLEETOn 4 June 1998, Far Senior (AHTS) was delivered by Langsten Slip &Båtbyggeri AS. The reconstruction of Lochnagar (PSV) to a pipe-layingvessel for flexible pipes was completed in the beginning of September. Thevessel began its employment contract with DSND on 5 August 1998. FarGrip commenced its 5 year contract with Norsk Hydro in the middle ofAugust. In addition, Far Scandia accepted an extension of its contract withNorsk Hydro by another 5 years. Far Sun extended its contract withAmoco N. by another 5-year period. Far Sleipner, located in Brazil,extended its contract by 8 years from October 1998.
On January 29, the anchor handling vessels Far Sea and Far Minara weresold to P/R International Offshore Services ANS (IOS), a joint venture inwhich Farstad Shipping and P&O, Australia, have a 50/50 interest. In thebeginning of October, IOS purchased two PSV vessels from Maersk. Thevessels, Lady Elizabeth and Lady Kari-Ann, continued their 2 and 5-yearcurrent contracts with Exxon in Australia. Lady Sandra, a new AHTSvessel, started on a bare-boat contract with IOS on 29 October.
In November 1997, an order was issued to Langsten Slip & Båtbyggeri AS,for the construction of an AHTS vessel, model UT-741. The vessel is to bedelivered in May/June 1999. The vessel is going to be employed on acontract with EMC. In 1998, Norsk Hydro awarded Farstad Shipping witha 10-year contract for a large PSV vessel. To meet specifications in thiscontract, an order was placed with Brattvaag Skipsverft AS for delivery inJuly 1999. In addition, the Company has another AHTS vessel underconstruction for delivery in February 2000. This vessel is tied to an 8-yearcontract with Petrobas in Brazil. In January and March 1999, KværnerGovan delivered two new PSV vessels. Both vessels were chartered under5-year contracts immediately following delivery.
After the delivery of all current orders, the Farstad Fleet will be composed
R E P O R T O F
T H E B O A R D O F D I R E C T O R S
10
The King and Queen of Norway visits Farstad Shipping ASA, for apresentation of Maritime Nordvest.
The signing of the contracts with Norsk Hydro
The Naming Seremony of Far Senior
of 25 vessels. In addition, there are 9 vessels owned through P/RInternational Offshore Services ANS (IOS), and one vessel chartered undera bare-boat contract with IOS.
HEALTH, SAFETY AND ENVIRONMENTFarstad Shipping has maintained its strong involvement in the awareness ofhealth, safety and environmental issues aboard the vessels and on its landbased operations.
The Company’s vessels are managed according to our customers’ qualityexpectations, and are maintained on a level that surpasses the minimumnational and international requirements with respect to safety andenvironmental regulations. The vessels undergo a planned maintenanceprogram set up in accordance with recommendations by manufacturers aswell as classification companies, authorities as well as the Company’s ownexperience.
In an effort to focus on improvements on Health, Safety andEnvironmental issues, extensive training took place in 1998. Activitiesinclude the reporting of unwanted events (including potential accidents), athorough investigation of the circumstances, and a discussion ofexperiences that involves causes, costs and effective steps to take to preventsuch events from recurring. This is an effective tool, and one that gives theCompany an opportunity to limit losses and improve operational safety. Inaddition, it encourages the crew to report hazards, which in turn can helphighlight the hazards. Because the reporting now is performed in a moreobjective manner, the "individual at fault" risk is eliminated, and the sailingcrew has a better incentive to report possible hazards to people, equipmentand machinery.
The Company initiated a project in 1998 to inspect equipment and systemsto gain an insight on the Y2K problem. Today, approximately 85% of allthe equipment has been inspected, and a small number of problem areashave been identified. All equipment is scheduled for inspection before thearrival of critical dates.
Through DNV, the Company has certified the operations of vessels andland-based operations to the quality standard 9002 and the safety standardISM, both on a voluntary basis. The Board believes that the significantefforts on HSE as well as technical improvements will strengthen theCompany’s competitive edge.
Operations in 1998 have not caused any serious personal injury or materialdamage, nor have they caused any substantial pollution of the environ-ment. The Board believes that the workplace aboard the vessels as well asonshore is healthy.
THE MARKET IN 1998The North SeaThe Norwegian and British sector remains the most important markets forFarstad Shipping. About 65% of the Company’s freight revenues came fromthese markets.
The market balance in the North Sea improved in 1998 for the sixthconsecutive year. Despite many newly built vessels and vessels coming infrom other markets, the increase in the number of vessels has still remainedlimited. The explanation for this is that vessels still depart from the NorthSea market to serve other markets. This is especially true for large AHTSvessels, many of which have left the North Sea for markets in SouthAmerica, West Africa and the Far East. An increase in demand for theNorth Sea fleet, combined with a limited inflow of vessels, contributed toan average utilisation of 95% in 1998. The utilisation was 94% in 1997,and 92% in 1996. The 95% in 1998 was a higher than expected utilisationrate. Increased pipe-laying and construction activities contributed to thehigh demand in the second half of the year.
Demand associated with operations and maintenance at existinginstallations, as well as field construction and pipe-laying activities, makeup an increasing share of the market. These activities accounted for 90%of total demand in 1998. Demand for supply vessels related to explorationactivities has steadily declined. In 1998, it made up only 10% of totaldemand.
The booming market in recent years has led to a substantial increase of newvessels. During 1998, about 30 new vessels entered the market. At the endof the year, approximately 45 additional vessels were ordered or wereunder construction. This will have an impact on the North Sea market.
BrazilBrazil will remain one of the pioneers of oil exploration in deep waters. In1998, Petrobras started producing oil at 1,853 metres depth, a worldrecord.
About 20% of the Company’s freight revenues in 1998 came from vesselsemployed in Brazil. On contracts during the entire year, Petrobrasemployed the AHTS vessels Far Centurion, Far Crusader, Far Sailor, FarSea and in addition, the PSV vessel Far Sleipner. Following a completeconversion in Croatia, Lochnagar started its 8-year contract with DSND(Søndenfjeldske) in August. The vessel is to be used by Petrobras for layingflexible oil pipelines.
Australia and South East AsiaThis region contributed with 15% of the Company’s freight revenues in1998. Farstad Shipping and P&O, Australia, established a 50/50 jointventure, "IOS", at the end of 1997. At the end of 1998, the IOS fleetconsisted of 2 PSV vessels and 8 AHTS vessels. One of the AHTS vessels,built in 1998, is chartered on a 5-year bare-boat contract. Eight of the IOSvessels are employed in the Far East/Australia, one is in Brazil, and one islocated in the North Sea.
P&O Maritime Services in Australia manages the vessels that are located inthe Asia-Pacific region. Farstad Shipping manages vessels in the Atlanticregion, including the North Sea.
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Ålesund, 3 March 1999 The Board of Farstad Shipping ASA
Per Erik Dalen
Sverre A. Farstad Per Norvald SperreChairman
Bjarne Sælensminde
Sigmund Borgundvåg
Bjørn Havnes
MARKET OUTLOOKHistorically, there is a high correlation between the oilcompanies’ profits and the level of activity that they putforth with respect to exploration and investments. Reducedrevenues and shrinking margins as a result of the currentlow oil price has led to cuts in exploration budgets for 1999.However, due to the low share of the total demand thatexploration activities represent in the North Sea, thisreduction in activities will have a relatively lesser impact ondemand for supply vessels in the North Sea market than inother markets.
The number of newly constructed vessels that will enter themarket is going to heavily influence the market balance in1999. Additionally, there will be some impact by thereduction in exploration activities by the oil companies, as aresult of the low oil price. The markets outside the NorthSea will see a lower activity level than previously anticipatedby this reduction. The demand for supply vessels in themarkets in Brazil, the Far East, Australia and West Africacan not be expected to increase in the near future. Thedegree of utilisation in the North Sea is expected to declinein the times ahead, which in turn will have a negative effecton the rates.
A substantial portion of the Farstad Fleet, estimated to be80%, was at the beginning of 1999 employed under existingcharter contracts. Based on today’s contracts, the fleet isapproximately 65% covered for the year 2000.
TAX LAW REFORMIn 1996, the Norwegian Parliament, the "Storting", passed anew tax law for Norwegian shipping companies. The newreform, which is based on a draw principle, gives theNorwegian shipping industry a tax law that is fair comparedto tax laws in many of the countries it competes with.Farstad Shipping made a decision to make the necessarychanges to conform to the new law. These changes wereimplemented in 1997. In our opinion, the system hasperformed in accordance with the intentions for which itwas designed.
REIMBURSEMENT FOR SAILORSThe arrangement was implemented in 1993, with theintention of strengthening the NOR-registered fleet’scompetitive edge as well as function as a vehicle to increaserecruitment of Norwegian sailors. The result has become2,200 additional sailors. The recruitment work has bornefruits in the form of increased enrolment into maritimelearning institutions, in fact the best in 25 years! All qualifiedapplicants have received apprenticeships. During the lastfew years, Farstad Shipping has had a recruitment programwith an annual budget of NOK 5 million, which is about50% of the annual reimbursement received.
Unfortunately, since the new laws came into effect, at theannual budget debate in the Storting, doubt has been castover the stability of the laws and regulations governing theshipping industry. Subsequently, in 1998, the reimbursementprogram was cut from 20% to 12%.
To succeed in an industry that is as capital intensive as theshipping industry, visibility of laws and regulations iscrucial. This is true for the reimbursement program as wellas tax regulations.
R E P O R T O F
T H E B O A R D
O F D I R E C T O R S
12
PARENT COMPANY FARSTAD SHIPPING ASA (NOK 1000) GROUP
P R O F I T A N D L O S S A C C O U N T
Operating income:Freight incomeOther incomeProfit on sale of fixed assets
Total operating income
Operating expenses:Crewing expenses vesselsOther operating expenses vesselsAdministration
Total operating expenses
Operating profit before depreciation
Depreciation
Operating result
Financial items:Financial incomeFinancial expenses
Net financial items
Pre-tax profit
Taxes
Profit of the year
Which is proposed to be allocated as follows:
Transferred to legal reserveTransferred from retransfer reserveTransferred to general reserveAllocated to dividends
Profit per share (NOK)
1998
-28,250
315,910
344,160
-4
(34,974)
(34,970)
309,190
(1,989)
307,201
16,878(405)
16,473
323,674
-
323,674
--
278,34545,329
323,674
7.14
1998
703,0523,648
62,005
768,705
(184,671)(122,528)
(40,430)
(347,629)
421,076
(118,893)
302,183
16,306(76,181)
(59,875)
242,308
(1,844)
240,464
5.30
1997
597,376907
75,117
673,400
(142,920)(99,644)(32,389)
(274,953)
398,447
(124,470)
273,977
22,076(55,634)
(33,558)
240,419
102,361
342,780
5.30
1996
456,6152,218
203
459,036
(121,256)(93,138)(28,099)
(242,493)
216,543
(120,137)
96,406
17,123(54,976)
(37,853)
58,553
(16,599)
41,954
1.30
1997
444,8575,543
715,491
1,165,891
(109,181)(76,564)(32,417)
(218,162)
947,729
(92,927)
854,802
17,986(50,193)
(32,207)
822,595
101,693
924,288
120,750-
758,20945,329
924,288
18.15
N O T E
1
17
16
7
18
33
10
2
12
12
13
B A L A N C E S H E E T
1997
116,91111,17127,99144,261
200,334
1,042,136878,652
892-
7,879-
14,434242,563
2,186,556
2,386,890
1998
62,51621,25739,003
9,326
132,102
1,473,586207,156
1,425-
6,303--
1,710
1,690,180
1,822,282
1998
112,17521,257
119,18928,817
281,438
650-
675-
6,303206,430
42,5911,830,998
2,087,647
2,369,085
1997
156,41411,17158,14933,561
259,295
425-
275-
7,879114,610
36,5891,549,407
1,709,185
1,968,480
1996
187,19610,31852,74023,395
273,649
200--
3599,455
39,432-
1,270,321
1,319,767
1,593,416
FARSTAD SHIPPING ASA (NOK 1000) GROUP
ASSETS
Current assets:Bank depositsOther securitiesAccounts receivables, freight incomeOther short-term receivables
Total current assets
Fixed assets:SharesReceivables Farstad SupplyOther long-term receivablesRate equalisation reserveGoodwill Contracts newbuildingsDeferred maintenance costVessels etc.
Total fixed assets
Total assets
PARENT COMPANY
N O T E
564 4
66
711
7
7
2
14
B A L A N C E S H E E T
PARENT COMPANY FARSTAD SHIPPING ASA (NOK 1000) GROUP
1997
14,46360,98945,329
120,781
1,411708,606
-
710,017
45,329211,509
1,299,254
1,556,092
2,386,890
719,063125
1998
8,15463,42345,329
116,906
2,068--
2,068
45,329198,396
1,459,583
1,703,308
1,822,282
0865,887
1998
37,37450,35545,329
133,058
2,0681,061,843
-
1,063,911
45,329216,705910,082
1,172,116
2,369,085
1,078,809246,629
1997
25,34743,58245,329
114,258
1,411875,937
-
877,348
45,329217,544714,001
976,874
1,968,480
886,793171,244
1996
23,14642,813
-
65,959
649710,788102,502
813,939
79,32690,988
543,204
713,518
1,593,416
727,62096,557
LIABILITIES AND EQUITY
Short-term liabilities:Debt to suppliersOther short-term liabilitiesAllocated to dividends
Total short-term liabilities
Long-term liabilities:Other long-term liabilitiesInterest-bearing mortgage debtDeferred tax
Total long-term liabilities
Equity capital:Share capital (45.329.370 of NOK 1.00)
Legal reserveGeneral reserve
Total equity capital
Total liabilities and equity
MortgagesGuarantee liabilities
N O T E
8
121310
99
1515
15
1998
323,674-
(315,910)1,989
-(11,012)
(6,310)
657-
37,369
30,457
571,740(956)
-(431,725)671,638
(400)
810,297
-(708,606)(131,128)
(45,329)-
(885,063)
(44,309)
128,082
83,773
1998
242,308(348)
(62,005)118,893
24,069(61,040)12,027
65710,145
9,330
294,036
120,139(578,136)
-(225)
-(400)
(458,622)
331,506(155,744)
-(45,329)
-
130,433
(34,153)
167,585
133,432
1997
240,419(109)
(75,117)124,470
16,796(5,409)2,201
4043,394
(14,226)
292,823
127,415(578,886)
---
(500)
(451,971)
326,446(163,230)
--
(33,997)
129,219
(29,929)
197,514
167,585
1997
822,595-
(715,491)92,92711,52824,677
(10,360)
4041,726
(46,432)
181,574
1.582,975(276,220)
207,030(1.040,145)
(870,198)-
(396,558)
343,753(160,291)
--
(33,997)
149,465
(65,519)
193,601
128,082
1996
58,553(306)(203)
120,137-
2,0257,238
4651,299
(1,800)
187,408
1,451(450,135)
---
(100)
(448,784)
387,543(132,792)
--
(33,997)
220,754
(40,622)
238,136
197,514
CASH FLOW FROMOPERATING ACTIVITY:Pre-tax profitPaid taxes this periodProfit on sale of fixed assetsOrdinary depreciationsPeriodical maintenance costsChanges in debtorsChanges in creditorsDiscrepancies pension costs/paymentsfrom pension fundsUnrealised foreign exchange loss/(gain)Changes in prepayments and accruals
Net cash flow from operation activity
CASH FLOW FROMINVESTMENT ACTIVITY:Sale of fixed assets (sales price)Investments in fixed assets/ contracts newbuildingsPayment from sales of sharesPurchase of sharesChanges in long-term receivablesOther investments
Net cash flow from investment activity
CASH FLOW FROMFINANCE ACTIVITY:New long-term debtRepayment of debtResult 1997, transferred to subsidiariesDividendsRepayment of equity capital
Net cash flow from finance activity
Changes in liquidity over the year
Liquid assets at 01.01
Liquid assets at 31.12
FARSTAD SHIPPING ASA (NOK 1000 ) GROUP PARENT COMPANY
C A S H F L O W S T A T E M E N T
A
B
C
A + B + C
16
PRINCIPLES OF CONSOLIDATIONThe consolidated financial statements include the parent company Farstad Shipping ASA and thesubsidiaries specified in note 6. In the consolidated statements, all inter-company balances and transactionsare eliminated. The cost of acquiring share in subsidiaries is eliminated against equity in the subsidiary atthe time of acquisition or at the time of establishment. The cost method is used for this elimination.
The profit and loss statement (P&L) for a foreign subsidiary are translated to NOK at average exchangerates for the year. The balance sheet is translated to NOK according to the exchange rate at the end of theyear.
OWNERSHIP OF THE GENERAL PARTNERSHIP (ANS)Shares in the this general company, see note 2, are entered using the principle of proportional consolidation(gross method). Accordingly, Farstad Shipping’s share of the parent company’s assets, debts and marginsare included in Farstad Shipping’s financial statements, under their respective accounts. Balance sheet itemsand P&L items between the general company and Farstad Shipping are eliminated proportionally to theextent of Farstad Shipping share of ownership in this company.
SALE OF VESSELSProfit from sale of vessels are included in operating income, due to the perception that these transactionsare part of the regular business operations.
DEPRECIATION OF VESSELSVessels and portion of vessels in ANS are valued in the consolidated balance sheet at cost, less accumulateddepreciation. The cost of the vessels or the portion of the vessels in ANS follows a straight-linedepreciation schedule over 25 years. This principle was changed in 1998. Prior years’ depreciation expenseof the fleet was based on a useful life of 20 years from the time of possession/acquisition. The effect thatthis change has for the year 1998 makes for a reduction in depreciation expense of NOK 30 millioncompared to the previous depreciation schedule. Smaller investments, alterations and investmentsnecessitated by new charter contracts are normally depreciated in a straight line over 5 years, unless thereare conditions that dictate a longer useful life of that particular investment.
GOODWILLWith the acquisition of the management companies Sverre Farstad & Co AS and Farstad UK Ltd. in 1993,the goodwill value of NOK 15.8 million has been added to the balance sheet. This will be depreciated by10% annually, in that the aquisition is anticipated to have value for the Company for at least ten years.
CONSTRUCTION CONTRACTSPaid instalments for newbuildings are entered as fixed assets as each payment take place. Investments thatare not included in the contract, such as inspection costs, and other related costs and rebates duringconstruction, will be recorded as fixed assets. For details, see note 11.
PENSION COSTS AND OBLIGATIONSThe Company is financing its pension obligations to 234 employees through two group pension plans. TheCompany has separate arrangements with five individuals, for whom the Company pays the annualpremiums. These premiums are recorded as pension costs as they incur.
The net present value of the future obligations of the group pension plans is calculated based on insuranceaccounting principles. The estimated obligation for the employees on shore is recorded as a debt on the
A C C O U N T I N G P R I N C I P L E S
17
balance sheet. The current year’s change in net pension obligation then becomes a pension cost in thefinancial statements. Estimates of the pension obligation to the sailing crew currently indicate over-financing. This is not included on the balance sheet. For details, please see note 12.
MORTGAGE DEBTMortgage debt for the fleet, including the first year’s payment of principal, is recorded as long-term debt.For a detailed payment plan, please see note 13.
MAINTENANCE COSTSPeriodic maintenance is capitalized, and then gets charged to operating costs during the period until thenext periodic maintenance is due; normally it is a 30-month cycle. Upon delivery of newbuildings, a portionof the cost of the vessel is valued as periodic maintenance. If a vessel is sold, the periodic maintenance coston the balance sheet is deducted from the gains on the sale.
FOREIGN EXCHANGEEntries are recorded according to the rates at the time of transaction or at the rate of a forward exchangecontract when currency value have been secured. Current assets and short-term debts are valued at rates on31.12.98. Long term debt is valued at the current rate at the time that the loan was established, or thecurrent rate at the end of the year, whichever is higher. Any increase in long term debt due to a change inexchange rates is charged as an expense.
TAX COST IN CONNECTION WITH THE NEW TAX REGIME FOR SHIPPING COMPANIES.In 1996, a new tax regime for shipping companies came into effect in Norway. The main principle is thatno operating income tax has to be paid as long as a company conforms to the tax regime. Tax must be paidon payments made by a company that is within the regime, or when a company withdraws from the regime.The Company made steps to include its entire fleet in the regime as of 1997. Within the regime, theCompany has to pay a tax based on the tonnage, which is classified as an operating expense. For FarstadShipping, this expense is insignificant.
Companies within the system can only own vessels and/or companies that own vessels. The operation ofvessels must be hired from companies that are outside the regime, and at market prices. For the receivingcompany, this is taxable income.
The net present value of deferred tax associated with the positive and temporary differences in tax paymentswhich is transferred to companies that conform with the new tax regime, is considered insignificant; thereason is that the taxable income that these differences represent is not expected to be taxable in theforeseeable future. This judgement is based on the Company’s dividend policy, cash reserves and the freelytaxable equity of the part of the Company that remains outside the tax regime. The judgement is also basedon the Company’s intention that by conforming to the tax law, the change is a long-term commitment, andthat the Company intends to maintain its activities.
Estimated tax cost includes payable taxes to foreign tax authorities. For details, please see note 10.
CASH FLOW STATEMENTThe Company uses the so-called indirect model when presenting its cash flow statement. Bank deposits andother deposits are included in current assets. As mentioned in note 15, there is liability associated with aportion of this amount.
A C C O U N T I N G P R I N C I P L E S
18
PROFIT ON SALE OF FIXED ASSETSDeferred
Vessels etc. Salesprice Book value maintenance Profit
Sale of 5 vessels to Farstad Supply 571,334 241,026 14,435 315,873Other fixed assets 270 233 - 37
Total profit parent company 315,910
Far Minara (50% share) 46,036 13,754 385 31,897Far Sea (50% share) 73,714 42,464 1,240 30,010Other fixed assets 119 58 - 61Profit-elimination from sale of vessels within the Group (315,873)
Total profit group 62,005
In order to adapt to the new tax regime for Norwegian shipping companies, vessels have been sold to subsidiaries to market values. The last 5 vessels were transferred at 01.01.98.
FINANCIAL ITEMS
INTERESTS IN GENERAL PARTNERSHIP
NOTE
3NOTE
3
NOTE
2NOTE
2
NOTE
1NOTE
1
Parent Company Farstad Shipping ASA Group
1997 1998 1998 1997Financial income
7,083 3,670 Interest income from bank deposits 7,905 9,070502 516 Dividends received 516 502296 11,717 Interest income from subsidiaries - -
9,426 476 Agio, realised 7,382 11,923679 499 Other financial income 503 581
17,986 16,878 Total financial income 16,306 22,076
Financial expenses 38,466 - Interest on mortgage loans 57,972 41,369
1,781 21 Other financial expenses 970 2,1998,220 384 Disagio, realised 7,094 8,6721,726 - Disagio, unrealised 10,145 3,394
50,193 405 Total financial expenses 76,181 55,634
Farstad Shipping’s 50% participation in P/R International Offshore Services ANS is included in the Group figures as follows:
Pre-tax Tax Profit Current Vessels and Short-term Long-termprofit assets def. maint. debt debt
22,722 (1,696) 21,026 42,806 332,169 12,260 211,774
N O T E S ( N O K 1 0 0 0 )
19
OTHER SHORT-TERM RECEIVABLESNOTE
4NOTE
4 Parent Company Farstad Shipping ASA Group
1997 1998 1998 1997
786 537 Bunker and stock of lubrication oil 3,022 4,1641,280 1,167 Loans to employees 1,167 1,2901,389 1,212 Prepaid costs 5,065 3,682
30,139 177 Receivables from Group Companies - -10,667 6,234 Other receivables and interest earned 19,563 24,42544,261 9,327 28,817 33,561
All receivables are valued at par and are considered to be collectable. It has not been found necessary to make provisions for possible losses on claims.
NOTE
6NOTE
6
NOTE
7NOTE
7VESSELS AND OTHER OPERATING ASSETS (GROUP)
Acquisition Additions Disposal Accumulated Book value Ordinary cost at 1.1. in the year in the year depreciation at 31.12 depreciation
Goodwill(10%) 15,809 0 0 9.506 6.303 1,576Contracts on vessels(0%) 114,610 321,566 229,746 0 206,430 0Cars (20-25%) 1,958 1,298 673 1,220 1,363 722Other fixed assets (2-25%) 7,943 991 67 2,877 5,992 609Directly owned vessels 1,968,511 373,740 192,061 651,094 1,499,095 90,444General partnership (ANS) 214,602 175,624 0 65,679 324,548 25,542Total vessels etc. 2,193,014 551,653 192,801 720,869 1,830,998 117,317Total operating assets 2,323,433 873,219 422,547 730,375 2,043,731 118,893
Contracts of a vessel in a yard implies that advance payment is included in that year’s addition under contracts. When completed, the value of that vessel is included in that year’s disposal under contracts and the cost price of the vessel is included. Sale of vessels to the general partnership will give a disposal at the line for directly owned vessels and our share will be included as additions to the line for ANS.
Below, the investments are only included as contracts in order not to make double entries.
INVESTMENTS IN AND SALE OF FIXED ASSETS (SALES PRICE) DURING THE PAST 5 YEARS: (NOK mil l . )
1998 1997 1996 1995 1994 Purchase Sale Purchase Sale Purchase Sale Purchase Sale Purchase Sale
Cars 1.3 0.4 0.9 0.5 1.4 1.4 0.3 0.2 1.1 0.5Goodwill - - - - - - - - 0.1 -Other operating assets 1.0 - 1.8 - 1.3 0.1 0.3 0.1 4.3 0.4Directly owned vessels 144.0 118.5 54.1 127.7 33.5 - 8.9 64.4 0.7 47.9Interest in vessels in partnership 79.6 - 214.6 - - - 138.7 - 268.8 0.3Newbuildings 321.6 - 281.2 - 132.4 - 142.5 - 20.0 -Total for the Group 547.5 118.9 552.6 128.2 168.6 1.5 290.7 64.7 295.0 49.1
N O T E S ( N O K 1 0 0 0 )
SHARES IN SUBSIDIARIES AND OTHER SHARES
Share- Total no. Share Par BookCompanies capital of shares in % value value Shares:Sparebanken Møre 552,615 84,600 1.53 8,460 11,389Kreditbanken ASA 163,520 84,200 1.03 1,684 2,315Ulstein Holding ASA 216,620 6,300 0.03 63 504Solstad Offshore ASA 71,588 10,000 0.03 20 281Total shares included in other securities 14,489Shares in subsidiaries:Farstad Shipping Ltd. GBP 5.000 5.000 100 63 1,691Farstad Supply AS 1,471,245 1,471,245 100 1,471,245 1,471,245Total shares in subsidiaries: 1,471,308 1,472,936Sundry shares 650 650Total shares under fixed assets 1,471,958 1,473,586Shares owned by Farstad Supply AS:Farstad International AS 50 50 100 50 50
The parent company’s receivables on Farstad Supply, amounting to NOK 207,156, arose through the sale of vessels to thenew shipowning company within the tax regime for Norwegian shipping companies.The receivables bear interest at market interest rates.
20
BANK DEPOSITS
Taxes owed on behalf of employees, NOK 4,555, are comitted resourced deposited into seperate account, but areincluded in bank deposits. See note 15 concerning bank deposits and collateral.
NOTE
5NOTE
5
OTHER SHORT-TERM LIABILITIES
TAX SITUATION
NOTE
8NOTE
8
NOTE
9NOTE
9
NOTE
10NOTE
10
Parent Company Farstad Shipping ASA Group
1997 1998 1998 1997
14,815 18,004 Tax deductions, holiday pay, VAT, etc. 18,015 14,8155,071 - Deferred income recognition of option premiums - 5,071
- - Estimated taxes payable 1,644 1715,191 4,455 Accrued expenses 6,914 7,550
10,457 - Accrued interest on mortgage debt 16,966 10,85625,321 40,786 Liabilities to group companies - -
134 178 Other short-term liabilities 6,816 5,11960,989 63,423 50,355 43,582
DEVELOPMENT IN THE COMPANY’S SHARE CAPITAL,LEGAL RESERVE AND GENERAL RESERVE (PARENT COMPANY)
Date Farstad Shipping ASA Number of shares Share capital Legal reserve General reserve
01.01.98 45,329,370 45,329 211,509 1,299,254
01.01.98 Result 1997, transferred to Farstad Supply (13,113) (118,016)31.12.98 From this years profit 278,345
Total Parent Company 45,329,370 45,329 198,396 1,459,583
N O T E S ( N O K 1 0 0 0 )
Parent Company Farstad Shipping ASA Group
1997 1998 1998 1997Calculation of taxable profit:
822,595 323,674 Operating income before taxes1,750 1,458 Permanent discrepancies
(686,612) (315,873) Profit sale of vessels within the Group(131,128) - Operating result transferred to company
within the new tax regime
Changes in temporary discrepancies related to:404 657 Current assets / short-term liabilities
347,445 1,571 Fixed assets / long-term liabilities124,985 - Income from profit and loss account
(470,961) - Reversed temporary discrepancies due toadapting the new tax regime
(8,478) (11,487) Reversed from correction income
0 0 Taxable profit
Calculation of deferred tax. Specification of discrepancies:(1,410) (2,068) Current assets / short-term liabilities (2,068) (1,410)8,028 6,457 Fixed assets 6,457 8,028
(1,072) (1,587) Unused dividend tax credit (1,587) (1,072)(13,659) (13,659) Loss carried forward (13,659) (13,659)(19,423) (7,935) Correction income (7,935) (19,423)
(27,536) (18,792) Calculation base for deferred taxes (18,792) (27,536)
0 0 Deferred tax 0 0
Specification of taxes in profit and loss account:- - Taxes payable abroad 1,844 141
(101,693) - This year’s change in deferred taxes - (102,502)
(101,693) 0 Total tax costs 1,844 (102,361)
21
NOTE
12NOTE
12
NOTE
11NOTE
11PENSIONS
NOTE
13NOTE
13
For the accounting purposes, the Company’s pension plan is treated in accordance with standard for pensionexpenses. See further detals under accounting principles on page 17.
The Company’s net pension liabilities, can be specified as follows, and are classified in the balance sheet under long-term debt:
31.12.98 31.12.97Insured pension rights earned 8,915 6,811Non-insured pension rights earned 104 447Pension funds (actual value) (6,309) (5,421)Estimated contribution to social security 241 125Actuarial corrections (883) (551)
Net pension liabilities 1) 2,068 1,411
Calculations are based on the following financial and actuarial assumptions:
Discount rate 7.0% 7.0%Expected return on pension funds 8.0% 8.0%Annual expected wage growth and G adjustment 3.3% 3.3%Adjusment in pension paid 2.5% 2.5%
This year’s net pension cost is calculated as follows:
Pension payment from operations 55 107Pension cost from supplemental schemes 1,239 1,541Pension cost, sailing crew, from operations 1) 1,453 1,285Changes in net pension liabilities 658 614Total 3,405 3,547
1) Actuarial calculations for the sailing crew show that the fund is overfinanced by NOK 2,967. The Company has decided not to include this element in the balance sheet.
INTEREST-BEARING DEBT
Net interest-bearing debt per 31.12: 1998 1997Interest-bearing debt 1,061,843 875,937Interest-bearing current assets (141,241) (176,458)Net interest-bearing debt 920,602 699,479
1999 2000 2001 2002 2003Instalment schedule*) 174,900 187,300 175,100 175,100 162,600
*) including calculated instalment for new debt for the financing of the newbuildings..
The interest-bearing mortgage debt is in its entirety tied to financing the fleet. Of the total debt on 31.12.98, 66% ofthis is denominated in USD, and the rest is in NOK. Two newbuildings, delivered in January and March 1999 arefinanced in GBP. All debt denominated in NOK has a floating interest rate. On 31.12.98, arrangements were made tofix the interest rate for 5 years on USD 41.7 million. The interest rate is calculated with the basis in the market rate(NIBOR/LIBOR), plus a fixed margin charged by the banks. The margins varies between loans. The interest rate hasrecently been renewed for shorter periods, from one to three months.
The mortgage debt associated with the individual vessels is shown on the fleet overview on page 47. In 1999 and2000, when the Company takes delivery of additional 5 vessels that are currently on order, mortgage debt willincrease by NOK 960 million.
N O T E S ( N O K 1 0 0 0 )
CONTRACTS NEWBUILDINGS/CONVERSIONS
The Company has ordered 5 newbuildings to be delivered January 1999, March 1999, May 1999, July 1999 andFebruary 2000. Total investment is approximatly NOK 1,200,000, whereof NOK 206,430 is capitalized as fixedassets per 31.12.98 for paid instalments to yards, inspection costs and owners supplies. Long-term financing isexpected to be 70-80% of the investments.
22
NOTE
14NOTE
14OFF-BALANCE FINANCIAL INSTRUMENTS
In order to secure the currency exchange rate of short-term receivables and freight income in foreign currency, at 31.12.98the Company has entered into the follwing agreements:
a) Forward agreements for an amount of GBP 33.3 million due from January 1999 to May 2003.Forward rates varies between NOK 11.50 and 13.10.
b) Forward agreements for an amount of USD 2.0 million due June 2000 and December 2000.Forward rate NOK 8.17.
To secure the planned financing of a newbuilding in USD the Company has per 31.12.98 entered into forward agreementsto buy USD 18.0 million, due date 20.02.00, at an average forward rate of NOK 7.75. In 1999, this contract amount hasbeen increase with USD 11.0 million at same average forward rate.
MORTGAGES, GUARANTEE LIABILITIESNOTE
15NOTE
15
NOTE
16NOTE
16
NOTE
17NOTE
17
CONNECTED COMPANIES
Tyrholm & Farstad AS, Ålesund, the Company’s largest shareholder, is defined as a connected company. On 01.01.93 the Company signed a five-year agreement with Tyrholm & Farstad AS with regard to officeaccommodation and the use of computer and other services at the head office in Ålesund at an annual cost ofNOK 3,680. The rent agreement was at 01.01.98 extended with another five years, and the agreement for otherservices was renegotiated 01.03.99 for 3 years. The Company has no receivables or liabilities to Tyrholm & Farstadat 31.12.98.
GOVERNMENT GRANTS
Farstad Shipping ASA Parent Company Group
Mortgages: Debt and accrued interest secured by mortgages 0 1,078,809
Security includes:Bank deposits - 7,460Account receivables - 113,656Vessels, at book value - 1,823,643
0 1,944,759
In addition the Company has assigned future freight income, and any insurance payment as security for debt.
Guarantee:Guarantee liabilities not included in the balance sheet 865,887 246,629
Mortgage debt has been transferred from Farstad Shipping to Farstad Supply as a part of the adaptation to the new taxregime for Shipping Companies. Farstad Shipping remains as guarantor for this debt, amounting to NOK 865,887 per31.12.98.
N O T E S ( N O K 1 0 0 0 )
Parent Company Farstad Shipping ASA Group
1997 1998 1998 1997
Government refund scheme to secure 12,371 10,589 employment of Norwegian seamen 10,589 12,525
Refund scheme for temporary posistions51 534 for seamen during training 534 51
12,422 11,123 Government grants for reduction of crew costs 11,123 12,576Contracting grant for rebuilding of ships
201 - (reduction of capitalized value) - 201
12,623 11,123 Total government grants 11,123 12,777
23
AUDITORS REPORT FOR 1998
TO THE ANNUAL SHAREHOLDERS MEETING OF FARSTAD SHIPPING ASA
We have audited the annual report and accounts of Farstad Shipping ASA for 1998, which show a profit for the year of NOK323,674,036.- for the parent company and a consolidated profit for the year of NOK 240,464,000.-. The annual report andaccounts which comprise the annual report proper, profit and loss account, balance sheet, funds flow statement, notes to theaccounts and consolidated accounts, are presented by the company’s Board of Directors and it´s Managing Director.
Our responsibility is to examine the company’s annual report and accounts, its accounting records and other related matters.
We have conducted our audit in accordance with relevant laws, regulations and Norwegian generally accepted auditing standards.We have performed those audit procedures which we considered necessary to confirm that the annual report and accounts arefree from material misstatements. We have examined selected parts of the evidence supporting the accounts and assessed theaccounting principles applied, the estimates made by management and the content and presentation of the annual report andaccounts.
To the extent required by Norwegian generally accepted auditing standards we have reviewed the company’s internal control andthe management of its financial affairs.
The Board of Directors’ proposal for appropriation of the profit is in accordance with the requirements of the Joint-StockCompanies Act.
In our opinion the annual report and accounts have been prepared in accordance with the requirements of the Norwegian Joint-Stock Companies Act and present fairly the financial position of the company as of 31.12.98 and the result of its operations forthe financial year, in accordance with Norwegian generally accepted accounting principles.
Ålesund, 4 March 1999ERNST & YOUNG AS
Odd Jarle DøvingState Authorised Public Accountant (Norway)
The translation into English has been prepared for infomation purposes only.
NOTE
18NOTE
18
N O T E S ( N O K 1 0 0 0 )
24
RESULT SORTED BY BUSINESS SEGMENTS
Freight Operating Operating Depreciation Operating Book valueincome costs profit I(EBDIT) profit II(EBIT) vessels
AHTS 421,587 186,942 234,645 65,627 169,018 1,099,431PSV 281,465 160,687 120,778 50,359 70,419 766,804Total vessels 703,052 347,629 355,423 115,986 239,437 1,866,235Norwegian sector 159,163 75,149 84,014 30,430 53,584 458,105British sector 293,478 133,627 159,851 37,301 122,550 658,041Brazil 154,037 87,123 66,914 26,469 40,445 476,429Far East/Australia 96,374 51,730 44,644 21,787 22,857 273,660Total sectors 703,052 347,629 355,423 115,986 239,437 1,866,235
Operating result (EBIT) for Farstad Shipping is NOK 302,183. The difference of NOK 62,746 is divided between other revenues: NOK3,648, sale of fixed assets, NOK 62,005, and other depreciation, NOK 2,907.
In 1998, some of the vessels have had activity in more than one area. When allocating costs/revenues for each geographical area,consideration has been made to actual revenues. However, the vessels’ operating costs are prorated. The depreciation is allocated usingthe same principle as other costs. The administration overhead costs related to the entity as a whole are allocated equally between thevessels.
The book value breakdown per vessel by geographical location was determined using the end of 1998 as basis. Book value as of 31.12.98was used, and includes the individual vessel’s accrued periodic maintenance costs as of that date.
25
BUSINESS SEGMENTSThe Norwegian GAAP (Oct. 1995) sets guidelines for the division ofthe various business segments and for what information should besubmitted detailing the individual segment. Note 18 in the financialstatements details the business segments in Farstad Shipping.Uncertainties associated with the allocation of costs and revenues, aswell as with balance sheet items, inhibit analysis of profitability bybusiness segment.
Factors that may be crucial when evaluating profitability:• The different needs and requirements with respect to tonnage
that exist in each individual market• The useful financial life of each vessel differs between markets• The age of the fleet• Length of contract• Operational risk• Tax regulations• The need for a local partner• Differences in administrative and marketing services rendered
The North SeaOf the Company’s total freight revenues for 1998, 65% came from theNorth Sea market, where British sector made up 36.5%. TheNorwegian sector’s share of revenues has declined in later years. In1998, 51.5% of revenues from AHTS activities came from the North
Sea. The corresponding number for PSV was 84%. The AHTS’srelative share of revenues and profits in the North Sea has increasedduring the last few years, partially due to the increased number ofvessels, and partially due to the currently positive market. TheCompany’s AHTS vessels have been in a better position to takeadvantage of the market changes because the PSV vessels havegenerally been tied to long-term contracts. In addition, AHTS vesselshave commanded higher rates than PSV vessels.
BrazilThis market contributed with 22% of the Company’s total revenues in1998, the equivalent of NOK 154 million. AHTS vessels made up75% of this number. EBDIT in percent of freight revenues is lowerthan in the North Sea market, due to the latter’s positive market in1998.
Far East/Australia Represented by IOS, this market contributed with 13% of theCompany's total revenues in 1998, or NOK 96.4 million. PSVrevenues made up only 8% of the total, but that share is expected toincrease in 1999 after 2 PSV vessels were purchased by IOS inOctober 1998. Australia is the most important market in this region,accounting for as much as 82% of total revenues for the region.EBDIT in percent of freight revenues is at a comparable level with theBrazilian market.
A N A L Y T I C A L I N F O R M A T I O N
1995 1996 1997 1998 E-99
AHTS PSV AHTS PSV TOTALT AHTS PSV TOTALT
1995 1996 1997 1998 E-99
DEVELOPMENT IN FREIGHT INCOME
FREIGHT INCOME 1998 EBDIT1998 (as % of freight income 1998)
DEVELOPMENT EBDIT(as % of freight income)
Norwegian sector BritisH seCtor AHTS PSVBraZilFar East/Australia West-Africa
Norwegian sector British sector
Brazil Far East/Australia1995 1996 1997 1998
%
% % %
100
80
60
40
20
0
%100
80
60
40
20
0
70605040302010
0
70605040302010
0
605040302010
0
Norwegian sektor British sector
Brazil Far East/Australia
31.12.9631.12.9531.12.9431.12.9331.12.92
Far Scandia - UT 705 Far Scotsman - ME 202 Far Sea - ME 303 II Far Crusader - ME 303
MORTGAGE SORTED BY CURRENCY
VALUE OF VESSELSPSV AHTS
VALUE OF VESSELS VS. MORTGAGE
MortgageBook valueMarket value
mill. NOK mill. NOK150
120
90
60
30
0
3000
2500
2000
1500
1000
500
0
A N A L Y T I C A L I N F O R M A T I O N
NOK
Est. 31.12.99
Est. 31.12.00
46%
37%17%
40%
45%
15%
GBP USD
31.12.92 31.12.93 31.12.94 31.12.95 31.12.96 31.12.97 31.12.9892 93 94 95 96 97 98
VALUE ADJUSTED EQUITY
TOTAL PER SHARE
mill. NOK NOK
Value adjusted equitytotal and per share
2500
2000
1500
1000
500
0
50
40
30
20
10
0
Estimated VAE has increased by approximately 6% compared to thevalue on Dec. 31 1997. At the end of 1998, it was estimated at NOK 2.2Bn. The market value of the Company (share value multiplied bynumber of shares outstanding) declined in the same period by 50%. Atthe end of 1998, it was approximately NOK 950 million.
THE MARKET VALUE OF VESSELS The market value of the fleet is calculated by averaging estimates from 3independent Norwegian ship brokers at the end of 1998. For a detailedtable of the value estimates for each vessel, please turn to page 47. Thebrokers’ assessments assume that the vessels are without contracts andavailable for immediate sale. Value estimates in USD are calculatedusing exchange rates at the end of 1998.
The historical value of the vessels during the last few years are shownabove, represented by two vessels built in 1983 (Far Scotsman and FarCrusader) and two vessels built in 1991. The market value for theFarstad fleet fell in 1998 by 7% on average.
Due to the current market outlook, uncertainties associated with thevaluation estimates are greater than in prior years.
VARIATION IN BROKERS’ ESTIMATESThe brokers have submitted their value estimates using a high-low range.The average of the high end of the estimates gives a fleet market value ofNOK 2,971 million, equivalent to NOK 50.22 per share. The average ofthe low end of the range gives values of NOK 2,834 million for the fleetand NOK 47.21 per share.
A 10% change in fleet value corresponds to a change in VAE of NOK6.40 per share.
EXCESS VALUESEstimates of the value adjusted equity does not take into considerationother additional values in the Company than the excess values of thevessels. The value estimates assume that vessels can be sold individually.There are no adjustments for excess values that are derived from chartercontracts already in service. There are no adjustments for excess valuestied to vessels under construction. There are no adjustments made forchanges in value which could derive from a sale of the fleet, or a sale ofthe whole Company as a going concern.
Goodwill is valued at NOK 6.3 million. This balance comes from the1993 acquisition of Sverre Farstad & Co. A/S and Farstad Shipping Ltd.No adjustments of these assets are included in the valuation of FarstadShipping.
The last years’ acquisition trend has clearly demonstrated that buyers arewilling to pay a considerable premium above fair market value of thefleet when gaining control of an entire company.
Total Per share(NOK mill.) (NOK)
Market value vessels 2,902.7 64.04Book value vessels 1,866.2 41.16Excess value vessels 1,036.5 22.88Book equity 1,172.1 25.86Value adjusted equity (VAE) 2,208.6 48.72
VALUE ADJUSTED EQUITY AT 31.12.98
31.12.9830.06.9831.12.97
TAXESValue adjusted equity after tax is not calculated. The Company has, fromthe tax year 1997 and onward, repositioned itself to adapt to the new taxregime for shipping companies. Anyhow, the Company would not havereached a normal tax position for many years due to a substantialinvestment program. However, the transitional regulations made itadvantageous to start adjusting to the new tax law as of 1997. TheCompany views this adaptation as a long-term effort.
The Company’s tax position in the future depends upon the resultsachieved in those subsidiaries that are not included in the newregulations, and the extent of activities on the Australian continentalshelf.
For details on the Company’s tax position at the end of 1998, please seenote 10 in the financial statements.
DEPRECIATION ON VESSELS BOOK VALUEIn 1998, the Company extended the depreciation schedule for the fleetfrom 20 to 25 years. This change improved the 1998 consolidatedfinancial statements by approximately NOK 30 million compared to theprevious depreciation schedule.
INTEREST AND EXCHANGE RATEAt the end of the year, 66% of the Company’s total mortgage debt wasdenominated in USD. This debt is being serviced from revenues in USD.The remaining mortgage debt is denominated in NOK. Additionalborrowing of NOK 960 million to finance vessels to be delivered in 1999and 2000 will be made partially in GBP, partially in NOK and partially inUSD. For details on anticipated allocation, please see figures.
The interest risk exposure for 1999 is estimated to be NOK 0.01 pershare for every 1.0% p.a. change in US interest rates. The equivalenteffect for 1.0% p.a. change in Norwegian rates is NOK 0.08 per share, orNOK 3.8 million. For a similar change in British rates, the effect wouldbe NOK 0.06 per share, or NOK 2.5 million. Interest rate exposure isreduced on a continuous basis through hedging activities.
The Company expects the following breakdown in freight revenues, bycurrency: NOK approximately 20%, GBP approximately 45%, USDapproximately 25%, and AUD approximately 10%. The currency riskassociated with the portion of revenues that does not have an offsettingcost, is reduced through the use of hedging. Estimates at the beginningof 1999 show the following effect on cash flow for 1999 given currencyfluctuations: A change in the relationship NOK/GBP of NOK 0.50would change cash flow by NOK 4.6 million, or NOK 0.01 per share.An equivalent change in the relationship NOK/USD would impact cashflow by NOK 7.7 million, or NOK 0.17 per share. For NOK/AUD wouldthe corresponding effect be NOK 3.3 million, or NOK 0.07 per share.
26 27
It is the Board's objective to give the owners of the Company, theshareholders, a competitive return on invested capital over time. Theshareholders return must be achieved through a combination ofappreciation in share price and the cash dividend paid by the Company.
In light of the results achieved in 1998 and the Company’s equitysituation, the Board will propose a cash dividend to the shareholders ofNOK 1.00 per share at the annual meeting on 27 April. The dividendpayout will take place in the middle of May. The dividend that has beenpaid in recent years is shown in the figure above. Shareholders at thetime of the annual meeting only are eligible for dividend. The dividendpolicy in the upcoming years will be determined based on profitabilityand investment plans.
The Company’s share price at the beginning of the year 1998 was NOK42.00. At the end of the year, the share price has declined to NOK 21.00.The year’s top price was NOK 43.00: the lowest NOK 19.80. The fallcorrelates strongly with the general decline of all oil- and offshore-related stocks.
The Company had 2,769 shareholders on 31.12.98, versus 1,967shareholders on 31.12.97. There were 52 foreign shareholders, with atotal ownership of 4.9% of the shares outstanding. Foreign shareholdersare permitted to hold 33 1/3% of the shares outstanding.
At the annual meeting on 23.04.98, the Board was given authority toissue additional 6.5 million shares.
This authority, which is valid until the annual meeting in 1998, has notbeen used. It will be proposed extended for one additional year. At ageneral meeting on 17 December 1998, the Board was given authority tobuy back up to 10% of the Company’s shares. This authority is valid for18 months from 01.01.99.
Currently, there are 45,329,370 shares outstanding. In 1998, 25.6 millionof the Company’s shares were traded, vs. 47.4 million in 1997. TheCompany’s shares were traded on 251 trading days out of 251 totaltrading days in the year.
No member of the Board or the Management of the Company has stockoptions in Farstad Shipping.
SHARE PRICE DEVELOPMENT JANUARY 1998 - MARCH 1999SHARE PRICE DEVELOPMENT 1993 - 1999
THE COMPANY’S 20 LARGEST SHAREHOLDERSAT 31.12.98: Number %
1. Tyrholm & Farstad A/S 21,236,199 46.82. Gjensidige Livsforsikring 2,465,900 5.43. NOR Forsikring AS 1,097,500 2.44. Sverre A. Farstad 1,000,000 2.25. Jan H. Farstad 1,000,000 2.26. Gjensidige Skadeforsikring 846,600 1.97. Bankers Trust Company 650,000 1.48. Storebrand Skadeforsikring 474,300 1.09. Det Stavangerske Dampskibs. 423,400 0.9
10. Morgan Guaranty Trust 410,000 0.911. Bank of New York 365,000 0.812. Aksjefondet Handelsbanken 300,000 0.713. Meieribrukets Pensjonskasse 285,000 0.614. K-Holding AS 250,000 0.615. Artur Kleven 236,000 0.616. Verdipapirfondet K-Kapital 235,000 0.517. Aksjespar Postbanken 217,600 0.518. Trondheim Kommunale P. 217,000 0.519. Skandinaviska Enskilda 213,800 0.620. John Kleven AS 200,000 0.4
Total 20 largest 32,123,299 70.9 Total 10 largest 29,603,899 65.3Total foreign shareholders 2,221,139 4.9
Total shares 45,329,370 100.0
THE COMPANY’S 10 LARGEST SHAREHOLDERSAT 31.12.97: Number %
1. Tyrholm & Farstad A/S 18,550,699 40.92. Gjensidige Livsforsikring 2,725,000 6.03. NOR Forsikring AS 1,097,500 2.44. Norgesinvestor Verdi 1,000,000 2.25. Sverre A. Farstad 1,000,000 2.26. Jan H. Farstad 1,000,000 2.27. Gjensidige Skadeforsikring 850,000 1.98. Morgan Guaranty Trust 827,300 1.89. Brown Brothers Harris-Energy 742,500 1.6
10. Orkla ASA 700,000 1.5
Total 10 largest 28,492,999 62.7
ALLOCATION OF SHARES AT 31.12.98:Shareholders Share
Total shares Total % holding %1- 999 1,077 38.9 366,362 0.8
1,000- 49,999 1,612 58.2 7,003,614 15.450,000- 99,999 33 1.2 2,204,928 4.9
100,000- 499,999 40 1.5 7,615,694 16.8More than 500,000 7 0.2 28,138,772 62.1
Sum 2,769 100.0 45,329,370 100.0
THE BOARD AND MANAGEMENT’S SHARESAT 31.12.98: SharesIn accordance with § 11,12 of the Company’s ActTHE BOARD:Per Norvald Sperre 0Sverre A. Farstad 22,252,199Sigmund Borgundvåg 0Bjørn Havnes 0Per Erik Dalen 0Bjarne Sælensminde 85,000THE MANAGEMENT:Sverre A. Farstad see aboveTerje J .K. Andersen 25,000Torstein L. Stavseng 28,000
The Company’s auditor holds no shares to Farstad Shipping ASA.
FINANCIAL CALENDAR
Result for f i rs t quarter 27 Apri l Annual General Meet ing 27 Apri lPayment to shareholders 12 May Result for f i rs t hal fyear 19 Aug.Result for third quarter 28 Oct.(subject to change)
28
S H A R E H O L D E R M A T T E R S
© Delphi Investor Service
- 35- 40
- 50- 45
- 30
- 25
- 20
- 15
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- 800
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Jan. Apr. May June July Aug. Oct. Nov. Dec.. Jan. Feb.Sep.Feb. Mar.
1993 1994 1995 1996 1997 1998
1,00
0,80
0,60
0,40
0,20
0,00
© Delphi Investor Service
1994 1995 1996 1997 1998
PAYMENT TO SHAREHOLDERS(NOK per share)
S T R A T E G Y
Farstad Shipping’s strategy remains focused on being a substantial, long-term and global operator of large, modern offshore service vessels. TheCompany has concentrated its activities around the market segment withdemand for the largest and most technologically advanced servicevessels. This means anchor handling vessels (AHTS – with power inexcess of 10,000 HP) and platform vessels (PSV - size in excess of 2,000DWT).
The technological innovation that has taken place during the last fewyears has allowed exploration activities to move to areas of greaterdepths. The oil companies have prioritised these areas due to theincrease in size and profits that they yield. In order to operate safely andefficiently under harsher weather conditions and to meet the challengesassociated with exploration at greater depths, AHTS vessels need to haveincreased winch- and engine capacity. Farstad Shipping has underconstruction, and has recently taken possession of a total of four newAHTS with sufficiently large winch- and engine capacity in order to servethis market. This investment is clearly a strong statement by theCompany that illustrates its ambition to be a substantial player amongoperators capable of servicing deep sea exploration activities.
Whereas more than half of the world fleet of AHTS vessels are outsidethe North Sea, the situation is quite different for PSV vessels. The North
Sea is their main market. As the oil companies have gradually focusedmore on cost control in later years, companies providing transportationto the various installations in the North Sea have been impacted. The oilcompanies now co-operate to a larger degree, either directly or through alogistics service supplier such as ASCo. The trend has therefore beentowards fewer, but larger PSV vessels with large decks and larger tankcapacity to minimise the transportation costs per ton.
Since the trend has favoured larger sized vessels, there have been manynew orders of these to meet demand. When deliveries of all currentorders are completed, this segment will make up approximately 20% ofthe world’s fleet of supply vessels. Farstad Shipping’s share of this fleetis about 10%.
In addition, Farstad Shipping has two PSV vessels with less than 2,000DWT and Lochnagar, a pipe-laying vessel for flexible pipes. Lochnagar isan example of a successful strategy to modify an older PSV vessel tosecure a profitable, long-term employment. For details, please see page49.
Farstad Shipping has chosen an international strategy for themanagement of the vessels as well. The Company’s vessels in the NorthSea and Brazil are managed from Ålesund and Aberdeen. P&O in
Melbourne manages the vessels operating in the East and Australia. Thisstructure allows for a greater flexibility in moving vessels between thevarious markets.
The Company’s charter strategy remains one in which the priority is tominimise the exposure to short-term fluctuations in the demand forsupply vessels.
The proximity to the maritime environment on the North West Coast ofNorway offers an excellent opportunity to work with shipyards andequipment manufacturers to promote innovation and improve safety andefficiency in the industry. In addition, this position puts the Company inthe forefront of the competition when faced with changes in demand.The sailing crew has been an active participant in this process, facilitatedby the management’s ability to utilise the crew’s expertise andcompetence.
Of the Company’s fleet, 14 vessels are built for Farstad in Norway.Shipyards in the Northwest have built 10 of these. In addition, theCompany currently has 3 vessels under construction at shipyards inMøre og Romsdal. Experience indicates that vessels that originated withthe Company have performed better with respect to maintenance coststhan tonnage that was acquired secondhand.
AHTS
is mainly used for towing missions and for anchoring mobile platformsand production modules/vessels. In addition to tow- and anchorhandling capabilities, this vessel is equipped for fire fighting, rescueoperations and oil recovery. The AHTS vessel is therefore often used asstandby rescue vessels for oil fields in production. The AHTS is alsocommonly utilised in anchor handling activities for cranes- and pipe-laying vessels, and in supply service for all types of platforms,transporting both dry and wet cargo in addition to deck cargo.
PSV
is mainly used to supply fields in production. This involves the transportof individual items, generally in containers as deck cargo. In addition, amodern supply vessel transports a variety of different products in segre-gated systems, such as methanol, pre-blended drill fluids, brine, waterand oil. The various fluids are contained in epoxy painted tanks, withindividual pumps and hoses for discharging. Dry bulk cargo such ascement, barite and bentonite are also transported by the PSV vessel, andare discharged at the installations using compressed air.
Many of the larger PSV vessels have been employed in later years inpipe-laying activities.
30 31
FLEET BREAKDOWN (as of January/February 1999):
Today’s New- TotalFleet buildings Fleet
World Fleet:AHTS >10.000 BHP 131 29 160PSV > 2.000 DWT. 114 47 161Total 245 76 321
Farstad Shipping/IOS:AHTS >10.000 HK 16 2 18PSV >2.000 DWT 12 2 14Total 28 4 321
1
4
6
2
24
12
32 33
GulfFarstad/IOS
StirlingEdison Chouest
Trico MarineTidewater
MærskHavila
Hvide MarineSeacor
MærskFarstad/IOS
SolstadSeacorSwire
Trico MarineHavila
GulfEdison Chouest
DOF
Mærsk
Farstad/IOS
Gulf
Trico Marine
Edison Chouest
Seacor
Stirling
Tidewater
Solstad
Havila
Hvide Marine
DOF
Swire
AHTS>10.000 BHP AND PSV>2.000 DWT SORTED BY COMPANYWorld-wide per February 99
North Sea
Brazil
Gulf of Mexico
Canada
Australia
West Africa
Far East
PSV > 2.000 DWT SORTED BY REGION World-wide per February 99
PSV > 2.000 DWT SORTED BY COMPANYWorld-wide per February 99
AHTS > 10.000 BHP SORTED BY COMPANYWorld-wide per February 99
Number of vessels
44 7
28 4
7223
17 2
2 16
13
11 2
2
12
10
9 3
4 6
8 1
7
Number of newbuildings
0 10 20 30 40 500 5 10 15 20 25
0 20 40 60 80 100 120
No of AHTS
Number of PSV
No. of PSV No. of newbuildings
No. of newbuildings
North SeaBrazil
West AfricaFar EastAutralia
Gulf of MexicoCanada
China
AHTS > 10.000 BHP SORTED BY REGIONWorld-wide per February 99
0 10 20 30 40 50 60
Number of AHTS
FLEET STRUCTUREThe demand for supply vessels remained high in most marketsthroughout 1998. These North Sea based companies in particular havereported excellent results. Even though the rates did not match therecord year 1997, they set record levels during large parts of the year.Taking into consideration the 30 or so new supply vessels that enteredthe market during 1998, the results were above expectations.
High and increasing demand for large AHTS vessels in Brazil, WestAfrica and the Far East/Australia was crucial for maintaining the positivemarket in the North Sea in 1998. The orders for additional vessels are aconsequence of this. There were strong indications towards the end of1998 that the markets were unable to absorb additional tonnage. At theend of 1998, there were 80 large supply vessels on order or underconstruction. Most of these will be delivered during 1999.Approximately 30 of the new vessels are headed for the North Americanmarket and are not expected to influence the markets outside theU.S./Mexican Gulf area.
The large number of additional vessels entering the market, combinedwith expectations of reduced activity world wide as a result of thecurrent low oil price, gives the offshore supply industry a difficult marketoutlook in 1999. Substantial reductions in rates must be expected aswell as a number of vessels laid up. It will obviously take some time forthe market to absorb the excess tonnage. The length of time will dependon how quickly the oil price recovers and stabilises at a higher level.
The restructuring of the industry continued into 1998, albeit at a slowerpace than in 1997. On March 1st, Brøvig Supply was acquired byGulfMark, an American company that also owns North Sea based GulfOffshore. Havila Supply ASA was incorporated and stock listed in thespring. The company is composed of vessels from Remøy, Taubåt-kompaniet, and three new vessels.
There have also been a string of mergers and pools among the oilcompanies. Aberdeen Service Company (ASCo), a logistics company,has acquired its competitor Wood Group Offshore, making it the largestcharterer in the North Sea after Statoil. The low oil price has damagedmargins and put the oil companies under a lot of pressure to reduce coststo make up for some of the shortfall in profits. The end result is reducedactivity.
The North Sea remains the most important market for the larger supplyvessels. This is especially true for the large platform vessels, where 101of the total world fleet of 114 large PSV vessels are located in the NorthSea. In the beginning of 1999, there were approximately 20 large PSVvessels under construction. Although these vessels are to be employed inthe North Sea market, only about half of them have long-term contracts.
Outside the North Sea market, only Brazil and the U.S./Gulf of Mexicohave displayed interest in using large PSV vessels as the start of an effortto rationalise the transportation activities to and from installations. Itwill take some time before operators of large PSV vessels can expect anygrowth in demand for this type of vessel outside the North Sea.
The market on the American side of the Gulf of Mexico is reserved forvessels built in the U.S. The American offshore supply industry currentlyhas 30 large PSV vessels under construction. Most of these arereportedly tied to long-term contracts, and are therefore expected toremain within the U.S. market.
Oil exploration has increased considerably in areas of deeper and morechallenging waters in recent years. This has increased demand for largeAHTS outside the North Sea. Brazil is among the most active at greatdepths; Petrobras is currently producing oil at depths in excess of 1,800meters. Petrobras’ current plans continue this trend and, if realised, theywill increase the demand for large AHTS vessels in Brazil.
The markets in the Far East/Australia performed well in 1998. However,the low oil price has led to a reduction in activities for 1999 in thesemarkets. On the coast of West Africa, the oil companies increased theiroil and gas exploration activities during 1998, resulting in significantdiscoveries. A reduction in efforts is expected until the oil price recoversto a level that makes production of oil and gas more attractive.
At the start of the year, 25 large AHTS vessels were under constructionworld-wide (excl. the U.S./Gulf of Mexico), half of which are secured oncontract. Under more normal circumstances, with a higher oil price anda rising market, a large number of the older North Sea tonnage as well assome new vessels would be employed in the markets outside the NorthSea. The current situation makes this an unlikely outcome.
American companies have contracted 5 large AHTS vessels for theU.S./Gulf of Mexico. Even when considering the collapse of the Gulfmarket in 1998, a question remains whether any of the operators wouldfind it profitable to move tonnage from this market to another market.In any case, it is not likely that any of these would go to the North Sea.
T H E M A R K E T F O R O F F S H O R E S U P P L Y V E S S E L S
0 10 20 30 40 50
Source: Petrodata
Far Sailor installing «suction anchor» on Campos Basin.
THE NORTH SEA MARKETThe demand for offshore service vessels was higher in 1998 than in 1997.The main causes for this were higher demand for production-relatedactivities along with a longer and more comprehensive constructionseason, due to delays in pipe-laying projects. The industry was 96-98%utilised for large periods during the year. Companies that had manyvessels on the spot market profited greatly from these market conditions.
The positive market in the North Sea attracted tonnage from othermarkets in 1998. However, high activity levels elsewhere also causedvessels to move away from the North Sea market. At the end of 1998,the North Sea market counted 215 vessels. Despite the new vesselsentering the market, the increase was only a marginal 15 vessels from theprevious year. The total number at the end of 1999 is expected to be 255vessels.
The total demand for offshore service vessels, expressed in boat-years,increased by 4 to a total of 195 boat-years in 1998. The short-termmarket (defined as contracts longer than 30 days) made up 158 boat-years, an increase of 3 compared to 1997. British and Norwegian sectorsrepresented 60% and 32% of total demand, respectively. Only Britishsector expanded in 1998, from 84 to 90 boat-years. The average rate ofutilisation in 1998 was 95% for the North Sea; it was above 90% duringall months of the year. A reduction is expected for 1999.
Approximately 77% of the short-term contract market is serviced by PSV>2,000 DWT and AHTS >10,000 HP. The corresponding share in 1993was 62%. The largest PSV vessels (in excess of 3,000 DWT) representthe bulk of the increase. Today, they have a market share of 30% for theshort-term contracts.
With the number of large supply vessels now under construction, areduction of the small and medium sized supply vessels is anticipated.The alternative effect under these market conditions is that the newervessels are preferred over the older tonnage.
Short-term contractsSupplying fields in production and performing emergency serviceDemand from oil fields in production totalled 116 boat-years in 1998, anincrease of 10 since 1997. Demand that was related to productionactivity represented 73% of short-term contracts in 1998, up from 50%in 1991/1992. The main cause of this trend is the sheer increase inproduction installations, and that the activity has moved to more remoteareas, often at greater depths.
Production related activity is expected to remain at high levels for years.Today, there are 279 fields producing oil in the North Sea, of which 60%are located in the British sector. There are plans to start production ofadditional 266 fields in the next five years, although some of these aresubmerged satellite fields. With the current low oil price, several of thesewill be postponed. Whether the increase in the number of productioninstallations will influence the demand for offshore service vesselsdepends upon the oil companies’ ability to co-ordinate efficiently or poolvessels in the new and more remote areas with other companies.
Construction activityDemand for supply vessels for construction purposes made up 26 boat-years in 1998, compared to 25 in 1997. This includes the construction ofnew production installations as well as infrastructure projects such aspipelines, booster stations and loading buoys. 1998 was characterised byespecially high pipe-laying activities in the Norwegian sector. Due todelays, pipe-laying activities remained high during the autumn andwinter up to the Christmas season of 1998, contributing to a very active
4th quarter. In December, approximately 25 vessels were employed inthis activity, compared to expectations of 3-4 vessels. Recent years haveseen an increase in demand for the laying of telephone cables offshore.During 1998, this was an important contributor in maintaining a highlevel of utilisation for large PSV vessels.
In 1999, there are projects that are expected to create a demand similarto 1998. These include cable laying, pipe laying and installation ofmobile production systems and other subsea-installations. The bulk ofactivities are expected to take place in the 2nd and 3rd quarter.
Exploration activitiesAs a result of gains in productivity and logistics, the number of offshoreservice vessels involved with exploration activities has fallenconsiderably in recent years. This trend was exacerbated in 1998 byreduced rig activity. Whereas demand for supply vessels for this type ofactivity totalled 61 boat-years in 1992, it had declined to 16 boat-years in1998. This is a decrease of 8 boat-years compared with 1997. Demand in1999 is expected to be somewhat lower than in 1998.
The trend into the future will depend upon the number of rigs involvedwith exploration activities, and the degree of involvement that the supplyvessels will have. In particular, the operators’ use of AHTS vessels haschanged recently. Previously, the oil companies engaged one, and oftentwo AHTS vessels to assist an active exploration rig. Today, the AHTSvessel is most commonly used only when the rig is being relocated.Chartered vessels supply the rig during the drilling phase as well as fixedproduction installations and mobile exploration rigs. The consequenceis that the demand for vessels in terms of rig-years is down to 0.3 boat-years. It is possible, however, that increased exploration in deeper andmore remote waters will reverse this trend.
The spot marketThe activity in the spot market has traditionally been around 20-25% oftotal demand. The tight market conditions in 1997 and 1998 has causedthis share to drop to just under 20%. Because there have been periods inwhich the spot market was drained for tonnage, many oil companies setup short-term contracts at the time in order to secure their operations. Asubstantial portion of the spot market activity is managed from Aberdeenand in the British sector.
Emergency Towing Vessels (ETV) Services for the UK CoastguardThe UK Coastguard has chartered three large AHTS vessels for ETVpatrol during the autumn and winter months (October – April) in recentyears. The vessels patrol the busiest and most exposed parts of the Britishcoastline. Farstad owns two of the three vessels that were chartered thispast winter. The partner for Farstad Shipping this winter was HowardSmith Towage and Salvage Ltd. The vessel Far Turbot is stationed atDover to provide ETV cover for the English Chanel area, and Far Minarais stationed at Falmouth to patrol the ofte very stormy South WestApproaches.
100
80
60
40
20
0
Demand UtilisationSupply
%
1992 1993 1994 1995 1996 1997 1998 E-99
265
238
202188 191
86%83%89% 91% 92% 94% 95%
79%
219204
179 172 176
203191
205195
238
188
Boat-years300
250
200
150
100
50
01994 1995 1996 1997 1998
134129137
155 158
Boat-years
Britishsector
Norwegiansector
North Sea others
Production
200
150
100
50
01992 1993 1994 1995 1996 1997 1998 E-99
9189 88 89 93106
116123
2119 16 1215
2526 21
4661
3328 26
24 16 14
Boat-years
T H E M A R K E T F O R O F F S H O R E S U P P L Y V E S S E L S
Construction DrillingNo. of AHTS> 10.000 BHP
No. of PSV > 2.000 DWT
No. of newbuildings in Europe
34 35
Gulf Offshore
Mærsk
Farstad/IOS
Trico Marine
Stirling
Havila
Solstad
AHTS/PSV IN THE NORTH SEASORTED BY COMPANY per February 99
DEVELOPMENT IN DEMAND FOR OFFSHORE SUPPLY VESSELS
TERM DEMAND SORTED BY SECTOR
TERM DEMAND SORTED BY ACTIVITY
0 5 10 15 20 25200
150
100
50
0
100
90
80
70
60
%
J F M A M J J A S O N D
UTILISATION PER MONTH
Source: Petrodata
1993
1998
1997
E-99
Far Minara in service for the UK Coastguard
FAR EAST/AUSTRALIAAs a result of the establishment of IOS at the end of 1997, theCompany’s presence in the Asia-Pacific region has increasedsubstantially. By using the organisation that P&O have established in theregion, IOS has especially focused its activities on the markets inAustralia and the Far East. Australia is deemed the most importantmarket in the region. In 1998, 13% of freight revenues in the Companycame from this region. A similar share is expected in 1999. In thebeginning of 1999, both the PSV vessels and four of the AHTS vesselswere employed in areas outside Australia. Two of the AHTS vessels wereemployed in the Philippines.
This region employs about 25% of the world’s fleet of supply vessels, andabout 17% of the world’s fleet of rigs. However, it is a fairly smallmarket of the large supply vessels. At the end of the year there werethree large PSV vessels and 24 large AHTS vessels (5 of these were inChina) in this region. With the acquisition of two PSV vessels in October1998, IOS has consolidated its position as a leader in the market forlarge AHTS and PSV vessels.
The region maintained a high rate and utilisation level far into 1998.This was an extension of the positive market conditions in 1996 and1997, when the rate level increased by 20% annually. The financial crisisin Asia, combined with a low oil price contributed to a strong decline inrig activities in Q4 1998, and the trend continued into 1999. The rigutilisation level in Q1 1999 is down to 60%. This trend has also beennegative for the utilisation and rate level for the supply vessels.
There are signals from Asia that indicate that the financial crisis hasbottomed out. Several countries have predicted economic growth in1999. If the oil price can be stabilised at a higher level (USD 15.00 perbarrel), the development yields some hope that the fall in the market forrigs and supply vessels could bottom out. It is expected that it will takesome time before an improvement in the market is reflected for
exploration activities in shallow waters and as a consequence for thejack-up market. For the deep-water rigs, on the other hand, the relativelyfew rigs available in the market are much more sensitive to increases indemand. Just a smaller increase in demand would likely create a positiveeffect on activities which in turn could be very positive for the largeAHTS vessels in second half of 1999.
BRAZILThis year, the Company will have these vessels employed in Brazil: Theanchor handling vessels Far Sailor, Far Sea, Far Centurion, FarCrusader, the platform vessel Far Sleipner, and in addition, the pipe-laying vessel Lochnagar. Farstad Shipping also has an AHTS vesselunder construction, to be employed under an 8-year contract forPetrobas after delivery takes place in the beginning of year 2000.Approximately 22% of freight revenues for the Company are expected tocome from activities in Brazil.
Stationed in the Petrobas base in Macaè, approximately 200 kilometersnortheast of Rio de Janeiro, the vessels service the fields in the "CamposBasin". They perform supply duties, anchor handling jobs, constructionassistance, submerged pipe-laying activities and maintenance.
The total production in Brazil at the end of 1998 totaled 1.2 millionbarrels per day. Petrobas’ ambition is to increase production to 1.5million barrels before year 2000. Offshore production represents about80% of this total.
A series of events took place in 1998 that will have a positive influenceon the market for production of oil and gas in Brazil in the comingyears:•
•
•
0 2 4 6 80 2 4 6 8 100 2 4 6 8 10
SUPPLY VESSELS WITHIN THE REGIONper February 99
SUPPLY VESSEL-OWNERS / MANAGERSWITHIN THE REGION per February 99
SUPPLY VESSEL OWNERS / MANAGERSWITHIN THE REGION per February 99
OILFIELDS OUTSIDE MACAÉCAMPOS BASIN - BRAZIL
Farstad/IOS
Chinese
Mærsk
Seacor
Swire
Other
Australia
China
Philippines
India
Singapore
Vietnam
Other
Mærsk
Farstad/IOS
Finarge
Solstad
Gulf
Tidewater
Others
AHTS > 10.000 BHP PSV > 2.000 DWT AHTS > 10.000 BHP PSV > 2.000 DWTAHTS > 10.000 BHP PSV > 2.000 DWT
36 37
T H E M A R K E T F O R O F F S H O R E S U P P L Y V E S S E L S
Source: Petrodata
Petrobas started its Joint Venture Partnership Program for continueddevelopment of oil fields in Brazil, in cooperation with other large oilcompanies. The deep Campos Basin area is one of the mostpromising areas in this respect. Petrobas started developing two large new fields at depths of 1,000 –2,000 meters, "Marlin Sul" and "Roncador". A pilot system is alreadyinstalled in the Roncador field, capable of production at a depth of1,853 meters. Petrobas has also started developing four other fields inthe Campos Basin that have depths of 500 – 1,200 meters. The Brazilian government’s oil ministry – ANP – has launched its firstinternational bidding invitation for an offshore field of 90,000 km2.
Source: Brasil energy
Lady Sandra on trail trip
Lady Kari-Ann at the base in the Bass-strait
Far Centurion and Far Crusader transferring bunkers offshore in the Campos Basin
38 39
A D M I N I S T R A T I O N A N D O R G A N I S A T I O N
F A R S T A D S H I P P I N G A S A
100%
Mike GibbonSafety & Personnel Manager
Richard StablesAccountant
John R. MaxwellGeneral & Charter ing Manager
Trevor ReidShip Manager
J im WattShip Manager
F A R S T A D S H I P P I N G A S A
F A R S T A D S H I P P I N G L T D .
Magnar GjerdeQuali ty/Safety Manager
Sylvi L. El iassenCharter ing Manager
Idar GjerdeFinance Manager
Hallkjel l DahleFinance Manager IOS
Rolf SynnesCrewing Manager
Jan H. FarstadTechnical Manager
Terje J . K. AndersenDeputy Managing Director
Torstein L. StavsengFinance Director
Sverre A. FarstadManaging Director
In the beginning of May, Sverre A. Farstad will step in as the Chairman of the Board.Terje J. K. Andersen will take over as Managing Director. Karl Johan Bakken is promoted asDirector of Market and Operations.
P&O AU S T R A L I A
100%
50%50%
FA R S TA D SU P P LY AS
P/R IN T E R N AT I O N A L OF F S H O R E SE RV I C E S
ANS
FA R S TA D IN T E R N AT I O N A L AS
100%
F A R S T A D S H I P P I N G L T D .
OPERATION
Farstad Shipping Ltd. is the company with office in Aberdeen, with atotal of 11 employees. The office is responsible for operating 8 supplyvessels with a crew of 183, most of whom is British. In addition, FarstadShipping Ltd. and the Brazilian DSND Consub S.A. operate Lochnagaras a co-op. In 1998, Lochnagar was reconstructed to serve as a pipe-laying vessel for flexible pipes.
The Company’s headquarters are in Aalesund, with 29 employees. Thisoffice operates 15 of the Company’s vessels with a crew of 285. Inaddition, the office is responsible for supervising the constructionprojects, and will later take on the operation of additional 3 vesselscurrently under construction. The 5 supply vessels that are located inBrazil are operated from Aalesund in co-operation with DSND ConsubS.A., which has offices in Rio and Macae.
P&O Maritime Services in Melbourne are responsible for the operationof the 8 vessels that P/R International Offshore Services (IOS) currentlyhave in the Far East/Australia.
OWNERSHIP OF FLEET
Farstad Supply is the company in the Farstad Group that owns thevessels. The company was founded in 1997, as a result of the Company’sefforts to conform to the new tax regime for shipping companies. In thebeginning of 1999, the Company owned 19 vessels, and in addition,there were 5 vessels on order. IOS owns 9 vessels, and in addition, it hasone vessel on a bare-boat contract. These companies have no employees.
The Management: From left: Terje J. K. Andersen and Sverre A. Farstad. In front; Torstein L. Stavseng
Employees at the office in Aalesund Ålesund harbour Aberdeen harbour
Melbourne harbourMacaé harbourEmployees at the office in Aberdeen
9 incidents were reported in 1998 (7 in 1997) concerning personalinjuries. These resulted in 137 days of absence (109 in 1997). Thepersonal injuries for 1998 are equal to a LTI-ratio of 4,4 versus 5,7 in1997.
Non Conformance Report (NCR) shows result of operational inter-uptions and/or internal audits/inspections according to theCompany’s quality system. The number of NCR in 1998 was 78versus 106 in 1997.
19 incidents were reported in 1998 (6 in 1997) concerning adischarge of totally 22.06 m3 (2.63 m3 in 1997). The numbers for 1998include a discharge of 22.06 m3 of brine. Brine is not considered to beharmful to the environment. Other types of discharge include marine gasoil, lubricants and hydraulic oil. Discharge has in some instancesoccurred when loading and unloading at rigs or other offshoreinstallations.
Air pollution occurs generally when there is a discharge of exhaust gases(NOX or SO2). Most of the vessels use a grade of marine gas oil for fueland production of electricity. A few vessels use a lighter type of heavy oil.The charterer of the vessel is the decision maker in terms of timeschedule and fuel consumption. Farstad Shipping is dedicated to limitingthe discharge of hazardous gases, and is always ready to evaluate optimalsolutions and new technology. To meet future requirements, the
Company is going to focus more on pollution control in the coming year.
There is already a strong focus on how to reduce the use of chemicals forcleaning as well as adding cooling fluids. The increased use ofenvironmentally friendly products has led to the use of an electricalsystem that reduces corrosion. This has contributed to a reduction in theuse of chemicals and poisonous agents in engine / machinery and waterintakes.
There is an existing program to replace all fire extinguishers that containhalon that are located in engine rooms. This program will be prioritisedin 1999.
In recent years, the Company has increasingly used TBT free antifoulingpaint at a considerable cost premium. It has become a standardrequirement for all vessels that are under construction and scheduled fordelivery in 1998-99.
The Company operates in many areas, and the infrastructure for wastemanagement, including waste oil and hazardous materials is sometimesless than ideal. The Company separates waste and manages waste oil ina manner that is optimal with respect to the regulations andinfrastructure that exist.
40 41
H E A L T H , S A F E T Y A N D E N V I R O N M E N T ( H S E )
HSE AT FARSTAD SHIPPING
With a strong focus on the prevention and reduction of injury to people,damage to equipment and the environment, Farstad Shipping hasimplemented its own requirements, procedures and systems for HSE.Only through the continuous and systematic reporting and follow-up ofpotential accidents, events and actual accidents can the Companyachieve the goals set on HSE. The Company’s environmental policy isdefined to include the following main factors.
• Comply with requests from authorities and customers • Reduce the risk for damages and uncontrolled discharges. • Be proactive with health, safety and environmental improvements
Even though there is no mandatory ISM certification for shippingcompanies managing supply vessels before July 2002, Farstad Shippinghas already implemented this system. In 1996, the Company’s officeswere ISM certified. All vessels owned by the Company are on scheduleto be certified by the end of year 2000.
HSE REPORT FOR 1998
The goals set for HSE at the beginning of the year were essentiallymet. These are some examples:• Introduction of "Cargo securing manuals" to all vessels.• Emergency exercises for officers, crew and other personnel.• Introduction of mandatory record keeping for rest time, in
accordance with the STCW convention.• Implementation of a garbage management plan, for treatment of
waste.• Quality systems translated to English and Portuguese.• Acquisition of oilspill kit (oil collection equipment for small
oil spills).
To improve the atmosphere for the crew, a decision was made toinstall satellite TV systems aboard all the Company’s vessels. Thefeedback from the crew has been very positive. In an effort to limitnoise and vibrations, one of our new vessels is equipped with motorsthat are mounted on rubber blocks. In addition, there is an extralayer of insulation in the engine room to reduce noise pollution.
Reports of incidents and Non Conformance ReportIn 1998, the vessels in the fleet managed by Farstad Shipping havereported 215 incidents, compared to 125 incidents in 1997. This increaseis mainly a result of an awareness effort in 1998.
INTERNATIONAL REGULATION
IMO (International Maritime Organisation)The UN’s shipping organisation (IMO) has developed a com-prehensiveset of regulations for international shipping. Transportation activitiescreate risks of damages to the environment through pollution, primarilyas discharge to air and water. Many countries have specificrequirements, but all requirements essentially conform to the rules andregulations adopted by the IMO. Norway is an active participant inIMO’s activities in order to regulate shipping activities. This isperformed by Sjøfartsdirektoratet, Det Norske Veritas and the shippingcompanies, represented by Norges Rederiforbund.
SOLAS/MARPOL (Convention Safety of Life at Sea)/Convention forthe Prevention of Pollution from Ships)Within HSE, these are the conventions that form the basis for theshipping companies’ own systems.
STCW (Standard for Training, Certificates and Watchkeeping forseafarers)
ISM (International Safety Management Code)This code requires that there is a documented leadership infrastructurefor environmental issues, similar to that of safety and other leadershipfunctions. The ISM code represents a substantial step forward to handleenvironmental activities within the Company
88 89 90 91 92 93 94 95 96 97 98
LTI-RATIO (LOST TIME INCIDENTS)
(number of lost time incidents for every million hours worked)20
15
10
5
0
Captain- and Chief-meeting for british officers in Aberdeen. In addition to keeping a busytraining schedule, there are conferences held regularly to update the crew about new developmentsin the Company and to discuss operational and organisational issues.
Separation of waste onboard
HEALTH, SAFETY AND ENVIRONMENTAL PROTECTION
(HSE) POLICY
Farstad Shipping acknowledges that the health and safety of personnel servingon Farstad Vessels or Offices, combined with concern for the environment isvery important, and have, therefore, established the following policy:
Farstad Shipping have undertaken to offer and maintain a safe workingenvironment. The Company anticipates that all individuals will contribute toenhance safety, irrelevant to their position or rank, onshore or offshore. Everyindividual should have an understanding of responsibility towards himself, hisfamily, his colleagues and the company in all matters concerning health andsafety.
Each individualÕs attitude and actions, as others see and observe them, will besetting standards, and this can serve the purpose of encourage others to performtheir job in a way that can contribute to the achievement of an accident free andnon health damaging working environment.
We have a common responsibility for preserving and improving theenvironment, onshore or offshore, and accordingly, we should by all meanswork to reduce any risk of damaging the environment by waste, pollutants orunnecessary use of non-environmentally friendly substances.
Farstad Shipping will appreciate each individualÕs co-operation and suggestionsin health, safety ane environmental issues, and the Company will in its turnoffer necessary resources to reach the goals set forth in this policy.
�lesund, 3 June 1993Farstad Shipping ASASverre A. FarstadManaging Director
The translation into english has been prepared for information purposes only.
FOCUS ON IMPROVED HSEThe maritime environment that characterises the North West coast hasenabled Farstad Shipping to take the initiative to, or participate inseveral projects aimed at improving safety at sea.
The development of our own specifications for supply vessels has made itpossible to utilise the experience gained by our crews. The co-operationwith the maritime environment coupled with R&D efforts in developingnew equipment has formed the basis for better vessels with improvedsafety. A joint project is now under way to develop our own type ofvessel called "Far PSV 2000".
In addition, there is substantial improvement with respect to equipment,noise, use of materials, maintenance requirements, documentation, andcomfort for the crew.
Farstad Shipping, the Ulstein Group, the electronics firm Øverland andchair manufacturer NorSap/Maritime Partner have all joined forces todevelop a chair aimed at improving work posture when manoeuvringand handling the anchor of offshore vessels. A prototype was tested in asimulator in Trondheim. The chair is installed in Far Senior and orderedfor our three newbuildings.
New developed deck manipulator -see above
TRAININGTraining and skill enhancement are vital to the Company’s futureopportunities. The more advanced types of vessels that the Companyhas acquired in the last couple of years create new and greater demandsfor training. This is especially true for Far Sovereign, delivered in 1999.The STCW convention has adopted new international regulations thatrequire the upgrade of older certificates.
For the crew whose education was taken before 1997, training in someareas must be completed to ensure that their certificates are valid fromFebruary, 2002. A considerable effort by the office as well as the officersmust be made in order to receive the new certificates in time.
Requirements from the oil industry and the maritime authorities have ledto increased demand for training and continuing education, especiallyfor what safety is concerned. Because Farstad Shipping has traditionallyprioritised training and safety, the new requirements have not had anysignificant impact on the Company. The use of IT as well as simulatorsfor evaluating and testing the officers has become an increasinglyimportant part of the training. The Company has set up its owncomputer facilities to train employees.
42 43
H E A L T H , S A F E T Y A N D E N V I R O N M E N T ( H S E )
Farstad Shipping has, in a joint effort with Aktro AS in Molde, developed a deckmanipulator for anchor handling vessels. The powerful manipulator is equipped with aspecial hydraulic grip tool to handle anchor chains, wire and heavy objects. Theprototype was built and tested at Aktro’s facility outside Molde. The first unit producedis now installed aboard Far Senior, and built into the deck astern, and is hydraulicallypowered.
In 1998, more than 1,000 days have been spent on safety as well asprofessional training. In 1998, the Company also trained personnel whohad been designated the role as professional counsellors for newemployees and apprentices on board.
RECRUITMENTResults from the efforts in recruitment that the industry, includingFarstad Shipping, has made in recent years, is starting to show. Eventhough recruitment will remain an important task for the HRdepartment, there is going to be an increased focus on training andimproving the competence level. The contribution that the publicreimbursement program has given the industry, has laid the foundationfor a continued growth of Norwegian sailors.
YEAR 2000The Company initiated a project in 1998 to inspect equipment and systemsto gain an insight on the Y2K problem. Today, approximately 85% of allthe equipment has been inspected, and a small number of problem areashave been identified. All equipment is scheduled for inspection before thearrival of critical dates.
Making Use of QualificationsElectrician Åge Nakken and 1stEngineer Frode Klokk are en-gaged in the Maritime PersonnelDepartment where Åge is pre-paring for Year 2000, and Frodeis preparing new forms for use onthe PC’s on board the vessels.Both Åge and Frode started astrainees in Farstad Shipping.
Education CompletedArve Molnes joined the companyas Trainee in 1993, and has sincecompleted his maritime edu-cation. He is now serving as 1stDeck Officer on board M/V FarSenior. Here on DP-watch onboard M/V Far Senior.
Officer’s EducationTwo of the company’s futureofficers who will complete theirmaritime education this year,Hans Engeseth and Ståle Synnes.
Craftman’s CertificateAB Trond Myrhaug and Motor-man Trainee Tore Fjelle receivedtheir Craftman’s Certificate inJanuary 1999.
Trainee Year 2AB Trainees Kim Andre Hendenand Motorman Trainee MortenHermansen being instructed inMOB vessel operation by ABKjell Godø on M/V Far Fosna.
Trainee Year 1Motorman Trainee ElisabethNykrem engaged in maintenanceof equipment on board M/V Far Superior.
Choice of CareerStudents from VKI visiting onboard M/V Far Grip when thevessel called at Aalesund. Thebasis for choice of occupation onboard is often laid at thecompletion of VKI (first yearstudies), and a visit on board avessel is therefore important.
Bridge simulator, Especially developed for supply vessels. Captain Geir Jarnes on the bridge simulator at SMS. Thesimulator, which has been used since 1996, is developed in a joint effort by Farstad Shipping, theUlstein Group and Ship Manoeuvring Simulator Centre AS (SMS) in Trondheim. The simulator isused for training officers in manoeuvring and handling crisis situations.
Bridgechair on the port side:• Equipped with a flexible microphone attached to the back of the chair• Right armrest, joystick, controls for main propellers• Left armrest, controls for thrusters, selector for communication systems VHF/UHF
Bridgechair on starboard side: • Right armrest, joystick for manoeuvring, controls for winch, selector for the desired
type of winch.• Left armrest, winch controls with buttons, winch tension control and buttons to
select the desired type of winch.
The manipulator can be operated with the use of a remote control. This dramatically improves thesafety of the crew when handling heavy shackles, chaines and wires. In addition to its capabilitiesas a crane, the manipulator is also designed to pull chains or wire across the deck, with ahorizontal power of 10 tons (regular cranes are only able to lift vertically). Nils Ove Giskegjerde,senior mechanical engineer aboard Far Senior, introduced the idea and created the first blueprintof the deck manipulator.
Simulator for dynamic positioning (DP)Deck Officers Hans Engeseth and Ståle Synnes in front of the simulator at "Høgskolen" inÅlesund, which Farstad Shipping helped to finance in 1998. The simulator consists of an operatorconsole, a controller console, an instructor’s control, and a manual manoeuvring console. Themodules that are installed include those for supply vessels, production vessels and drilling rigs.The Company wants to utilise the simulator for training deck officers who are designated toemployment on vessels with DP-equipment.
44 45
SUPER POWERFUL MULTI-PURPOSE VESSEL FOR THEOFFSHORE INDUSTRYThis new vessel under construction at LangstenSlip & Batbyggeri, will be de-livered during lateMay / early June 1999. The Far Sovereign will beone of the largest and most powerful anchorhandling vessels in the market. With a total of27,400 BHP being developed from her four mainengines she is estimated to have a continuousbollard pull of 280 tons and will be capable ofundertaking all AHTS duties world-wide inoffshore deep water locations for today’s marketand into the future. Her capabilities will alsoinclude subsea operations such as pipelineplough trenching, cable lay, construction andabandonment.
As a multipurpose vessel she will be equippedwith a DP system ( DYNPOS AUTR NMD ClassII) and has achieved ERN 99/99/99. Also fitted isa 19 metre helicopter deck, accommodation for63 persons, a 7 x 5 metre moon pool, standby andrescue equipment for 300 persons and will becertified to NOFO oil recovery class. The FarSovereign is 85.2 meters long, 20.5 meters wide,4400 DWT and her main deck is 680 m2. Themaximum speed will be 17 knots.
For anchor handling and towing contracts she isequipped with a double drum, 500 ton pullwinch, a a 130 ton pull secondary winch, two 20ton tugger winches and a further two spooling/storage winches located under the main deck.
At the stern, she is equipped with a 160 ton SWL"A" Frame, four tow-pins rated at 270 tons SWL,two karm forks at 270 tons SWL and a furthertwo rated at 750 tons SWL. The stern roller is asplit/double type design and is 6 meters wide, 4.5meters in diameter and has a SWL of 620 tons.
The Far Sovereign is also equipped with 4 cranes.The largest has a 100 ton capability at 10 metersand 10 tons at 26 metres. This crane is rated for
offshore use and is located midships, port sideand can be used to work either over the vesselsside or through the moon pool. Two furthercranes are located forward, port and starboard,and can lift 7 tons at 12 meters. There is a furthersmall crane located aft on the starboard sidewhich can reach 19 meters with a 2.5 toncapacity. There is also a sectional, removablemezzanine deck of 320 m2 which providesadditional deck space and a base for ROVoperations.
The DP system is a Kongsberg Simrad DP system,type SDP21. This system meets the requirementsof DP Class II. The reference systems are,tautwire, laser, HIPAP (hydroacoustic) andDGPS. In addition to the two main propellerswhich are 4.5 meters in diameter, three tunnelthrusters and one azimuth thruster enables thevessel to maintain an exact position. The twostern thrusters each develop 1,200 BHP and inthe bow the tunnel thruster develops 1,600 BHPand the azimuth 2,200 BHP. This unit is a KRM-8and is separately powered by a diesel engine andgreatly enhances her station keeping abilities.
The four main engines are Ulstein Bergen dieselsand are configured in a "father-son" arrangement.The two larger engines are BVM-12 units anddevelop 7,200 BHP each and the smaller enginesare BRM-9 units and each develop 5,400 BHP.
The axle generators are set for floating frequencyin the 50-60 Hz range and this makes it possibleto operate a fuel saving combination operation.
The propeller system is operated by gear boxesfrom Scana Volda. The port side is capable ofrunning the axle generator without the propellersystem rotating.
The Far Sovereign has secured a term contractwith European Marine Contractors Ltd. (EMC)for plough trenching work worldwide and otheroffshore construction and subsea activities.
U T- 7 4 1 F A R S O V E R E I G N
5
F L E E T G A L L E R Y
1 2 3 4
5 6 7 8
9 10 11 12
13 14 15 16
17 18 19
2120 22 23
24 25 26 27
28 29 30 31
34 3532 33
46
Mortgagedebt iv)
at 31.12.98 (NOK mill.)
Estimated market-value v)
(NOK mill.)Register i) Yearbuilt Design BHP DWT
Deckarea m2
Liquid mud
Fire-fighting
Standby Rescue class
Oilre-
coveryOwner
FAR SOVEREIGN TBN
FAR SANTANA TBN
FAR SENIORFAR SAILORFAR FOSNAFAR GRIPFAR SKYFAR CRUSADER
LADY AUDREYLADY ELAINELADY VALISIALADY DAWNFAR SEAFAR MINARA
FAR CENTURIONFAR TURBOT
LADY SANDRA
LADY CYNTHIA
FAR SERVICEFAR SUPPORTERFAR STRIDERFAR SUPPLIERFAR STAR TBN
FAR SERVERFAR SCANDIA
LOCHNAGARFAR SCOTSMANFAR SLEIPNERFAR SPIRITFAR SUNFAR VISCOUNTLADY ELIZABETHLADY KARI-ANN
FAR SUPERIOR FAR GRIMSHADER
ContractsCharterer’s option
Employment vi) at 26.03.99 Charterer
Fleetgallery
No: 1999 2000 2001 2002 2003 2004 2005A H T S - A N C H O R H A N D L I N G / T U G / S U P P L Y CONTRACT OVERVIEW AT 26.03.99
T H E F A R S T A D F L E E T
i) IOM = Isle of Man
ii) P/R International Offshore Services ANS
iii) The vessel is chartered by IOS on a 5 yearsbareboat charterparty.
iv) The vessels debt is shown on a 100% basis.
v) The estimate of market value are based on an average of three independent broker’s estimate of the vessels’ value (free of charter) at the year end 1998/99.
vi) Certain freight contracts contain clauses which give the charterer the right to cancel the contracts.
Farstad Supply AS 1999 UT 741 27400 4400 680 x N x 3-5 years EMC 1
Farstad Supply AS 2000 UT 730 19200 2200 570 8 years Petrobras 2
Farstad Supply AS NOR 1998 UT 722 L 18000 2200 525 x N x 249,2 155,0 Spot 3
Farstad Supply AS NIS 1997 UT 722 16800 2750 540 240,8 112,0 Sept. 02 Petrobras 4
Farstad Supply AS NOR 1993 UT 722 14400 2400 570 x FIFI II N x 180,8 78,3 Nov. 05 Norske Shell 5
Farstad Supply AS NOR 1993 UT 722 14400 2400 570 x FIFI II N x 180,8 79,7 Aug. 03 + opt. Norsk Hydro 6
Farstad Supply AS IOM 1991 ME 303 II 14400 1850 567 x N x 146,0 28,2 April 99. ASCo 7
Farstad Supply AS NIS 1983 ME 303 13040 2056 476 x FIFI II UK x 100,8 16,9 Dec. 99 Petrobras 8
Farstad Supply AS IOM 1983 ME 303 13040 2056 476 x FIFI II UK 100,8 16,1 Nov. 00 Petrobras 9
Farstad Supply AS NOR 1980 UT 708 10560 2013 459 FIFI II N x 81,7 12,8 March 00 + + ETPM/HM Coastguard 10
IOS (50%) ii) NIS 1987 Hudong 9800 2060 402 x FIFI I 81,5 34,3 Spot 11
IOS (50%) NIS 1983 ME 303 12240 2280 467 x x 103,7 42,7 June 99 MSPMS/Woodside 12
IOS (50%) NIS 1983 Amels 10560 2047 395 x FIFI I 83,5 38,5 June 99 MSPMS/Woodside 13
IOS (50%) NIS 1983 ME 303 12240 2350 481 x 103,7 42,7 April 99 BHPP 14
IOS (50%) NIS 1983 Bolsønes 12800 2112 484 x FIFI II 103,9 42,7 April 99 BHPP 15
IOS (50%) NIS 1991 ME 303 II 13200 1750 567 x N x 145,7 67,5 Dec. 00 Petrobras 16
IOS (50%) NOR 1983 UT 708 12240 1969 407 x 84,2 42,7 April 00 + opt. EMC/HM Coastguard 17iii) NIS 1998 KMAR 404 16100 2900 538 x FIFI I x 0 0 Spot 18
Farstad Supply AS 1999 UT 745 9600 4300 900 x FIFI II N x 10 years Norsk Hydro 19
Farstad Supply AS IOM 1999 VS 483 6700 4070 902 x - - March 04 ASCo 20
Farstad Supply AS IOM 1999 VS 483 6700 4070 902 x - - Jan. 04 + opt. Amerada Hess UK 21
Farstad Supply AS IOM 1996 UT 750 7200 4494 965 x 153,3 31,8 Feb. 01 ASCo 22
Farstad Supply AS IOM 1995 UT 745 7200 4680 965 x 150,8 75,4 Jan. 00 + opt. ASCo 23
Farstad Supply AS IOM 1991 UT 705 6600 3000 868 x 107,5 23,8 Jan. 02 + opt. ASCo 24
Farstad Supply AS NOR 1991 UT 705 6600 3000 868 x N 107,5 17,3 April 05 + opt. Norsk Hydro 25
Farstad Supply AS NOR 1990 UT 705 L 6600 3796 1016 x 117,5 17,0 Dec. 01 + opt. Saga Petroleum 26
Farstad Supply AS NOR 1983 UT 706 L 6120 3330 780 x 74,2 11,5 Sept. 00 + opt. ASCo 27
Farstad Supply AS IOM 1982 UT 705 omb. 6570 4300 - x 190,8 121,6 Aug. 06 + opt. DSND 28
Farstad Supply AS IOM 1982 ME 202 6760 2902 540 x 69,7 12,1 April 02 + opsj. Amerada Hess UK 29
Farstad Supply AS NIS 1984 ME 202 5250 2980 615 x 71,0 12,6 Nov. 06 Petrobras 30
Farstad Supply AS NOR 1983 UT 706 6120 2512 630 x FIFI I N x 76,2 15,2 Feb. 00 + opt. ASCo Norge 31
Farstad Supply AS NOR 1982 H/R omb. 3400 1540 250 x FIFI I N 44,5 7,7 Dec. 03 Amoco N 32
Farstad Supply AS IOM 1982 H/R 3400 1540 395 x 33,7 5,2 July 99 + opt. BHP Petroleum 33
IOS (50%) NIS 1983 ME 202 5160 3003 620 x 71,9 55,5 Oct. 03 Esso 34
IOS (50%) NIS 1982 ME 202 6960 2972 612 x 72,2 55,5 Sept. 00 + opt. Esso 35
P S V - P L A T F O R M S U P P L Y V E S S E L CONTRACT OVERVIEW AT 26.03.9948
L O C H N A G A R
The PSV LochnagarLochnagar prior to the conversion to a flexible pipe-layingvessel. This is a co-op project between Farstad Shipping andDSND.
The extent of the convers ionDrawing showing the extensive conversion of the vessel. Theproject included 1,250 tons new steel, a new main engine, anextra azimuth thruster astern, a new tunnel thruster in thebaugh, helicopter pad, accommodations for 60 people and aDP system in accordance with Dn V class Aut R. I additionto this, there is a new bridge astern. After the conversion,Lochnagar is 23 m. longer and 5 m. wider. Additionally,there was installation of equipment for pipe-laying, whichwas DSND’s portion of the conversion.
Lochnagar during convers ionLochnagar during conversion, here at the shipyard VictorLenac in Rijeka, Croatia. The conversion project startedimmediately following the vessel’s arrival at the yard inFebruary 1998.
The pipe- laying vessel LochnagarLochnagar after completion of conversion. The vessel ischartered on an 8-year contract with DSND, which will usethe vessel in Brazil in the first part of the contract period.
New steelOrginally vessel
49
F A R S T A D S H I P P I N G A S A
P O B o x 1 3 0 1 , 6 0 0 1 � l e s u n d
N o t e n e s g t . 1 4
N o r w a y
T e l : + 4 7 7 0 1 2 4 4 6 0
F a x : + 4 7 7 0 1 2 8 5 3 0
T l x : 4 2 7 5 5 T Y F A R N
e - m a i l : p o s t @ f a r s t a d . n o
F A R S T A D S H I P P I N G L T D .
F a r s t a d H o u s e , B a d e n t o y A v e n u e .
B a d e n t o y P a r k , P o r t l e t h e n ,
A b e r d e e n A B 1 2 4 Y B S c o t l a n d
T e l : + 4 4 1 2 2 4 7 8 4 0 0 0
F a x : + 4 4 1 2 2 4 7 8 3 3 4 0
T l x : 7 3 3 1 0
e - m a i l : a b e r d e e n @ f a r s t a d . c o . u k
F A R S T A D S H I P P I N G A S AA N N U A L R E P O R T
Farstad Shipping
• Table of Contents
• Overview
• Summary 1998
• Key figures
• Report of the Board of Directors
• Income Statement
• Balance Sheet
• Cash Flow Analysis
• Notes
• Shareholders Policy
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