Prospectus

Subsea 7 Inc.

Listing of U.S.$300,000,000 2.80 per cent. Subsea 7 Inc. Convertible Note Issue

2006/2011

ISIN NO 001 0315344 on Oslo Børs for total gross proceeds of U.S.$300,000,000

Sole Bookrunner and Underwriter

Lehman Brothers

6 June 2006

INDEX

1. SUMMARY*********************************************************************** 31.1 The Company ***************************************************************** 31.2 Business activities************************************************************** 31.3 Board of directors, Management and Auditor**************************************** 31.4 Advisors ********************************************************************* 31.5 Share Capital****************************************************************** 31.6 Articles of Association and Documents on Display *********************************** 41.7 Use of Proceeds *************************************************************** 41.8 Selected financial information **************************************************** 41.9 Summary of risk factors********************************************************* 41.10 Overview of the Offering ******************************************************** 5

2. RISK FACTORS******************************************************************* 82.1 General ********************************************************************** 82.2 Market and regulatory risk******************************************************* 82.3 Political risk ****************************************************************** 82.4 Environmental issues *********************************************************** 82.5 Operational risk**************************************************************** 92.6 Financial risk****************************************************************** 92.7 Risks related to the Notes and the Ordinary Shares*********************************** 10

3. IMPORTANT NOTICES ************************************************************ 12

4. RESPONSIBILITY STATEMENTS *************************************************** 144.1 Subsea 7 Inc. ***************************************************************** 144.2 Manager********************************************************************** 144.3 Legal advisor to Subsea 7 Inc. *************************************************** 144.4 Auditor of Subsea 7 Inc. ******************************************************** 14

5. TERMS AND CONDITIONS OF THE NOTES ***************************************** 15

6. DESCRIPTION OF SUBSEA 7 ****************************************************** 416.1 The Company ***************************************************************** 416.2 Principal activities************************************************************** 426.3 Vessels *********************************************************************** 446.4 Principal markets ************************************************************** 456.5 Organisational structure ********************************************************* 466.6 Administrative, management and supervisory bodies ********************************** 486.7 Board practices **************************************************************** 49

7. SHARE CAPITAL AND SHAREHOLDERS’ MATTERS ********************************* 517.1 General ********************************************************************** 517.2 Current share capital************************************************************ 517.3 Historical development in share capital and number of shares ************************** 517.4 Authority to issue new shares **************************************************** 527.5 Authority to acquire own shares ************************************************** 527.6 Share price development********************************************************* 537.7 Ownership structure ************************************************************ 547.8 Shareholder and dividend policy ************************************************** 547.9 Restrictions, voting, trading etc. ************************************************** 547.10 Equity instruments ************************************************************* 547.11 Company incentive scheme ****************************************************** 55

8. FINANCIAL INFORMATION******************************************************** 57

9. LEGAL AND TAX MATTERS******************************************************* 579.1 Material contractual disputes and legal proceedings*********************************** 579.2 Material Contracts************************************************************** 589.3 Corporate law on Cayman Islands relevant to Subsea 7 ******************************* 599.4 Norwegian Tax Issues*********************************************************** 63

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10. SUBSCRIPTION AND SALE******************************************************** 6510.1 General ********************************************************************** 6510.2 United States****************************************************************** 6610.3 United Kingdom *************************************************************** 6610.4 European Economic Area******************************************************** 6610.5 Cayman Islands**************************************************************** 6610.6 Switzerland ******************************************************************* 66

11. GENERAL INFORMATION — APPENDICES AND DOCUMENTS ON DISPLAY***********11.1 Listing *********************************************************************** 6711.2 Approvals ******************************************************************** 6711.3 Expenses ********************************************************************* 6711.4 ISIN and Common Code ******************************************************** 6711.5 Yield ************************************************************************ 6711.6 Address of the Paying, Transfer and Conversion Agent and Registrar ******************** 6711.7 Appendices ******************************************************************* 67

12. DEFINITIONS AND GLOSSARY **************************************************** 68

13. CROSS REFERENCE GUIDE ******************************************************* 71

Appendix 1: Articles of Association of Subsea 7 Inc. (former Siem Offshore Inc.)

Appendix 2: Subsea 7 Inc. Annual Report 2005

Appendix 3: Subsea 7 Inc. Annual Report 2004

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1. SUMMARY

This summary should be read as an introduction to the Prospectus and is qualified in its entirety by the moredetailed information and the appendices appearing elsewhere in this Prospectus.

1.1 The Company

Subsea 7’s main activity is to provide pipe laying services, subsea construction services and other subseaservices for the global oil and gas industry.

The Company was incorporated on 10 January 2002 under the name DSND Inc., and renamed SiemOffshore Inc. in July 2004. The Company changed its name from Siem Offshore Inc. to Subsea 7 Inc. at theannual general meeting of the Company held on 15 July 2005, in conjunction with the spin-off of the non-subsearelated activities into a separately listed company which retained the name of Siem Offshore Inc.

As a company incorporated in the Cayman Islands, Subsea 7 is subject to Cayman Islands laws andregulations. In addition, due to the listing of the Company’s shares on Oslo Børs, certain aspects of Norwegiansecurities law and the Code, apply to the Company.

1.2 Business activities

Subsea 7 performs total subsea field developments and provides design, engineering, construction,installation and maintenance of facilities for the subsea production of oil and gas.

Subsea 7 operates 17 multi-purpose, highly specialised dynamically-positioned (DP) vessels capable ofdeepwater pipe laying, deepwater subsea construction and diving and subsea surveys and a large fleet of remotelyoperated vehicles (ROVs). The ROV fleet totals more than 100 specialised vehicles. In addition, the Companyoperates four spool bases for the welding of pipelines.

Subsea 7’s business consists of the following seven business segments, which are interrelated and to a largedegree overlap on specific projects, as described below:

) Deepwater Systems and Technology

) Towed Production Systems

) Subsea Construction & IRM

) Pipe laying services

) Survey & Positioning Services

) ROV services

) Remote technology

1.3 Board of directors, Management and Auditor

The Company’s directors are Kristian Siem (Chairman), Michael Delouche, Arild Schultz, John Smith andAllen L. Stevens.

Subsea 7’s chief executive officer is Mel Fitzgerald. Barry Mahon is the chief financial officer.

Subsea 7 Inc.’s auditor is PricewaterhouseCoopers LLP, independent registered auditors and charteredaccountants and a member of the Institute of Chartered Accountants of England and Wales.

1.4 Advisors

Lehman Brothers International (Europe) has acted as sole bookrunner and underwriter for Subsea 7 Inc. inconnection with the issue of the Notes and their subsequent listing on Oslo Børs. Wiersholm, Mellbye & Bech,Advokatfirma AS has acted as the Company’s Norwegian legal advisors, and Linklaters has acted as English legaladvisors to Lehman Brothers International (Europe) and The Law Debenture Trust Corporation p.l.c.

1.5 Share Capital

As at the date of this Prospectus, the registered share capital of the Company is U.S.$2,000,000 divided into200,000,000 Common Shares of a nominal value of 0.01 each. The issued share capital is U.S.$1,481,217.00divided into 148,121,737 shares each with a nominal value of U.S.$0.01.

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The largest shareholder is Siem Industries Inc. which holds in aggregate 44.8 per cent. of the Company’sshares.

1.6 Articles of Association and Documents on Display

The Company’s Articles of Association are attached to this Prospectus as Appendix 1.

The Articles of Association may, together with the annual accounts for the years ended 31 December 2004and 2005, for the life of this Prospectus also be physically inspected at the principal office of the Company,Harbour Place 5th Floor, P.O. Box 309 APO, 103 South Church Street, George Town, Grand Cayman, CaymanIslands (telephone number 001 345 949 1030).

1.7 Use of Proceeds

The proceeds of the issue of the Notes will be used to fund the construction of the offshore installation andconstruction vessels that Subsea 7 has on order at a total cost of approximately U.S.$400 million and to reducebank debt.

Subsea 7 has announced it may also use part of the proceeds from the offering to purchase up to 5 millionordinary shares in open market repurchases on Oslo Børs pursuant to the standing authorisation granted to theBoard in the Articles of Association of the Company.

1.8 Selected financial information

The following table sets out certain selected financial information of the Company for the years ended31 December 2005 and 2004. The figures below have been extracted without material adjustment from theconsolidated annual report of the Company for the year ended 31 December 2005.

31 Dec 2005 31 Dec 2004

(Audited) (Audited)In U.S.$ millions

(unless otherwise stated)

Income Statement data*Revenue from continuing operations *************************************** 1,287.0 —Profit/(Loss) from continuing operations************************************ 45.2 (4.6)Loss from discontinued operations **************************************** (4.0) (9.1)Profit/(Loss) attributable to equity shareholders ****************************** 41.2 (13.7)Balance Sheet dataNon-current assets****************************************************** 419.2 412.9Current assets ********************************************************* 461.7 417.1Total assets *********************************************************** 880.9 830.0Shareholders’ equity **************************************************** 288.7 286.4Non-current liabilities*************************************************** 66.8 206.6Current liabilities ****************************************************** 525.4 337.0Total shareholders’ equity and liabilities************************************ 880.9 830.0Per share dataAverage number of shares issued (’000) ************************************ 134,327 84,400Earnings per share (U.S.$) *********************************************** 0.31 (0.16)Earnings per share, from continuing operations (U.S.$) *********************** 0.34 (0.05)Average number of shares issued, diluted (’000) ***************************** 142,916 84,400Earnings per share, diluted (U.S.$) **************************************** 0.30 (0.16)Earnings per share, diluted, from continuing operations (U.S.$)***************** 0.33 (0.05)

Subsea 7 is not aware of any significant changes in its financial or trading position or any material adversechange in its prospects that has occurred after the financial statements of the annual report of the period ending31 December 2005.

1.9 Summary of risk factors

Investors in the Notes should consider the following risk factors:

) the Shares and the Notes will typically be subject to price fluctuations as a result of conditions in thecapital markets and the level of liquidity in secondary trading;

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) there is a significant risk associated with a possible long-term drop in the oil price, affecting theprofitability of the development of new offshore fields, which very likely would reduce the market for theproducts and services offered by Subsea 7;

) Subsea 7 may not be able to develop and commercialise the new products and solutions required tomaintain its current competitive position in respect of products and services for subsea constructions;

) Subsea 7 has operations in several countries and its operations include projects and investments incountries that are unsafe and politically unstable;

) Subsea 7’s operations involve the use and handling of materials that can be environmentally hazardous.

) the majority of Subsea 7’s revenue is derived from lump sum EPIC (Engineering, Procurement,Installation and Construction) contracts, mainly due to the increasing importance of the West Africanand Brazilian markets. Lump sum EPIC contracts increase the risk exposure for Subsea 7;

) suppliers in project-oriented operations that involve large sums and stretch out in time, have significanteconomic exposure to their customers. Subsea 7 will be negatively affected if a customer becomesinsolvent or is declared bankrupt;

) Subsea 7 is exposed to risks associated with fluctuations in exchange rates and of risks associated withdebt financing;

) an investor in the Notes may risk that there will be no active trading market for the Notes;

) the Notes may be redeemed prior to maturity, and this may have negative effects for the Noteholders;

) noteholders will bear the risk of fluctuation in the price of the Ordinary Shares; and

) rights to receive payment on the Notes are subordinated to the Company’s secured indebtedness andstructurally subordinated to the indebtedness and liabilities of the Company’s subsidiaries.

1.10 Overview of the Offering

The following overview refers to certain provisions of the Terms and Conditions of the Notes, and theTrust Deed and is qualified by the more detailed information contained elsewhere in this Prospectus. Terms whichare defined in Section 5 ‘‘Terms and Conditions of the Notes’’ have the same meaning when used in this overview.

Issuer Subsea 7 Inc.

Notes U.S.$300,000,000 2.80 per cent. Convertible Notes due 2011.

Offering None of the Notes or Ordinary Shares to be delivered upon conversion ofthe Notes has been or will be registered under the Securities Act or withany securities regulatory authority of any other jurisdiction. The Notes arebeing offered and sold in offshore transactions outside the United States inreliance on Regulation S under the Securities Act and, except in atransaction exempt from the registration requirements of the Securities Act,may not be offered, sold or delivered within the United States or to or forthe benefit of U.S. persons.

Closing Date/Issue Date 6 June 2006.

Issue Price 100.00 per cent. of the principal amount.

Final Maturity Unless previously purchased and cancelled, redeemed or converted, theNotes will be redeemed on 6 June 2011.

Form and Denomination The Notes will be in registered form and issued in denominations ofU.S.$100,000 in electronic form in the VPS register.

Interest The Notes bear interest from and including the Closing Date at 2.80 percent. per annum payable semi-annually in equal instalments in arrear on6 June and 6 December each year, commencing on 6 December 2006.

Status of the Notes The Notes constitute senior, unsubordinated, direct, unconditional and(subject to Condition 2 ‘‘Negative Pledge’’) unsecured obligations of theCompany and rank pari passu without preference among themselves. Theobligations of the Company under the Notes shall, save for such exceptions

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as may be provided by applicable legislation and subject to Condition 2 ofthe Notes, at all times rank at least equally with all its present and futureunsecured and unsubordinated obligations.

Yield 2.80 per cent. The yield is calculated on the Closing Date on the basis ofthe Issue Price. It is not an indication of future yield.

Negative Pledge So long as any Note remains outstanding, the Company will not create orpermit to subsist and will ensure that none of its Subsidiaries will create orpermit to subsist any security interest upon the whole or any part of itspresent or future property or assets to secure any Relevant Indebtedness,subject to the exceptions in Condition 2 ‘‘Negative Pledge’’.

Cross Default The Notes will contain a cross default provision as further described inCondition 10 ‘‘Events of Default’’.

Other Events of Default For a description of certain other events that will cause the Notes tobecome immediately due and payable at their principal amount, togetherwith accrued interest, see Condition 10 ‘‘Events of Default’’.

Redemption at the Option of theCompany The Notes may be redeemed at the option of the Company in whole (but

not in part only) at their principal amount as at the date fixed forredemption together with accrued interest to such date (i) at any time on orafter 20 June 2009 if the Parity Value on at least 20 dealing days in anyperiod of 30 consecutive dealing days ending not earlier than 15 days priorto the giving of the relevant Optional Redemption Notice, exceedsU.S.$150,000; or (ii) at any time prior to the date the relevant OptionalRedemption Notice is given, Conversion Rights shall have been exercisedand/or purchases (and corresponding cancellations) and/or redemptionseffected in respect of 90 per cent. or more in principal amount of the Notesoriginally issued.

Taxation All payments in respect of the Notes by or on behalf of the Company shallbe made free and clear of, and without withholding or deduction for, anytaxes, duties, assessments or governmental charges of whatsoever natureimposed, levied, collected, withheld or assessed in the Cayman Islands orany authority therein or thereof having power to tax, unless such withhold-ing or deduction is required by law. In that event, the appropriatewithholding or deduction shall be made and the Company shall pay anyadditional amounts to Noteholders to compensate for such withholding ordeduction, subject in the case of payments of interest to certain customaryexceptions.

Tax Redemption The Notes may be redeemed in whole (but not in part only) at theirprincipal amount together with accrued interest to the date fixed forredemption in the event of certain changes in Cayman Islands taxationaffecting the Notes. However, in such circumstances, each Noteholder willhave the right to elect that their Note(s) shall not be redeemed in suchcircumstances and, to the extent that such election is made, the Companyshall not be obliged to pay additional amounts in respect of payments ofinterest under the Notes under Condition 9 (‘‘Taxation’’).

Conversion Right Unless previously redeemed or purchased and cancelled, each Note will beconvertible, at the option of the holder, into Ordinary Shares of theCompany during the Conversion Period as further described in Condition 6(‘‘Conversion of Notes’’).

Conversion Period The period beginning on and including 17 July 2006 and ending on andincluding the earlier to occur of:

(1) the close of business on the date falling seven days prior to the FinalMaturity Date; and

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(2) if the Notes shall have been called for redemption by the Issuer beforethe Final Maturity Date, the close of business on the day which isseven days before the date fixed for redemption.

Conversion Price U.S.$26.3268 per Ordinary Share, subject to adjustment in accordancewith Condition 6 (‘‘Conversion of Notes’’).

Lock Up The Company and Siem Industries Inc. (have, subject to certain excep-tions), agreed not to issue or sell Ordinary Shares or certain relatedsecurities for a period of 90 days after 3 May 2006.

Trustee The Law Debenture Trust Corporation p.l.c.

Paying and Conversion Agentand Registrar Nordea Bank Norge ASA, Verdipapirservice

Governing Law The Notes and the Trust Deed will be governed by and shall be construedin accordance with English law. The Paying and Conversion AgencyAgreement will be governed by and construed in accordance with Norwe-gian law.

Listing and Trading Applications have been made for the Notes to be listed on Oslo Børs.There can be no assurance that the application for listing of the Notes willbe approved.

ISIN The Notes will be issued with the following ISIN: NO 001 0315344.

Common Code 025391446.

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2. RISK FACTORS

2.1 General

Subsea 7 operates in a freely-competitive market characterised by a number of factors outside theCompany’s control. In addition, the Shares and the Notes will typically be subject to price fluctuations as a resultof conditions in the capital markets and the level of liquidity in secondary trading.

Fluctuations in the oil price have historically been shown to have a significant impact on demand forSubsea 7’s services. It is important to appreciate that all activities related to subsea construction and integratedservices carry significant risks and responsibility. These risks are of a technical, operational, commercial andpolitical character, and it is not practical to obtain insurance cover for all the types of risk and responsibilityinvolved.

2.2 Market and regulatory risk

2.2.1 Dependence on the level of demand from oil companies for subsea services

Changes in the international oil price have historically had a significant effect on the level of demand forsubsea services and hence the level of the Company’s earnings.

Oil and gas prices have historically been very volatile depending on the actual and expected changes in thesupply of and demand for oil and natural gas, changes in economic growth in the USA and globally and politicaluncertainty in oil producing countries. There is a significant risk associated with a possible long-term drop in theoil price, affecting the profitability of the development of new offshore fields, which very likely would reduce themarket for the products and services offered by Subsea 7.

2.2.2 The risk of new technological developments

The market for oil and gas technologies has developed towards a single competitive market for concepts andtechnological solutions. Companies with the best solutions will therefore achieve a strong competitive position inboth markets. Oil and gas operations offshore, both in the North Sea and internationally, are moving towardsdeeper water depths, and will require new technologies for exploration and production. In the long run, acompetitive advantage in products and services for subsea constructions will be achieved through continuousdevelopment and commercialisation of new technical solutions. There can be no assurance that Subsea 7 will beable to maintain its current competitive position in this respect.

Subsea 7’s ability to secure its intangible rights legally is important since the development of the Companywill largely depend on its technological advances. Third parties might act in violation of these rights and it is notpossible to achieve protection of intangible rights in certain countries. There can be no assurance that Subsea 7will be able sufficiently to secure its intellectual property and other intangible rights.

2.3 Political risk

Subsea 7 has operations in several countries and its operations include projects and investments in countriesthat are unsafe and politically unstable. Activities in these countries will often involve greater risk, includingunfavourable changes in tax laws and other laws, partial or full expropriation, currency volatility and restrictionson currency transfer, disruption of operations because of labour disputes or political riots or wars, and someindividual countries’ requirements for some local ownership interests.

Subsea 7’s operations are subject to laws, regulations and supervisory rules in the country where the activityis performed. The operations of the Company can be affected by changes in environmental laws and otherregulations that can result in large expenses in, for example, modification of vessels and changes in the operationof vessels.

2.4 Environmental issues

Subsea 7’s operations involve the use and handling of materials that can be environmentally hazardous.Environmental legislation has in general become stricter in the countries in which Subsea 7 operates. These lawsand regulations might expose Subsea 7 to liability due to events caused by others or by it, even though the actionswere consistent with existing laws at the time. In the event of liability arising due to the action of a customer,Subsea 7 would expect to get some contractual compensation from that customer through contractual regulationsfor events such as pollution and other environmental damage. However, there can be no assurance that thecompensation achieved in such events, if achieved at all, will cover the losses suffered.

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2.5 Operational risk

2.5.1 Project risk terms of delays or cost over-runs

It is customary for suppliers of technology and services to the oil and gas industry to take on price andschedule related risks in their contracts with oil and gas companies. Such risks could be substantial, and can bedue to a number of risk factors, e.g. lack of materials or skilled labour, dependency on sub-suppliers, unforeseentechnical problems, latent damages on existing equipment, stoppage of work, disruptions because of bad weather,unforeseen cost increases, lack of necessary permits or approvals, and exposure to damages if the project is notexecuted and/or completed in accordance with the agreed schedule. Experience shows that projects involvesignificant risks, and various contractors (including Subsea 7) have from time to time incurred significant losseson single projects. Such losses could potentially impact the profitability and financial solidity of the Group as awhole.

The majority of Subsea 7’s revenue is derived from lump sum EPIC (Engineering, Procurement, Installationand Construction) contracts, mainly due to the increasing importance of the West African and Brazilian markets.Lump sum EPIC contracts increase the risk exposure for Subsea 7.

It is possible that Subsea 7 will accept larger liabilities than its sub-suppliers. Subsea 7’s results maytherefore be negatively affected if it fails to deliver in accordance with the contract with its customer due to a subsupplier.

2.5.2 Operational and insurance risks in respect of vessel operations

Subsea 7 owns vessels that are exposed to the risks associated with shipping, including bad weather,capsizing, groundings, collision, engine problems, technical problems, navigation errors etc. These risks canindividually result in (i) damage or destruction of vessel or equipment, (ii) personal injury, (iii) operatingdisruption, and/or (iv) environmental damages. Such risks can also result in the termination of the charter for thevessel.

The vessels are insured if possible and when commercially practical. There can be no assurance that suchinsurances will be available in the future or at an acceptable price. Also, insurance will not cover all risks orgeographical areas.

2.5.3 Dependency on key persons

The development of Subsea 7 is dependent on the ability of the senior management to manage the currentproject portfolio and obtain new and profitable orders. Although no single person is solely instrumental infulfilling either of these business objectives, there is no guarantee that they will be achieved to the degreeexpected.

2.5.4 Lack of qualified engineers

Although there can be no assurance in this regard, Subsea 7 foresees growth in the contract portfolio duringthe next few years, but the ability to execute the growing number of large projects with the high quality standardsrequired is heavily dependent on the number of qualified engineers available. There is a risk that the anticipatedfuture expansion may not be achieved as planned.

2.6 Financial risk

2.6.1 Credit risk

Suppliers in project-oriented operations that involve large sums and stretch out in time, have significanteconomic exposure to their customers. Subsea 7 will be negatively affected if a customer becomes insolvent orgoes bankrupt.

2.6.2 Foreign exchange risk

For Subsea 7, U.S. dollars is the functional and reporting currency. Purchases from sub-contractors anddeliveries to the customer are to some extent performed in currencies other than U.S. dollars. The Company isexposed to foreign exchange risk of its subsidiaries including the development of the Brazilian real.

Subsea 7 is exposed to foreign exchange risk in respect of its contracts for the construction of new pipelayand flexlay vessels, which are denominated in EUR.

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The shares listed on Oslo Børs are quoted in NOK. There is a foreign exchange risk associated with theconversion from the reporting currency to NOK.

2.6.3 Financing

Subsea 7 is financed by equity and debt. The Company is therefore exposed to the risks associated with debtfinancing. Payments associated with servicing debt could adversely affect the Company including by reducing orpostponing investments and/or at unforeseen times and/or at unattractive conditions force the Company to sellassets and activities, issue equity or restructure debt. There is no guarantee that such initiatives will (i) succeed,(ii) be enough to refinance or restructure debt and other commitments as they fall due, or (iii) not affect thecompetitive ability of Subsea 7.

2.6.4 Taxes

Subsea 7 has subsidiaries in Norway, UK, USA, Brazil, Singapore, Australia, Luxembourg, Ireland, theNetherlands, the Cayman Islands and Nigeria. The overall tax charge will depend on where profits areaccumulated and taxed since these countries have different tax systems and tax rates.

2.7 Risks related to the Notes and the Ordinary Shares

2.7.1 Notes may not be a suitable investment for all investors

Each potential investor in the Notes must determine the suitability of that investment in light of its owncircumstances. In particular, each potential investor should:

(i) have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the meritsand risks of investing in the Notes and the information contained or incorporated by reference in thisProspectus or any applicable supplement;

(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of itsparticular financial situation, an investment in the Notes and the impact such investment will have onits overall investment portfolio;

(iii) understand thoroughly the terms of the Notes and be familiar with the behaviour of financial marketsin which they participate; and

(iv) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios foreconomic, interest rate and other factors that may affect its investment and its ability to bear theapplicable risks.

2.7.2 There is no active trading market for the Notes

The Notes are new securities which may not be widely distributed and for which there is currently no activetrading market. If the Notes are traded after their initial issuance, they may trade at a discount to their initialoffering price, depending upon prevailing interest rates, the market for similar securities, general economicconditions and the financial condition of the Company. Although an application has been made for the Notes tobe admitted to listing and to trading on Oslo Børs, there is no assurance that such application will be accepted orthat an active trading market will develop. Accordingly, there is no assurance as to the development or liquidityof any trading market for the Notes.

2.7.3 The Notes may be redeemed prior to maturity

In the event that the Company would be obliged to increase the amounts payable in respect of any Notes dueto any withholding or deduction for or on account of any present or future taxes, duties, assessments orgovernmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of theCayman Islands or any political subdivision thereof or any authority therein or thereof having power to tax, theCompany may redeem all outstanding Notes in accordance with the Conditions, unless the Noteholders’ taxoption under Condition 7(d) is exercised.

In addition the Conditions provide that the Notes are redeemable at the Company’s option in certain otherlimited circumstances and accordingly the Company may choose to redeem the outstanding Notes at times whenprevailing interest rates may be relatively low. In such circumstances an investor may not be able to reinvest theredemption proceeds in a comparable security at an effective interest rate as high as that of the Notes.

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2.7.4 Noteholders will bear the risk of fluctuation in the price of the Ordinary Shares

The market price of the Notes is expected to be affected by fluctuations in the market price of the OrdinaryShares and it is impossible to predict whether the price of the Ordinary Shares will rise or fall. Trading prices ofthe Ordinary Shares will be influenced by, among other things, the financial position of the Company, the resultsof operations and political, economic, financial and other factors. Any decline in the price of the Ordinary Sharesmay have an adverse effect on the market price of the Notes.

Future issues or sales of the Ordinary Shares may significantly affect the trading price of the Notes or theOrdinary Shares. The future issue of Ordinary Shares by the Company or the disposal of Ordinary Shares by anyof the major shareholders of the Company or the perception that such issues or sales may occur may significantlyaffect the trading price of the Notes and the Ordinary Shares. The Company and Siem Industries Inc. have eachagreed to certain restrictions on its ability to issue or dispose of Ordinary Shares or related securities between thedate of the Subscription Agreement and the date which is 90 days thereafter. Except for such restrictions and theundertakings of the Company described in Condition 11 below (see ‘‘Terms and Conditions of the Notes —Undertakings’’), there is no restriction on the Company’s ability to issue Ordinary Shares, and there can be noassurance that the Company will not issue Ordinary Shares or that any such substantial shareholder will notdispose of, encumber, or pledge its Ordinary Shares or related securities.

2.7.5 Rights to receive payment on the Notes are subordinated to the Company’s secured indebtednessand structurally subordinated to the indebtedness and liabilities of the Company’s subsidiaries

Certain of the Company’s properties and assets are being used to secure its existing debt. As at 31 March2006, the Company’s total consolidated secured long-term and short-term debt was U.S.$98,500,000. The Noteswill be effectively subordinated to any of the Company’s secured obligations with respect to the assets that securesuch obligations. The terms of the Notes do not prevent any of the Company or its Subsidiaries from incurringadditional debt and the Company’s Subsidiaries are generally permitted to secure their indebtedness (subject tothe provisions of Condition 2 — see ‘‘Terms and Conditions of the Notes — Negative Pledge’’). In addition, theNotes will be structurally subordinated to the existing and future indebtedness and other liabilities and obligationsof the Company’s Subsidiaries. Claims of creditors of such entities will have priority over the assets of suchentities over the Company and its creditors, including the Noteholders.

2.7.6 As the Notes are cleared through VPS, investors will have to rely on VPS’ procedures fortransfers, payments and conversion of Notes

The Notes will clear through VPS. Pursuant to the rules and procedures of VPS, investors will not beentitled to receive Notes in definitive form. VPS will maintain a register in which it will record details of theholders of the Notes. Investors will be able to trade their beneficial interests only through VPS.

The Company will discharge its payment obligations under the Notes by making payments through VPS fordistribution to its account holders. A holder of a beneficial interest in a Note must rely on the procedures of VPSto receive payments under the Notes and to receive delivery of Ordinary Shares upon conversion of Notes. TheCompany has no responsibility or liability for the records relating to beneficial interests in the Notes.

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3. IMPORTANT NOTICES

This Prospectus has been prepared in connection with the listing on Oslo Børs of the U.S.$300,000,0002.80 per cent. Convertible Notes to be issued by Subsea 7 Inc.

It is expected that the Notes will be issued on 6 June 2006 at an issue price of 100 per cent. of their principalamount. Unless previously converted or redeemed, the Notes will be redeemed by Subsea 7 on 6 June 2011 at100 per cent. of their principal amount.

This Prospectus does not contain any offer to subscribe and/or purchase the Notes. This Prospectus has beenreviewed and approved by Oslo Børs as an EEA Prospectus pursuant to Section 5-3 cfr. Sections 5-7 and 5-8 ofthe Norwegian Securities Trading Act.

The delivery of this Prospectus shall under no circumstances create any implication that the informationabout Subsea 7 contained in this Prospectus is correct as of any time subsequent to its date. Any new materialinformation arising after the publication of this Prospectus and before the completion of the listing of the Noteswill be published as a supplement to this Prospectus in accordance with Section 5-15 of the Norwegian SecuritiesTrading Act.

Application has been made to list the Notes on the Oslo Børs. The listing of the Notes and this Prospectusare subject to Norwegian law. Any dispute arising out of the listing or this Prospectus is subject to the exclusivejurisdiction of the Norwegian courts.

Forward-looking Statements

This Prospectus includes ‘‘forward-looking statements’’. All statements other than statements of historicalfacts included in this Prospectus, including, without limitation, those regarding Subsea 7’s financial position,business strategy, plans and objectives of management for future operations (including development plans andobjectives relating to Subsea 7’s products), are forward-looking statements. Such forward-looking statementsinvolve known and unknown risks, uncertainties and other factors which may cause actual results, to bematerially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Subsea 7’spresent and future business strategies and the environment in which Subsea 7 will operate in the future. Amongthe important factors that could cause Subsea 7’s actual results, performance and achievements to differmaterially from those in the forward-looking statements include, but are not limited to, those discussed under‘‘Risk Factors’’. These forward-looking statements speak only as of the date of this Prospectus. Subsea 7expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Subsea 7’s expectations with regard thereto or anychange in events, conditions or circumstances on which any statement is based.

All enquires relating to this Prospectus or the matters addressed herein should be directed to Subsea 7. Nopersons other than those described in this Prospectus have been authorised to disclose or disseminate informationabout this Prospectus or about the matters addressed in this Prospectus. If given, such information may not berelied upon as having been authorised by Subsea 7.

None of Subsea 7 or Lehman Brothers International (Europe) (‘‘Lehman Brothers’’ or the ‘‘Manager’’) isproviding any advice or recommendation in this Prospectus on the merits of the purchase, subscription for, orinvestment in, the Notes or the Ordinary Shares or the exercise of any rights conferred by the Notes or theOrdinary Shares.

Neither Lehman Brothers nor the Trustee has separately verified the information contained in thisProspectus. Accordingly, no representation, warranty or undertaking, express or implied, is made and noresponsibility or liability is accepted, by Lehman Brothers or the Trustee, as to the accuracy or completeness ofthe information contained in this Prospectus or any other information supplied in connection with the Notes orthe Ordinary Shares. Each person receiving this Prospectus acknowledges that such person has not relied onLehman Brothers or the Trustee nor on any person affiliated with Lehman Brothers or the Trustee in connectionwith its investigation of the accuracy of such information or its investment decision, and each such person mustrely on its own examination of the Company and the merits and risks involved in investing in the Notes.

None of the Notes or Ordinary Shares to be delivered upon conversion of the Notes has been or will beregistered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’) or with anysecurities regulatory authority of any other jurisdiction. The Notes are being offered and sold in offshoretransactions outside the United States in reliance on Regulation S (‘‘Regulation S’’) under the Securities Act and,

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except in a transaction exempt from the registration requirements of the Securities Act, may not be offered, soldor delivered within the United States or to or for the benefit of U.S. persons.

This Prospectus has been prepared on the basis that all offers of Notes will be made pursuant to anexemption under Article 3.2 (a) and (d) of the Prospectus Directive, as implemented in member states of theEuropean Economic Area (the ‘‘EEA’’), from the requirement to produce a prospectus for offers of Notes.Accordingly any person making or intending to make any offer within the EEA of Notes which is the subject ofthe placement contemplated in this Prospectus should only do so in circumstances in which no obligation arisesfor Subsea 7 or Lehman Brothers to produce a prospectus for such offer. Neither Subsea 7 nor Lehman Brothershave authorised, nor do they authorise, the making of any offer of Notes through any financial intermediary, otherthan offers made by Lehman Brothers which constitute the final placement of Notes contemplated in thisProspectus.

General

The distribution of this Prospectus and the offering of the Notes in certain jurisdictions may be restricted bylaw. Persons into whose possession this Prospectus comes are required by Subsea 7 and Lehman Brothers toinform themselves about and to observe any such restrictions. For a description of certain further restrictions onoffers and sales of the Notes and the Ordinary Shares and distribution of this Prospectus, see ‘‘Subscription andSale’’.

Each prospective purchaser and subscriber to the Notes must comply with all applicable laws and regulationsin force in any jurisdiction in which it purchases, subscribes, offers or sells the Notes or possesses or distributesthis Prospectus and must obtain any consent, approval or permission required by it for acquiring Notes.

Stabilisation

In connection with the issue of the Notes, Lehman Brothers (or any person acting for it), may over-allot oreffect transactions with a view to supporting the market price of the Notes at a level higher than that which mightotherwise prevail. However, there may be no obligation on Lehman Brothers or any agent of it to do this. Suchstabilising, if commenced, may be discontinued at any time and must be brought to an end after a limited period.

Investing in the Notes involves risks. Prior to making an investment decision, all prospectivepurchasers of the Notes should carefully consider the factors set out under ‘‘Risk Factors’’ in addition tothe other information contained in this Prospectus.

Incorporation by reference

All documents incorporated by reference in this Prospectus will be available for inspection at:

Subsea 7 Inc.Harbour Place 5th FloorP.O. Box 309 APO103 South Church StreetGeorge Town, Grand CaymanCayman IslandsTelephone +1 344 949 1030www.subsea7.com1

The Trust Deed may be obtained from the above address or from the Trustee at the following address:

The Law Debenture Trust Corporation p.l.c.Fifth Floor100 Wood StreetLondon EC2V 7EXUnited Kingdom

1 Only the documents referred to above are incorporated by reference in this Prospectus, not all of the material that is otherwise availableon the Company’s website.

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4. RESPONSIBILITY STATEMENTS

4.1 Subsea 7 Inc.

Subsea 7 Inc. confirms that, having taken all reasonable care to ensure that such is the case, the informationcontained in the Prospectus, to the best of its knowledge, is in accordance with the facts and contains noomissions likely to affect the import of the Prospectus.

Cayman Islands, 6 June 2006

Subsea 7 Inc.

Kristian Siem

Chairman

4.2 Manager

Lehman Brothers International (Europe) has acted as sole bookrunner and underwriter for Subsea 7 Inc. inconnection with the issue of the Notes and their subsequent listing on Oslo Børs.

The Board and management of Subsea 7 Inc. have prepared this Prospectus, and Lehman BrothersInternational (Europe) makes no guarantees and disclaims any responsibility for the accuracy and thecompleteness of the information contained in the Prospectus or any other information provided in connectionwith the listing of the Notes on Oslo Børs.

London, 6 June 2006

Lehman Brothers International (Europe)

4.3 Legal advisor to Subsea 7 Inc.

Wiersholm, Mellbye & Bech, advokatfirma AS has acted as Norwegian legal counsel to Subsea 7 inconnection with the listing of the Notes on Oslo Børs.

We have reviewed Section 9.4 of this Prospectus.

On the basis of the information we have received we can confirm that the document complies, in ouropinion, with the formal requirements as set out in the Norwegian Securities Trading Act.

Our statement is limited to the above and does not extend to the content of other Sections of this Prospectusand does not extend to any description of commercial, technical, financial and accounting related matters in thisProspectus. Our statement is strictly limited to matters governed by Norwegian law and jurisdiction.

Oslo, 6 June 2006

Wiersholm, Mellbye & Bech

4.4 Auditor of Subsea 7 Inc.

Subsea 7 Inc.’s auditor is PricewaterhouseCoopers LLP, independent registered auditors and charteredaccountants, located at 32 Albyn Place, Aberdeen. PricewaterhouseCoopers has been the auditor of Subsea 7 andits predecessor companies since 1997 and has issued unqualified opinions during the whole period.

PricewaterhouseCoopers LLP does not hold shares or any other interest in Subsea 7 Inc.

Aberdeen, 6 June 2006

PricewaterhouseCoopers LLP

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5. TERMS AND CONDITIONS OF THE NOTES

The following, subject to completion and amendment, and save for the paragraphs in italics, is the text of theTerms and Conditions of the Notes.

The issue of the U.S.$300,000,000 2.80 per cent. Convertible Notes due 2011 (the ‘‘Notes’’), whichexpression shall, unless otherwise indicated, include any further notes issued pursuant to Condition 17 andconsolidated and forming a single series with the Notes) was (save in respect of any such further notes)authorised by resolutions of the Board of Directors of Subsea 7 Inc. (the ‘‘Issuer’’) passed on 23 May 2006 and5 June 2006. The Notes are constituted by a trust deed dated 6 June 2006 (the ‘‘Trust Deed’’) between the Issuerand The Law Debenture Trust Corporation p.l.c. (the ‘‘Trustee’’, which expression shall include all persons forthe time being appointed as the trustee or trustees under the Trust Deed) as trustee for the holders (as definedbelow) of the Notes. The statements set out in these Terms and Conditions (the ‘‘Conditions’’) are summaries of,and are subject to, the detailed provisions of the Trust Deed. The Noteholders (as defined below) are entitled tothe benefit of, and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and thoseprovisions applicable to them which are contained in the Paying and Conversion Agency Agreement dated 6 June2006 (the ‘‘Agency Agreement’’) relating to the Notes between the Issuer, the Trustee, Nordea Bank NorgeASA, Verdipapirservice in its capacity as paying and conversion agent (the ‘‘Paying and Conversion Agent’’,which expression shall include any successor as paying and conversion agent under the Agency Agreement) andNordea Bank Norge ASA, Verdipapirservice in its capacity as registrar (the ‘‘Registrar’’, which expression shallinclude any successor as registrar under the Agency Agreement). Copies of the Trust Deed and the AgencyAgreement are available for inspection at the office of the Trustee at Fifth Floor, 100 Wood Street, LondonEC2V 7EX, United Kingdom and at the specified offices of the Paying and Conversion Agent and the Registrar.

Capitalised terms used but not defined in these Conditions shall have the meanings attributed to them in theTrust Deed unless the context otherwise requires or unless otherwise stated.

1 Form, Denomination, Title and Status

(a) Form and Denomination

The Notes are issued in registered, dematerialised form in the Norwegian Securities Depository System(‘‘Verdipapirsentralen’’) (the ‘‘VPS’’) in principal amounts of U.S.$100,000 and integral multiples thereof(‘‘authorised denominations’’).

(b) Title

Title to the Notes will pass by transfer and registration as described in Condition 4. The registered holder ofany Note will (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treatedas its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trustor any interest in it) and no person will be liable for so treating the holder.

(c) Status of the Notes

The Notes constitute direct, unconditional, unsubordinated and (subject to Condition 2) unsecuredobligations of the Issuer ranking pari passu and rateably, without any preference among themselves, and equallywith all other existing and future unsecured and unsubordinated indebtedness of the Issuer but, in the event ofinsolvency, save for such indebtedness that may be preferred by provisions of law that are mandatory and ofgeneral application.

2 Negative Pledge

So long as any of the Notes remain outstanding (as defined in the Trust Deed), the Issuer will not create orpermit to subsist, and will ensure that none of its Subsidiaries, will create or permit to subsist, any mortgage,charge, lien, pledge or other form of encumbrance or security interest (each a ‘‘Security Interest’’) upon thewhole or any part of its present or future property or assets (including any uncalled capital) to secure anyRelevant Indebtedness or any guarantee of or indemnity in respect of any Relevant Indebtedness unless in anysuch case, before or at the same time as the creation of the Security Interest, any and all action necessary shallhave been taken to the satisfaction of the Trustee to ensure that such other Security Interest or guarantee or otherarrangement (whether or not including the giving of a Security Interest) is provided in respect of all amountspayable by the Issuer under the Notes and the Trust Deed either (i) as the Trustee shall in its absolute discretiondeem not materially less beneficial to the interests of the Noteholders or (ii) as shall be approved by anExtraordinary Resolution (as defined in paragraph 1.4 of Schedule 1 to the Trust Deed) of the Noteholders.

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3 Definitions

In these Conditions, unless otherwise provided:

‘‘Additional Ordinary Shares’’ has the meaning provided in Condition 6(c).

‘‘business day’’ means, in relation to any place, a day (other than a Saturday or Sunday) on whichcommercial banks and foreign exchange markets are open for business in that place.

a ‘‘Change of Control’’ occurs when any person or persons, acting together, acquires control of the Issuer(other than as a result of an Exempt Newco Scheme).

‘‘Change of Control Conversion Price’’ has the meaning provided in Condition 6(b)(x).

‘‘Change of Control Notice’’ has the meaning provided in Condition 6(g).

‘‘Change of Control Period’’ means the period commencing on the date on which a Change of Controloccurs and ending 60 calendar days following such date or, if later, 60 days following the date on which a Changeof Control Notice is given as required by Condition 6(g).

‘‘Closing Date’’ means 6 June 2006.

‘‘control’’ means (a) other than where the person or persons acquiring control is the Excepted Person or aperson or persons acting together with the Excepted Person, (i) the acquisition or control of more than 50 percent. of the Voting Rights of the Issuer or (ii) the right to appoint and/or remove all or the majority of themembers of the Issuer’s Board of Directors or other governing body, whether obtained directly or indirectly, andwhether obtained by ownership of share capital, the possession of Voting Rights, contract or otherwise and‘‘controlled’’ shall be construed accordingly or (b) where the person acquiring control is the Excepted Person ora person or persons acting together with the Excepted Person, the acquisition or control of more than 75 per cent.of the Voting Rights of the Issuer.

‘‘Conversion Date’’ has the meaning provided in Condition 6(h).

‘‘Conversion Notice’’ has the meaning provided in Condition 6(h).

‘‘Conversion Period’’ has the meaning provided in Condition 6(a).

‘‘Conversion Price’’ has the meaning provided in Condition 6(a).

‘‘Conversion Right’’ has the meaning provided in Condition 6(a).

‘‘Current Market Price’’ means, in respect of an Ordinary Share at a particular date, the average of theVolume Weighted Average Price of an Ordinary Share for the five consecutive dealing days ending on the dealingday immediately preceding such date; provided that if at any time during the said five-dealing-day period theVolume Weighted Average Price shall have been based on a price ex-Dividend (or ex- any other entitlement) andduring some other part of that period the Volume Weighted Average Price shall have been based on a price cum-Dividend (or cum- any other entitlement), then:

(a) if the Ordinary Shares to be issued or transferred do not rank for the Dividend (or entitlement) inquestion, the Volume Weighted Average Price on the dates on which the Ordinary Shares shall havebeen based on a price cum-Dividend (or cum- any other entitlement) shall for the purpose of thisdefinition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value ofany such Dividend or entitlement per Ordinary Share as at the date of first public announcement ofsuch Dividend (or entitlement); or

(b) if the Ordinary Shares to be issued or transferred do rank for the Dividend (or entitlement) in question,the Volume Weighted Average Price on the dates on which the Ordinary Shares shall have been basedon a price ex-Dividend (or ex- any other entitlement) shall for the purpose of this definition be deemedto be the amount thereof increased by an amount equal to the Fair Market Value of any such Dividendor entitlement per Ordinary Share as at the date of first public announcement of such Dividend (orentitlement),

and provided further that if on each of the said five dealing days the Volume Weighted Average Price shall havebeen based on a price cum-Dividend (or cum- any other entitlement) in respect of a Dividend (or otherentitlement) which has been declared or announced but the Ordinary Shares to be issued do not rank for thatDividend (or other entitlement) the Volume Weighted Average Price on each of such dates shall for the purposesof this definition be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of any

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such Dividend or entitlement per Ordinary Share as at the date of the first public announcement of such Dividendor entitlement,

and provided further that, if the Volume Weighted Average Price of an Ordinary Share is not available onone or more of the said five dealing days, then the average of such Volume Weighted Average Prices which areavailable in that five-dealing-day period shall be used (subject to a minimum of two such prices) and if only one,or no, such Volume Weighted Average Price is available in the relevant period the Current Market Price shall bedetermined in good faith by an Independent Financial Adviser.

‘‘dealing day’’ means a day on which the Relevant Stock Exchange or relevant stock exchange or securitiesmarket is open for business, (other than a day on which the Relevant Stock Exchange or relevant stock exchangeor securities market is scheduled to or does close prior to its regular weekday closing time).

‘‘Delivery Date’’ has the meaning provided in Condition 6(h).

‘‘Dividend’’ means any dividend or any form of distribution to Shareholders (including a Spin-Off) whetherof cash, assets or other property, and whenever paid or made and however described (and for these purposes adistribution of assets includes without limitation an issue of Ordinary Shares, or other Securities credited as fullyor partly paid up by way of capitalisation of profits or reserves) provided that:

(a) where a cash Dividend is announced which is to be, or may at the election of a Shareholder orShareholders be, satisfied by the issue or delivery of Ordinary Shares or other property or assets, orwhere a capitalisation of profits or reserves is announced which is to be, or may at the election of aShareholder or Shareholders be, satisfied by the payment of the Dividend in cash, then for thepurposes of this definition the Dividend in question shall be treated as a Cash Dividend of the greaterof (i) such cash Dividend and (ii) the Fair Market Value (on the date of the first public announcementof such Dividend or capitalisation (as the case may be) or if later, the date on which the number ofOrdinary Shares (or amount of property or assets, as the case may be) which may be issued ordelivered is determined), of such Ordinary Shares or other property or assets;

(b) any issue of Ordinary Shares falling within Condition 6(b)(ii) shall be disregarded;

(c) a purchase or redemption or buy back of share capital of the Issuer by the Issuer or any Subsidiary ofthe Issuer shall not constitute a Dividend unless, in the case of purchases, redemptions or buy backs ofOrdinary Shares by or on behalf of the Issuer or any of its Subsidiaries, the weighted average price perOrdinary Share (before expenses) on any one day (a ‘‘Specified Share Day’’) in respect of suchpurchases, redemptions or buy backs (translated, if not in Norwegian kroner, into Norwegian kroner atthe spot rate ruling at the close of business on such day as determined in good faith by an IndependentFinancial Adviser (or if no such rate is available on that date, the equivalent rate on the immediatelypreceding date on which such rate is available), exceeds by more than 5 per cent. the average of theclosing prices of the Ordinary Shares on the Relevant Stock Exchange (as published by or derivedfrom the Relevant Stock Exchange) on the five dealing days immediately preceding the SpecifiedShare Day or, where an announcement (excluding, for the avoidance of doubt for these purposes, anygeneral authority for such purchases approved by a general meeting of Shareholders or any noticeconvening such a meeting of Shareholders) has been made of the intention to purchase OrdinaryShares at some future date at a specified price, on the five dealing days immediately preceding the dateof such announcement, in which case such purchase shall be deemed to constitute a cash Dividend inNorwegian kroner to the extent that the aggregate price paid (before expenses) in respect of suchOrdinary Shares purchased by the Issuer or, as the case may be, any of its Subsidiaries (translatedwhere appropriate into Norwegian kroner as provided above) exceeds the product of (i) 105 per cent.of the average closing price of the Ordinary Shares determined as aforesaid and (ii) the number ofOrdinary Shares so purchased; and

(d) if the Issuer or any of its Subsidiaries shall purchase any receipts or certificates representing OrdinaryShares, the provisions of paragraph (c) shall be applied in respect thereof in such manner and withsuch modifications (if any) as shall be determined in good faith by an Independent Financial Adviser.

‘‘equity share capital’’ means, in relation to a company, its issued share capital excluding any part thereofwhich, neither as regards dividends, nor as regards capital, carries any right to participate beyond a specifiedamount in a distribution.

‘‘Excepted Person’’ means Siem Industries Inc. and its Subsidiaries from time to time.

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‘‘Exempt Newco Scheme’’ means a Newco Scheme where immediately after completion of the relevantscheme of arrangement the ordinary shares or units (or equivalent) of Newco are (1) admitted to listing and totrading on the Oslo Stock Exchange or (2) admitted to listing and to trading on such other regulated, regularlyoperating, recognised stock exchange or securities market as the Issuer or Newco may determine.

‘‘Fair Market Value’’ means, with respect to any property on any date, the fair market value of thatproperty as determined in good faith by an Independent Financial Adviser provided, that (i) the Fair Market Valueof a cash Dividend paid or to be paid shall be the amount of such cash Dividend; (ii) the Fair Market Value of anyother cash amount shall be the amount of such cash; (iii) where Securities, Spin-Off Securities, options, warrantsor other rights are publicly traded in a market of adequate liquidity (as determined by an Independent FinancialAdviser), the fair market value (a) of such Securities or Spin-Off Securities shall equal the arithmetic mean of thedaily Volume Weighted Average Prices of such Securities or Spin-Off Securities and (b) of such options, warrantsor other rights shall equal the arithmetic mean of the daily closing prices of such options, warrants or other rights,in the case of both (a) and (b) during the period of five trading days on the relevant market commencing on suchdate (or, if later, the first such trading day such Securities or Spin-Off Securities, options, warrants or other rightsare publicly traded); and (iv) in the case of (i) converted into Norwegian kroner (if declared or paid in a currencyother than Norwegian kroner) at the rate of exchange used to determine the amount payable to Shareholders whowere paid or are to be paid or are entitled to be paid the cash Dividend in Norwegian kroner; and in any othercase, converted into Norwegian kroner (if expressed in a currency other than Norwegian kroner) at such rate ofexchange as may be determined in good faith by an Independent Financial Adviser to be the spot rate ruling at theclose of business on that date (or if no such rate is available on that date the equivalent rate on the immediatelypreceding date on which such a rate is available).

‘‘Final Maturity Date’’ means 6 June 2011.

‘‘indebtedness for or in respect of moneys borrowed or raised’’ means any present or future indebtedness(whether being principal, interest or other amounts) for or in respect of (i) money borrowed, (ii) liabilities underor in respect of any acceptance or acceptance credit or (iii) any notes, bonds, debentures, debenture stock, loanstock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisitionconsideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash.

‘‘Independent Financial Adviser’’ means an independent investment bank of international repute ap-pointed by the Issuer and approved in writing by the Trustee or, if the Issuer fails to make such appointment andsuch failure continues for a reasonable period (as determined by the Trustee) and the Trustee is indemnifiedand/or secured as to costs to its satisfaction against the costs, fees and expenses of such adviser, appointed by theTrustee following notification to the Issuer.

‘‘Interest Payment Date’’ has the meaning provided in Condition 5(a).

‘‘Interest Period’’ has the meaning provided in Condition 5(a).

‘‘Interest Rate’’ has the meaning provided in Condition 5(a).

‘‘Newco Scheme’’ means a scheme of arrangement or analogous proceeding which effects the interpositionof a limited liability company (‘‘Newco’’) between the Shareholders of the Issuer immediately prior to thescheme of arrangement or analogous proceeding (the ‘‘Existing Shareholders’’) and the Issuer; provided thatonly ordinary shares of Newco are issued to Existing Shareholders and that immediately after completion of thescheme of arrangement the only shareholders of Newco are the Existing Shareholders and that all Subsidiaries ofthe Issuer immediately prior to the scheme of arrangement (other than Newco, if Newco is then a Subsidiary ofthe Issuer) are Subsidiaries of the Issuer immediately after the scheme of arrangement.

‘‘Norwegian kroner’’ means the lawful currency of the Kingdom of Norway.

‘‘Noteholder’’ and ‘‘holder’’ mean the person in whose name a Note is registered in the Register (as definedin Condition 4(a)).

‘‘Optional Redemption Date’’ has the meaning provided in Condition 7(b).

‘‘Optional Redemption Notice’’ has the meaning provided in Condition 7(b).

‘‘Ordinary Shares’’ means fully paid common shares in the capital of the Issuer currently with a par valueof U.S.$0.01 each.

‘‘Oslo business day’’ means a day (other than a Saturday or Sunday) on which commercial banks andforeign exchange markets are open for business in Oslo.

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‘‘Oslo Stock Exchange’’ means Oslo Børs ASA.

‘‘Parity Value’’ means, in respect of any dealing day, the U.S. dollar amount calculated as follows:

PV = OS x MPWherePV = the Parity ValueOS = the number of Ordinary Shares that would fall to be delivered on the exercise of Conversion

Rights in respect of a Note in the principal amount of U.S.$100,000 assuming the ConversionDate to be such dealing day

MP = the closing price for the Ordinary Shares as published by or derived from the Relevant StockExchange on such dealing day, provided that if on any such dealing day the Ordinary Sharesshall have been quoted cum-Dividend or cum-any other entitlement the closing price on suchdealing day shall be deemed to be the amount thereof reduced by an amount equal to the FairMarket Value of any such Dividend or entitlement per Ordinary Share as at the date of firstpublic announcement of such Dividend or entitlement, translated into U.S. dollars at thePrevailing Rate on such dealing day.

a ‘‘person’’ includes any individual, company, corporation, firm, partnership, joint venture, undertaking,association, organisation, trust, state or agency of a state (in each case whether or not being a separate legalentity).

‘‘Prevailing Rate’’ means, in respect of any dealing day, the noon buying rate on that day for cable transfersof Norwegian kroner as certified for customs purposes by the Federal Reserve Bank of New York or if on suchdealing day such rate is not available, such rate prevailing on the immediately preceding day on which such rateis so available.

‘‘Principal Subsidiary’’ means at any relevant time a Subsidiary of the Issuer:

(i) whose total assets or gross revenues (or, where the Subsidiary in question prepares consolidatedaccounts, whose total consolidated assets or gross consolidated revenues, as the case may be)represent not less than (a) 5 per cent. of the total consolidated assets or (b) 10 per cent. of the grossconsolidated revenues (as the case may be) of the Issuer and its Subsidiaries, all as calculated byreference to the then latest audited accounts (or consolidated accounts as the case may be) of suchSubsidiary and the then latest audited consolidated accounts of the Issuer and its consolidatedSubsidiaries; or

(ii) to which is transferred all or substantially all of the assets and undertaking of a Subsidiary whichimmediately prior to such transfer is a Principal Subsidiary.

A certificate from a Director or duly appointed attorney of the Issuer that, in their opinion, a Subsidiary ofthe Issuer is or is not or was or was not at any particular time a Principal Subsidiary shall, in the absence ofmanifest error, be conclusive and binding on the Trustee and the Noteholders.

‘‘Record Date’’ has the meaning provided in Condition 8(c).

‘‘Register’’ has the meaning provided in Condition 4(a).

‘‘Relevant Date’’ means, in respect of any Note, whichever is the later of (i) the date on which payment inrespect of it first becomes due and (ii) if any amount of the money payable is improperly withheld or refused thedate on which payment in full of the amount outstanding is made or (if earlier) the date on which notice is dulygiven by the Issuer or to the Noteholders in accordance with Condition 16 that such payment will be made,provided that such payment is in fact made as provided in these Conditions.

‘‘Relevant Indebtedness’’ means any present or future indebtedness (whether being principal, interest orother amounts), in the form of or evidenced by notes, bonds, debentures or other similar debt instruments,whether issued for cash or in whole or in part for a consideration other than cash, and which are, or are capable ofbeing, quoted, listed or ordinarily dealt in or traded on any recognised stock exchange, over-the-counter or othersecurities market.

‘‘Relevant Stock Exchange’’ means the Oslo Stock Exchange or if at the relevant time the Ordinary Sharesare not at that time listed and admitted to trading on the Oslo Stock Exchange, the principal stock exchange orsecurities market on which the Ordinary Shares are then listed or quoted or dealt in.

‘‘Retroactive Adjustment’’ has the meaning provided in Condition 6(c).

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‘‘Securities’’ means any securities including, without limitation, Ordinary Shares, or options, warrants orother rights to subscribe for or purchase or acquire Ordinary Shares.

‘‘Shareholders’’ means the holders of Ordinary Shares.

‘‘Specified Date’’ has the meaning provided in Condition 6(b)(vii) and (viii).

‘‘Spin-Off’’ means:

(a) a distribution of Spin-Off Securities by the Issuer to Shareholders as a class; or

(b) any issue, transfer or delivery of any property or assets (including cash or shares or securities of or inor issued or allotted by any entity) by any entity (other than the Issuer) to Shareholders as a class or, inthe case of or in connection with a Newco Scheme, Existing Shareholders, as a class (but excludingthe issue and allotment of shares by Newco to Existing Shareholders), pursuant in each case to anyarrangements with the Issuer or any of its Subsidiaries.

‘‘Spin-Off Securities’’ means equity share capital of an entity other than the Issuer or options, warrants orother rights to subscribe for or purchase equity share capital of an entity other than the Issuer.

‘‘Subsidiary’’ of any person means (i) a company more than 50 per cent. of the Voting Rights of which isowned or controlled, directly or indirectly, by such person or by one or more other Subsidiaries of such person orby such person and one or more Subsidiaries thereof or (ii) any other person (other than a company) in whichsuch person, or one or more other Subsidiaries of such person or such person and one or more other Subsidiariesthereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management andaffairs thereof.

‘‘Tax Redemption Date’’ has the meaning provided in Condition 7(c).

‘‘Tax Redemption Notice’’ has the meaning provided in Condition 7(c).

‘‘Volume Weighted Average Price’’ means, in respect of an Ordinary Share, Security or, as the case maybe, a Spin-Off Security on any dealing day, the volume-weighted average price of an Ordinary Share, Security or,as the case may be, a Spin-Off Security published by or derived (in the case of an Ordinary Share) from theRelevant Stock Exchange or (in the case of a Security or Spin-Off Security) from the principal stock exchange orsecurities market on which such Securities or Spin-Off Securities are then listed or quoted or dealt in, if any or, inany such case, such other source as shall be determined to be appropriate by an Independent Financial Adviser onsuch dealing day, provided that if on any such dealing day where such price is not available or cannot otherwisebe determined as provided above, the Volume Weighted Average Price of an Ordinary Share, Security or a Spin-Off Security, as the case may be, in respect of such dealing day shall be the Volume Weighted Average Price,determined as provided above, on the immediately preceding dealing day on which the same can be sodetermined.

‘‘Voting Rights’’ means the right generally to vote at a general meeting of shareholders of the relevant entity(irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, votingpower by reason of the happening of any contingency).

‘‘VPS’’ has the meaning provided in Condition 1(a).

‘‘VPS Account’’ means an investor account in the VPS.

References to any provision of any statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under such modification orre-enactment.

References to any issue or offer or grant to Shareholders or Existing Shareholders ‘‘as a class’’ or ‘‘by wayof rights’’ shall be taken to be references to an issue or offer or grant to all or substantially all Shareholders orExisting Shareholders, as the case may be, other than Shareholders or Existing Shareholders, as the case may be,to whom, by reason of the laws of any territory or requirements of any recognised regulatory body or any otherstock exchange or securities market in any territory or in connection with fractional entitlements, it is determinednot to make such issue or offer or grant.

In making any calculation or determination of Current Market Price or Volume Weighted Average Price,such adjustments (if any) shall be made as an Independent Financial Adviser considers appropriate to reflect anyconsolidation or sub-division of the Ordinary Shares or any issue of Ordinary Shares by way of capitalisation ofprofits or reserves, or any like or similar event.

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For the purposes of Conditions 6(b), (c), (h) and (i) and Condition 11 only, (a) references to the ‘‘issue’’ ofOrdinary Shares shall include the transfer and/or delivery of Ordinary Shares, whether newly issued and allottedor previously existing or held by or on behalf of the Issuer or any of its Subsidiaries, and (b) Ordinary Shares heldby or on behalf of the Issuer or any of its respective Subsidiaries (and which, in the case of Condi-tions 6(b)(iv) and (vi), do not rank for the relevant right or other entitlement) shall not be considered as or treatedas ‘‘in issue’’.

4 Registration and Transfer of Notes

(a) Registration

The Issuer will cause the Notes to be registered in the VPS in a register (the ‘‘Register’’) to be kept by theRegistrar in accordance with relevant legislation governing the VPS. The names and addresses of the holders ofthe Notes, the particulars of the Notes held by them, all transfers, redemptions and conversions of Notes and suchother information as is required to be registered in the VPS will be entered on the Register.

(b) Transfer

Notes may, subject to the terms of the Agency Agreement and to Conditions 4(c) and 4(d), be transferred inwhole or in part in an authorised denomination by way of a transfer between individual VPS Accounts inaccordance with the procedures from time to time of the VPS therefor.

No transfer of a Note will be valid unless and until entered on the Register. A Note may be registered only inthe name of, and transferred only to, a person holding a VPS Account.

(c) Formalities Free of Charge

Such transfer will be effected without charge subject to (i) the person making such application for transferpaying or procuring the payment of any taxes, duties and other governmental charges in connection therewith and(ii) the Registrar being satisfied with the documents of title and/or identity of the person making the application.

(d) Closed Periods

Neither the Issuer nor the Registrar will be required to register the transfer of any Note (or part thereof)(i) during the period of 15 days ending on and including the day immediately prior to the Final Maturity Date orany earlier date fixed for redemption of the Notes pursuant to Condition 7(b) or 7(c); (ii) in respect of which aConversion Notice has been delivered in accordance with Condition 6(h); (iii) in respect of which a holder hasexercised its right to require redemption pursuant to Condition 7(e); or (iv) during the period of 15 days endingon (and including) any Record Date in respect of any payment of interest on the Notes.

5 Interest

(a) Interest Rate

The Notes bear interest from and including the Closing Date at the rate of 2.80 per cent. per annum (the‘‘Interest Rate’’) calculated by reference to the principal amount thereof and payable semi-annually in equalinstalments in arrear on 6 June and 6 December in each year (each an ‘‘Interest Payment Date’’), commencingwith the Interest Payment Date falling on 6 December 2006.

Where interest is required to be calculated for any period which is not an Interest Period, it will be calculatedon the basis of a 360 day year consisting of 12 months of 30 days each, and in the case of an incomplete month,the number of days elapsed.

‘‘Interest Period’’ means the payment period beginning on (and including) the Closing Date and ending on(but excluding) the first Interest Payment Date and each successive period beginning on (and including) anInterest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.

(b) Accrual of Interest

Each Note will cease to bear interest (i) where the Conversion Right shall have been exercised by aNoteholder, from the Interest Payment Date immediately preceding the relevant Conversion Date or, if none, theClosing Date (subject in any such case as provided in Condition 6(j)) or (ii) where such Note is being redeemedor repaid pursuant to Condition 7 or Condition 10, from the due date for redemption or repayment thereof unlesspayment of principal is improperly withheld or refused, in which event interest will continue to accrue at the

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Interest Rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums duein respect of such Note up to that day are received by or on behalf of the relevant holder, and (b) the day sevendays after the Trustee or the Paying and Conversion Agent has notified Noteholders of receipt of all sums due inrespect of all the Notes up to that seventh day (except to the extent that there is failure in the subsequent paymentto the relevant holders under these Conditions).

6 Conversion of Notes

(a) Conversion Period and Conversion Price

Subject as provided below, each Note shall entitle the holder (a ‘‘Conversion Right’’) to convert(‘‘Conversion’’) such Note into new and/or existing Ordinary Shares, credited as fully paid, subject to and asprovided in these Conditions.

The number of Ordinary Shares to be issued or delivered on exercise of a Conversion Right shall bedetermined by dividing the principal amount of the relevant Note by the conversion price (the ‘‘ConversionPrice’’) in effect on the relevant Conversion Date.

The initial Conversion Price is U.S.$26.3268 per Ordinary Share. On the basis of the initial ConversionPrice, each U.S.$100,000 principal amount of Notes would entitle the holder to receive (subject as provided inthese Conditions) 3,798.411 Ordinary Shares. The Conversion Price is subject to adjustment in the circumstancesdescribed in Condition 6(b).

A Noteholder may exercise the Conversion Right in respect of a Note by delivering a Conversion Notice (asdefined in Condition 6(h)) to the specified office of the Paying and Conversion Agent in accordance withCondition 6(h) whereupon the Issuer shall (subject as provided in these Conditions) procure the delivery, to or asdirected by the relevant Noteholder of Ordinary Shares credited as paid up in full as provided in this Condition 6.

Subject to, and as provided in these Conditions, the Conversion Right in respect of a Note may be exercised,at the option of the holder thereof, at any time (subject to any applicable fiscal or other laws or regulations and ashereinafter provided) from 17 July 2006 to the close of business (in the place where the specified office of thePaying and Conversion Agent is located) on the date falling seven days prior to the Final Maturity Date (bothdays inclusive) or, if the Notes shall have been called for redemption pursuant to Condition 7(b) or 7(c) prior tothe Final Maturity Date, then up to the close of business (at the place aforesaid) on the seventh day before thedate fixed for redemption thereof pursuant to Condition 7(b) or 7(c), unless there shall be default in makingpayment in respect of such Note on such date fixed for redemption, in which event the Conversion Right shallextend up to the close of business (at the place aforesaid) on the date on which the full amount of such paymentbecomes available for payment and notice of such availability has been duly given in accordance with Condition16 or, if earlier, the Final Maturity Date; provided that, in each case, if the final such date for the exercise ofConversion Rights is not a business day at the place aforesaid, then the period for exercise of the ConversionRight by Noteholders shall end on the immediately preceding business day at the place aforesaid.

Conversion Rights may not be exercised (i) following the giving of notice by the Trustee pursuant toCondition 10 or (ii) in respect of a Note which the relevant holder has exercised its right to require the Issuer toredeem pursuant to Condition 7(e).

Conversion Rights may not be exercised by a Noteholder in circumstances where the relevant ConversionDate would fall during the period commencing on the Record Date in respect of any payment of interest on theNotes and ending on the relevant Interest Payment Date (both days inclusive).

The period during which Conversion Rights may (subject as provided below) be exercised by a Noteholderis referred to as the ‘‘Conversion Period’’.

Conversion Rights may only be exercised in respect of an authorised denomination.

Fractions of Ordinary Shares will not be delivered on conversion or pursuant to Condition 6(c). However, theIssuer will make a cash payment to the relevant exercising Noteholder in respect of any such fraction equal to theproduct of the closing price of an Ordinary Share on the relevant Conversion Date as published by or derivedfrom the Relevant Stock Exchange multiplied by such fraction and converted into U.S. dollars at the PrevailingRate. Payment of any such amount shall be made by transfer to a U.S. dollar account in New York as specified inthe relevant Conversion Notice. If the Conversion Right in respect of more than one Note is exercised at any onetime such that Ordinary Shares to be delivered on conversion or pursuant to Condition 6(c) are to be registered inthe same name, the number of such Ordinary Shares to be delivered in respect thereof shall be calculated on the

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basis of the aggregate principal amount of such Notes being so converted and rounded down to the nearest wholenumber of Ordinary Shares.

The Issuer will procure that Ordinary Shares to be delivered or transferred on conversion will be delivered ortransferred to the holder of the Notes completing the relevant Conversion Notice or his nominee. Such OrdinaryShares will be deemed to be issued or delivered as of the relevant Delivery Date. Any Additional Ordinary Sharesto be issued pursuant to Condition 6(c) will be deemed to be issued as of the date the relevant RetroactiveAdjustment takes effect or as at the date of issue of Ordinary Shares if the adjustment results from the issue ofOrdinary Shares (each such date, the ‘‘Reference Date’’).

(b) Adjustment of Conversion Price

Upon the happening of any of the events described below, the Conversion Price shall be adjusted as follows:

(i) If and whenever there shall be a consolidation, reclassification or subdivision, the Conversion Priceshall be adjusted by multiplying the Conversion Price in force immediately prior to such consolida-tion, reclassification or subdivision by the following fraction:

A

B

where:A = is the aggregate number of Ordinary Shares in issue immediately before such

consolidation, reclassification or subdivision, as the case may be; andB = is the aggregate number of Ordinary Shares in issue immediately after, and as a result of,

such consolidation, reclassification or subdivision, as the case may be.

Such adjustment shall become effective on the date the consolidation, reclassification or subdivision, as thecase may be, takes effect.

(ii) If and whenever the Issuer shall issue any Ordinary Shares credited as fully paid to the Shareholdersby way of capitalisation of profits or reserves (including any share premium account or capitalredemption reserve) other than (1) where any such Ordinary Shares issued instead of the whole or partof a cash Dividend which the Shareholders would or could otherwise have received or (2) where theShareholders may elect to receive a cash Dividend in lieu of such Ordinary Shares, the ConversionPrice shall be adjusted by multiplying the Conversion Price in force immediately prior to such issueby the following fraction:

A

B

where:

A is the aggregate nominal amount of the issued Ordinary Shares immediately before such issue;and

B is the aggregate nominal amount of the issued Ordinary Shares immediately after such issue.

Such adjustment shall become effective on the date of issue of such Ordinary Shares.

(iii) If and whenever the Issuer shall pay or make any Dividend to Shareholders, the Conversion Price shallbe adjusted by multiplying the Conversion Price in force immediately prior to the relevant Dividendby the following fraction:

A–B

A

where:

A is the Current Market Price of one Ordinary Share on the dealing day immediately preceding thedate of the first public announcement of the relevant Dividend or, in the case of a purchase ofOrdinary Shares or any receipts or certificates representing shares by or on behalf of the Issueror any Subsidiary of the Issuer, on which such Ordinary Shares are purchased or, in the case ofa Spin-Off, is the mean of the Volume Weighted Average Prices of an Ordinary Share for the

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five consecutive dealing days ending on the dealing day immediately preceding the first date onwhich the Ordinary Shares are traded ex-the relevant Spin-Off; and

B is the portion of the Fair Market Value, with such portion being determined by dividing the FairMarket Value of the aggregate Dividend by the number of Ordinary Shares entitled to receivethe relevant Dividend (or, in the case of a purchase of Ordinary Shares or any receipts orcertificates representing shares by or on behalf of the Issuer or any Subsidiary of the Issuer, bythe number of Ordinary Shares in issue immediately prior to such purchase), of the Dividendattributable to one Ordinary Share.

Such adjustment shall become effective on the date on which the relevant Dividend is paid or made or, in thecase of a purchase of Ordinary Shares or any receipts or certificates representing Ordinary Shares, on the datesuch purchase is made or, in any such case if later, the first date upon which the Fair Market Value of the relevantDividend is capable of being determined as provided herein.

For the purposes of the above, the Fair Market Value of a Cash Dividend shall (subject as provided inparagraph (a) of the definition of ‘‘Dividend’’ and in the definition of ‘‘Fair Market Value’’) be determined as atthe date of the first public announcement of the relevant Dividend, and in the case of a Non-Cash Dividend, theFair Market Value of the relevant Dividend shall be the Fair Market Value of the relevant Spin-Off Securities or,as the case may be, the relevant property or assets.

‘‘Non-Cash Dividend’’ means any Dividend which is not a Cash Dividend, and shall include a Spin-Off.

‘‘Cash Dividend’’ means (i) any Dividend which is to be paid or made in cash (in whatever currency), butother than falling within paragraph (b) of the definition of ‘‘Spin-Off’’ and (ii) any Dividend determined to be aCash Dividend pursuant to paragraph (a) of the definition of ‘‘Dividend’’, and for the avoidance of doubt, aDividend falling within paragraph (c) or (d) of the definition of ‘‘Dividend’’ shall be treated as being a Non-CashDividend.

(iv) If and whenever the Issuer shall issue Ordinary Shares to Shareholders as a class by way of rights, orissue or grant to Shareholders as a class by way of rights, options, warrants or other rights to subscribefor or purchase any Ordinary Shares, in each case at a price per Ordinary Share which is less than90 per cent. of the Current Market Price per Ordinary Share on the dealing day immediately precedingthe date of the first public announcement of the terms of the issue or grant of such Ordinary Shares,options, warrants or other rights, the Conversion Price shall be adjusted by multiplying the ConversionPrice in force immediately prior to such issue or grant by the following fraction:

A+B

A+C

where:

A is the number of Ordinary Shares in issue immediately before such announcement;

B is the number of Ordinary Shares which the aggregate amount (if any) payable for the OrdinaryShares issued by way of rights, or for the options or warrants or other rights issued by way ofrights and for the total number of Ordinary Shares deliverable on the exercise thereof, wouldpurchase at such Current Market Price per Ordinary Share; and

C is the number of Ordinary Shares issued or, as the case may be, the maximum number ofOrdinary Shares which may be issued upon exercise of such options, warrants or rightscalculated as at the date of issue of such options, warrants or rights.

Such adjustment shall become effective on the first date on which the Ordinary Shares are traded ex-rights,ex-options or ex-warrants on the Relevant Stock Exchange.

(v) If and whenever the Issuer shall issue any Securities (other than Ordinary Shares or options, warrantsor other rights to subscribe for or purchase any Ordinary Shares) to Shareholders as a class by way ofrights or grant to Shareholders as a class by way of rights any options, warrants or other rights tosubscribe for or purchase any Securities (other than Ordinary Shares or options, warrants or otherrights to subscribe for or purchase Ordinary Shares), the Conversion Price shall be adjusted by

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multiplying the Conversion Price in force immediately prior to such issue or grant by the followingfraction:

A–B

A

where:

A is the Current Market Price of one Ordinary Share on the dealing day immediately preceding thefirst date on which the terms of such issue or grant are publicly announced; and

B is the Fair Market Value on the date of such announcement of the portion of the rightsattributable to one Ordinary Share.

Such adjustment shall become effective on the first date on which the Ordinary Shares are traded ex-rights,ex-options or ex-warrants on the Relevant Stock Exchange.

(vi) If and whenever the Issuer shall issue (otherwise than as mentioned in sub-paragraph (b)(iv) above)wholly for cash or for no consideration any Ordinary Shares (other than Ordinary Shares issued onconversion of the Notes or on the exercise of any rights of conversion into, or exchange or subscriptionfor or purchase of, Ordinary Shares) or issue or grant (otherwise than as mentioned in sub-paragraph (b)(iv) above) wholly for cash or for no consideration any options, warrants or other rightsto subscribe for or purchase any Ordinary Shares (other than the Notes, which term shall for thispurpose include any further notes issued pursuant to Condition 17 and forming a single series with theNotes), in each case at a price per Ordinary Share which is less than 90 per cent. of the Current MarketPrice per Ordinary Share on the dealing day immediately preceding the date of the first publicannouncement of the terms of such issue or grant, the Conversion Price shall be adjusted bymultiplying the Conversion Price in force immediately prior to such issue or grant by the followingfraction:

A+B

A+C

where:

A is the number of Ordinary Shares in issue immediately before the issue of such Ordinary Sharesor the grant of such options, warrants or rights;

B is the number of Ordinary Shares which the aggregate consideration (if any) receivable for theissue of such Ordinary Shares or, as the case may be, for the Ordinary Shares to be issued orotherwise made available upon the exercise of any such options, warrants or rights, wouldpurchase at such Current Market Price per Ordinary Share; and

C is the number of Ordinary Shares to be issued pursuant to such issue of such Ordinary Sharesor, as the case may be, the maximum number of Ordinary Shares which may be issued uponexercise of such options, warrants or rights calculated as at the date of issue of such options,warrants or rights.

Such adjustment shall become effective on the date of issue of such Ordinary Shares or, as the case may be,the grant of such options, warrants or rights.

(vii) If and whenever the Issuer or any Subsidiary of the Issuer or (at the direction or request of or pursuantto any arrangements with the Issuer or any Subsidiary of the Issuer) any other company, person orentity (otherwise than as mentioned in sub-paragraphs (b)(iv), (b)(v) or (b)(vi) above) shall issuewholly for cash or for no consideration any Securities (other than the Notes, which term shall for thispurpose exclude any further notes issued pursuant to Condition 17 and forming a single series with theNotes), which by their terms of issue carry (directly or indirectly) rights of conversion into, orexchange or subscription for, Ordinary Shares (or shall grant any such rights in respect of existingSecurities so issued) or Securities which by their terms might be redesignated as Ordinary Shares, andthe consideration per Ordinary Share receivable upon conversion, exchange, subscription or redesigna-tion is less than 90 per cent. of the Current Market Price per Ordinary Share on the dealing dayimmediately preceding the date of the first public announcement of the terms of issue of such

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Securities (or the terms of such grant), the Conversion Price shall be adjusted by multiplying theConversion Price in force immediately prior to such issue (or grant) by the following fraction:

A+B

A+C

where:

A is the number of Ordinary Shares in issue immediately before such issue or grant (but where therelevant Securities carry rights of conversion into or rights of exchange or subscription forOrdinary Shares which have been issued by the Issuer for the purposes of or in connection withsuch issue, less the number of such Ordinary Shares so issued);

B is the number of Ordinary Shares which the aggregate consideration (if any) receivable for theOrdinary Shares to be issued or otherwise made available upon conversion or exchange or uponexercise of the right of subscription attached to such Securities or, as the case may be, for theOrdinary Shares to be issued or to arise from any such redesignation would purchase at suchCurrent Market Price per Ordinary Share; and

C is the maximum number of Ordinary Shares to be issued or otherwise made available uponconversion or exchange of such Securities or upon the exercise of such right of subscriptionattached thereto at the initial conversion, exchange or subscription price or rate or, as the casemay be, the maximum number of Ordinary Shares which may be issued or arise from any suchredesignation.

Provided that if at the time of issue of the relevant Securities or date of grant of such rights (as used in thissub-paragraph (b)(vii) the ‘‘Specified Date’’) such number of Ordinary Shares is to be determined by reference tothe application of a formula or other variable feature or the occurrence of any event at some subsequent time(which may be when such Securities are converted or exchanged or rights of subscription are exercised or, as thecase may be, such Securities are redesignated or at such other time as may be provided) then for the purposes ofthis sub-paragraph (b)(vii), ‘‘C’’ shall be determined by the application of such formula or variable feature or as ifthe relevant event occurs or had occurred as at the Specified Date and as if such conversion, exchange,subscription, purchase or acquisition or, as the case may be, redesignation had taken place on the Specified Date.

Such adjustment shall become effective on the date of issue of such Securities or, as the case may be, thegrant of such rights.

(viii) If and whenever there shall be any modification of the rights of conversion, exchange or subscriptionattaching to any such Securities (other than the Notes, which term shall for this purpose include anyfurther notes issued pursuant to Condition 17 and forming a single series with the Notes) as arementioned in sub-paragraph (b)(vii) above (other than in accordance with the terms (including termsas to adjustment) applicable to such Securities upon issue) so that following such modification theconsideration per Ordinary Share receivable has been reduced and is less than 90 per cent. of theCurrent Market Price per Ordinary Share on the dealing day immediately preceding the date of thefirst public announcement of the proposals for such modification, the Conversion Price shall beadjusted by multiplying the Conversion Price in force immediately prior to such modification by thefollowing fraction:

A+B

A+C

where:

A is the number of Ordinary Shares in issue immediately before such modification (but where therelevant Securities carry rights of conversion into or rights of exchange or subscription forOrdinary Shares which have been issued, purchased or acquired by the Issuer or any Subsidiaryof the Issuer (or at the direction or request or pursuant to any arrangements with the Issuer orany Subsidiary of the Issuer) for the purposes of or in connection with such issue, less thenumber of such Ordinary Shares so issued, purchased or acquired);

B is the number of Ordinary Shares which the aggregate consideration (if any) receivable for theOrdinary Shares to be issued or otherwise made available upon conversion or exchange or uponexercise of the right of subscription attached to the Securities so modified would purchase at

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such Current Market Price per Ordinary Share or, if lower, the existing conversion, exchange orsubscription price of such Securities; and

C is the maximum number of Ordinary Shares which may be issued or otherwise made availableupon conversion or exchange of such Securities or upon the exercise of such rights ofsubscription attached thereto at the modified conversion, exchange or subscription price or ratebut giving credit in such manner as an Independent Financial Adviser shall consider appropriatefor any previous adjustment under this sub-paragraph (b)(viii) or sub-paragraph (b)(vii) above.

Provided that if at the time of such modification (as used in this sub-paragraph (b)(viii) the ‘‘SpecifiedDate’’) such number of Ordinary Shares is to be determined by reference to the application of a formula or othervariable feature or the occurrence of any event at some subsequent time (which may be when such Securities areconverted or exchanged or rights of subscription are exercised or at such other time as may be provided) then forthe purposes of this sub-paragraph (b)(viii), ‘‘C’’ shall be determined by the application of such formula orvariable feature or as if the relevant event occurs or had occurred as at the Specified Date and as if suchconversion, exchange or subscription had taken place on the Specified Date.

Such adjustment shall become effective on the date of modification of the rights of conversion, exchange orsubscription attaching to such Securities.

(ix) If and whenever the Issuer or any Subsidiary of the Issuer or (at the direction or request of or pursuantto any arrangements with the Issuer or any Subsidiary of the Issuer) any other company, person orentity shall offer any Securities in connection with which offer Shareholders as a class are entitled toparticipate in arrangements whereby such Securities may be acquired by them (except where theConversion Price falls to be adjusted under sub-paragraphs (b)(ii), (iii), (iv), (vi) or (vii) above or(x) below (or would fall to be so adjusted if the relevant issue or grant was at less than 90 per cent. ofthe Current Market Price per Ordinary Share on the relevant dealing day) or under sub-paragraph(b)(v) above) the Conversion Price shall be adjusted by multiplying the Conversion Price in forceimmediately before the making of such offer by the following fraction:

A–B

A

where:

A is the Current Market Price of one Ordinary Share on the dealing day immediately preceding thedate on which the terms of such offer are first publicly announced; and

B is the Fair Market Value on the date of such announcement of the portion of the relevant offerattributable to one Ordinary Share.

Such adjustment shall become effective on the first date on which the Ordinary Shares are traded ex-rightson the Relevant Stock Exchange.

(x) If a Change of Control shall occur, then upon any exercise of Conversion Rights where the ConversionDate falls during the Change of Control Period, the Conversion Price (the ‘‘Change of ControlConversion Price’’) shall be determined as set out below, but in each case adjusted, if appropriate,under this Condition 6(b).

COCCP = OCP/(1+ (CP x c/t))

where:

COCCP = means the Change of Control Conversion Price

OCP = means the Conversion Price in effect immediately prior to the Change of Control

CP = means 42 per cent. (expressed as fraction)

c = means the number of days from and including the date the Change of Control occursto but excluding the Final Maturity Date

t = means the number of days from and including the Closing Date to but excluding theFinal Maturity Date

(xi) If the Issuer determines that an adjustment should be made to the Conversion Price as a result of oneor more circumstances not referred to above in this Condition 6(b) (even if the relevant circumstanceis specifically excluded from the operation of sub-paragraphs (b)(i) to (x) above), the Issuer shall, at its

27

own expense and acting reasonably, request an Independent Financial Adviser to determine as soon aspracticable what adjustment (if any) to the Conversion Price is fair and reasonable to take accountthereof and the date on which such adjustment should take effect and upon such determination suchadjustment (if any) shall be made and shall take effect in accordance with such determination,provided that an adjustment shall only be made pursuant to this sub-paragraph (b)(xi) if suchIndependent Financial Adviser is so requested to make such a determination not more than 21 daysafter the date on which the relevant circumstance arises and if the adjustment would result in areduction to the Conversion Price.

Notwithstanding the foregoing provisions, where the events or circumstances giving rise to any adjustmentpursuant to this Condition 6(b) have already resulted or will result in an adjustment to the Conversion Price orwhere the events or circumstances giving rise to any adjustment arise by virtue of any other events orcircumstances which have already given or will give rise to an adjustment to the Conversion Price or where morethan one event which gives rise to an adjustment to the Conversion Price occurs within such a short period of timethat, in the opinion of the Issuer, a modification to the operation of the adjustment provisions is required to givethe intended result, such modification shall be made to the operation of the adjustment provisions as may beadvised by an Independent Financial Adviser to be in its opinion appropriate to give the intended result andprovided further that, for the avoidance of doubt, the issue of Ordinary Shares pursuant to the exercise ofWarrants or Conversion Rights shall not result in an adjustment to the Conversion Price.

For the purpose of any calculation of the consideration receivable or price pursuant to sub-paragraphs(b)(iv), (vi), (vii) and (viii), the following provisions shall apply:

(a) the aggregate consideration receivable or price for Ordinary Shares issued for cash shall be the amountof such cash;

(b) (x) the aggregate consideration receivable or price for Ordinary Shares to be issued or otherwise madeavailable upon the conversion or exchange of any Securities shall be deemed to be the consideration orprice received or receivable for any such Securities and (y) the aggregate consideration receivable orprice for Ordinary Shares to be issued or otherwise made available upon the exercise of rights ofsubscription attached to any Securities or upon the exercise of any options, warrants or rights shall bedeemed to be that part (which may be the whole) of the consideration or price received or receivablefor such Securities or, as the case may be, for such options, warrants or rights which are attributed bythe Issuer to such rights of subscription or, as the case may be, such options, warrants or rights or, ifno part of such consideration or price is so attributed, the Fair Market Value of such rights ofsubscription or, as the case may be, such options, warrants or rights as at the date of the first publicannouncement of the terms of issue of such Securities or, as the case may be, such options, warrantsor rights, plus in the case of each of (x) and (y) above, the additional minimum considerationreceivable or price (if any) upon the conversion or exchange of such Securities, or upon the exercise ofsuch rights or subscription attached thereto or, as the case may be, upon exercise of such options,warrants or rights and (z) the consideration receivable or price per Ordinary Share upon the conversionor exchange of, or upon the exercise of such rights of subscription attached to, such Securities or, asthe case may be, upon the exercise of such options, warrants or rights shall be the aggregateconsideration or price referred to in (x) or (y) above (as the case may be) divided by the number ofOrdinary Shares to be issued upon such conversion or exchange or exercise at the initial conversion,exchange or subscription price or rate;

(c) if the consideration or price determined pursuant to (a) or (b) above (or any component thereof) shallbe expressed in a currency other than Norwegian kroner it shall be converted into Norwegian kroner atsuch rate of exchange as may be determined in good faith by an Independent Financial Adviser to bethe spot rate ruling at the close of business on the date of the first public announcement of the terms ofissue of such Securities (or if no such rate is available on that date, the equivalent rate on theimmediately preceding date on which such rate is available); and

(d) in determining consideration or price pursuant to the above, no deduction shall be made for anycommissions or fees (howsoever described) or any expenses paid or incurred for any underwriting,placing or management of the issue of the relevant Ordinary Shares or Securities or otherwise inconnection therewith.

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(c) Retroactive Adjustments

If the Delivery Date in relation to the conversion of any Note shall be after any consolidation, reclassificationor sub-division as is mentioned in Condition 6(b)(i), or after the record date or other due date for theestablishment of entitlement for any such issue, distribution, grant or offer (as the case may be) as is mentioned inCondition 6(b)(ii), (iii) comprising a cash Dividend, (iv), (v) or (ix), or after any such issue or grant as ismentioned in Conditions 6(b)(vi) and (vii), in any case in circumstances where the relevant Conversion Date fallsbefore the relevant adjustment becomes effective under Condition 6(b) (such adjustment, a ‘‘RetroactiveAdjustment’’), then the Issuer shall (conditional upon the relevant adjustment becoming effective) procure thatthere shall be issued or delivered to the converting Noteholder, in accordance with the instructions contained inthe Conversion Notice, such additional number of Ordinary Shares (if any) (the ‘‘Additional Ordinary Shares’’)as, together with the Ordinary Shares issued or to be issued or delivered on conversion of the relevant Note(together with any fraction of an Ordinary Share not so issued), is equal to the number of Ordinary Shares whichwould have been required to be issued or delivered on conversion of such Note if the relevant adjustment (moreparticularly referred to in the said provisions of Condition 6(b)) to the Conversion Price had in fact been madeand become effective immediately prior to the relevant Conversion Date.

(d) Decision of an Independent Financial Adviser

If any doubt shall arise as to the appropriate adjustment to the Conversion Price, and following consultationbetween the Issuer and an Independent Financial Adviser, a written opinion of such Independent FinancialAdviser in respect of such adjustment to the Conversion Price shall be conclusive and binding on all concerned,save in the case of manifest or proven error.

(e) Employees’ Share Schemes

No adjustment will be made to the Conversion Price where Ordinary Shares or other Securities (includingrights, warrants and options) are issued, offered, exercised, allotted, appropriated, modified or granted to, or forthe benefit of, employees or former employees (including Directors holding or formerly holding executive officeor the personal service company of any such person) or their spouses or relatives, in each case, of the Issuer orany of its Subsidiaries or any associated company or to trustees to be held for the benefit of any such person, inany such case pursuant to any employees’ share or option scheme.

(f) Rounding Down and Notice of Adjustment to the Conversion Price

On any adjustment, the resultant Conversion Price, if not an integral multiple of U.S.$0.01, shall be roundeddown to the nearest whole multiple of U.S.$0.01. No adjustment shall be made to the Conversion Price wheresuch adjustment (rounded down if applicable) would be less than one per cent. of the Conversion Price then ineffect. Any adjustment not required to be made, and/or any amount by which the Conversion Price has beenrounded down, shall be carried forward and taken into account in any subsequent adjustment, and suchsubsequent adjustment shall be made on the basis that the adjustment not required to be made had been made atthe relevant time.

Notice of any adjustments to the Conversion Price shall be given by the Issuer to Noteholders in accordancewith Condition 16 and the Trustee promptly after the determination thereof.

The Conversion Price shall not in any event be reduced to below the nominal value of the Ordinary Sharesand the Issuer undertakes that it shall not take any action, and shall procure that no action is taken, that wouldotherwise result in an adjustment to the Conversion Price to below such nominal value.

(g) Change of Control

Within 14 calendar days following the occurrence of a Change of Control, the Issuer shall give notice thereofto the Trustee and to the Noteholders in accordance with Condition 16 (a ‘‘Change of Control Notice’’). Suchnotice shall contain a statement informing Noteholders of their entitlement to exercise their Conversion Rights asprovided in these Conditions, or to exercise their rights to require redemption of their Notes pursuant toCondition 7(e).

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The Change of Control Notice shall also specify:

(i) all information material to Noteholders concerning the Change of Control;

(ii) the Conversion Price immediately prior to the occurrence of the Change of Control and the Change ofControl Conversion Price applicable pursuant to Condition 6(b)(x) during the Change of ControlPeriod;

(iii) the closing price of the Ordinary Shares as derived from the Relevant Stock Exchange as at the latestpracticable date prior to the publication of such notice;

(iv) the last day of the Change of Control Period;

(v) the Change of Control Put Date (as defined in Condition 7(e); and

(vi) such other information relating to the Change of Control as the Trustee may require.

The Trustee shall not be required to take any steps to ascertain whether a Change of Control or any eventwhich could lead to a Change of Control has occurred or may occur.

(h) Procedure for exercise of Conversion Rights

The Conversion Right may be exercised by a Noteholder during the Conversion Period by delivering a dulycompleted and signed notice of conversion (a ‘‘Conversion Notice’’) in the form (for the time being current)obtainable from the Paying and Conversion Agent to the specified office of the Paying and Conversion Agent,during its usual business hours. Conversion Rights shall be exercised subject in each case to any applicable fiscalor other laws or regulations applicable in the jurisdiction in which the specified office of the Paying andConversion Agent is located. If such delivery is made after the end of normal business hours or on a day which isnot a business day in the place of the specified office of the Paying and Conversion Agent, such delivery shall bedeemed for all purposes of these Conditions to have been made on the next following such business day.

A Conversion Notice, once delivered, shall be irrevocable.

The conversion date in respect of a Note (the ‘‘Conversion Date’’) shall be the Oslo business dayimmediately following the date of the delivery of the Notes and the Conversion Notice and, if applicable, themaking of any payment to be made as provided below.

A Noteholder exercising a Conversion Right must pay directly to the relevant authorities any taxes andcapital, stamp, issue and registration duties arising on conversion (other than any taxes or capital duties or stampduties payable in Norway, the Cayman Islands, the United Kingdom, Luxembourg or Belgium in respect of theallotment and issue of any Ordinary Shares on such conversion (including any Additional Ordinary Shares),which shall be paid by the Issuer) and such Noteholder must pay all, if any, taxes arising by reference to anydisposal or deemed disposal of a Note or interest therein in connection with such conversion. For the avoidance ofdoubt, the Trustee shall not be responsible for determining whether such taxes or capital, stamp, issue orregistration duties are payable or the amount of such taxes or capital, stamp, issue or registration duties and itshall not be responsible or liable for any failure by the Issuer to pay such taxes or capital, stamp, issue orregistration duties.

Ordinary Shares to be issued or delivered on exercise of Conversion Rights will be issued in electronic formthrough the facilities of the VPS to such VPS Account as specified by the Noteholder in the relevant ConversionNotice.

The Issuer will take all necessary steps to procure that the Ordinary Shares to be issued or delivered onexercise of Conversion Rights are issued and/or delivered by no later than the Delivery Date (as defined below)and will promptly make all necessary filings with, and applications to, the Relevant Stock Exchange for theadmission to listing and to trading of such Ordinary Shares.

As used herein, the Delivery Date means the sixth day of the calendar month immediately following thecalendar month in which the relevant Conversion Date falls or, if such day is not an Oslo business day, the firstOslo business day thereafter.

(i) Ordinary Shares

(i) Ordinary Shares issued or delivered upon conversion of the Notes will be fully paid and will in allrespects rank pari passu with the fully paid Ordinary Shares in issue on the relevant Delivery Date or,in the case of Additional Ordinary Shares, on the relevant Reference Date, except in any such case for

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any right excluded by mandatory provisions of applicable law except that such Ordinary Shares or, asthe case may be, Additional Ordinary Shares will not rank for any rights, distributions or payments therecord date or other due date for the establishment of entitlement for which falls prior to the relevantConversion Date or, as the case may be, the relevant Reference Date.

(ii) Save as provided in Condition 6(j), no payment or adjustment shall be made on conversion for anyinterest which otherwise would have accrued on the relevant Notes since the last Interest PaymentDate preceding the Conversion Date relating to such Notes (or, if such Conversion Date falls beforethe first Interest Payment Date, since the Closing Date).

(j) Interest on Conversion

If any notice requiring the redemption of any Notes is given pursuant to Condition 7(b) or 7(c) on or afterthe fifteenth Oslo business day prior to a record date which has occurred since the last Interest Payment Date (orin the case of the first Interest Period, since the Closing Date) in respect of any Dividend or distribution payablein respect of the Ordinary Shares where such notice specifies a date for redemption falling on or prior to the datewhich is 14 days after the Interest Payment Date next following such record date, interest shall accrue at theapplicable Interest Rate on Notes in respect of which Conversion Rights shall have been exercised and in respectof which the Conversion Date falls after such record date and on or prior to the Interest Payment Date nextfollowing such record date in respect of such Dividend or distribution, in each case from and including thepreceding Interest Payment Date (or, if such Conversion Date falls before the first Interest Payment Date, fromthe Closing Date) to but excluding such Conversion Date. The Issuer shall pay any such interest by not later than14 days after the relevant Conversion Date by transfer to, a U.S. dollar account with a bank in New York inaccordance with instructions given by the relevant Noteholder in the relevant Conversion Notice.

(k) Purchase or Redemption of Ordinary Shares

The Issuer may exercise such rights as it may from time to time enjoy to purchase or redeem or buy back itsown shares (including Ordinary Shares) or any depositary or other receipts representing the same without theconsent of the Noteholders.

(l) No duty to Monitor

The Trustee shall not be under any duty to monitor whether any event or circumstance has happened orexists which may require an adjustment to be made to the Conversion Price and will not be responsible to theNoteholders for any loss arising from any failure by it to do so.

(m) Consolidation, Amalgamation or Merger

Without prejudice to Condition 6(b)(x), in the case of any consolidation, amalgamation or merger of theIssuer with any other corporation (other than a consolidation, amalgamation or merger in which the Issuer is thecontinuing corporation), or in the case of any sale or transfer of all, or substantially all, of the assets of the Issuer,the Issuer will forthwith notify the Trustee and the Noteholders of such event and take such steps as shall berequired by the Trustee (including the execution of a deed supplemental to or amending the Trust Deed) to ensurethat each Note then outstanding will (during the period in which Conversion Rights may be exercised) beconverted into the class and amount of shares and other securities and property receivable upon suchconsolidation, amalgamation, merger, sale or transfer by a holder of the number of Ordinary Shares which wouldhave become liable to be issued upon exercise of Conversion Rights immediately prior to such consolidation,amalgamation, merger, sale or transfer. Such supplemental deed supplement or amendment will provide foradjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in thisCondition 6. The above provisions of this Condition 6(m) will apply, mutatis mutandis to any subsequentconsolidations, amalgamations, mergers, sales or transfers.

7 Redemption, Purchase and Cancellation

(a) Final Redemption

Unless previously purchased and cancelled, redeemed or converted as herein provided, the Notes will beredeemed at their principal amount on the Final Maturity Date. The Notes may only be redeemed at the option ofthe Issuer prior to the Final Maturity Date in accordance with Condition 7(b) or 7(c).

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(b) Redemption at the Option of the Issuer

On giving not less than 30 nor more than 60 days’ notice (an ‘‘Optional Redemption Notice’’) to theTrustee and to the Noteholders (which notice shall be irrevocable) in accordance with Condition 16, the Issuermay redeem all, but not some only, of the Notes on the date (the ‘‘Optional Redemption Date’’) specified in theOptional Redemption Notice at their principal amount, together with accrued but unpaid interest to such date:

(i) at any time on or after 20 June 2009, if the Parity Value on at least 20 dealing days in any period of30 consecutive dealing days ending not earlier than 15 days prior to the giving of the relevant OptionalRedemption Notice, exceeds U.S.$150,000; or

(ii) if, at any time prior to the date on which the relevant Optional Redemption Notice is given,Conversion Rights shall have been exercised and/or purchases (and corresponding cancellations)and/or redemptions effected in respect of 90 per cent. or more in principal amount of the Notesoriginally issued.

(c) Redemption for Taxation Reasons

At any time the Issuer may, having given not less than 30 nor more than 60 days’ notice (a ‘‘TaxRedemption Notice’’) to the Noteholders (which notice shall be irrevocable) redeem (subject to the secondfollowing paragraph) all, and not some only, of the Notes at their principal amount (‘‘Tax Redemption Date’’),together with accrued but unpaid interest to such date, if (i) the Issuer satisfies the Trustee immediately prior tothe giving of such notice that the Issuer has or will become obliged to pay additional amounts in respect ofprincipal or interest pursuant to Condition 9 as a result of any change in, or amendment to, the laws or regulationsof the Cayman Islands or any political subdivision or any authority thereof or therein having power to tax, or anychange in the general application or official interpretation of such laws or regulations, which change oramendment becomes effective on or after the Closing Date, and (ii) such obligation cannot be avoided by theIssuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlierthan 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts werea payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to thisparagraph, the Issuer shall deliver to the Trustee (a) a certificate signed by a Director or duly appointed attorneyof the Issuer stating that the obligation referred to in (i) above cannot be avoided by the Issuer (taking reasonablemeasures available to it) and (b) an opinion of independent legal or tax advisers of recognised internationalstanding to the effect that such change or amendment has occurred and that the Issuer is or will be obliged to paysuch additional amounts as a result thereof (irrespective of whether such amendment or change is then effective)and the Trustee shall accept such certificate and opinion as sufficient evidence of the matters set out in (i) and (ii)above in which event it shall be conclusive and binding on the Noteholders.

Upon the expiry of a Tax Redemption Notice, the Issuer shall (subject to the next following paragraph)redeem the Notes at their principal amount, together with accrued interest to such date.

If the Issuer gives a notice of redemption pursuant to this Condition 7(c), each Noteholder will have the rightto elect that his Note(s) shall not be redeemed and that the provisions of Condition 9 shall not apply in respect ofany payment of interest to be made on such Note(s) which falls due after the relevant Tax Redemption Datewhereupon no additional amounts shall be payable in respect thereof pursuant to Condition 9 and payment of allamounts shall be made subject to the deduction or withholding of the taxation required to be withheld ordeducted by the Cayman Islands or any political subdivision or any authority thereof or therein having power totax. To exercise such right, the holder of the relevant Note must complete, sign and deposit at the specified officeof any Paying and Conversion Agent a duly completed and signed notice of election, in the form for the timebeing current, obtainable from the specified office of the Paying and Conversion Agent on or before the dayfalling 10 days prior to the Tax Redemption Date.

(d) Optional and Tax Redemption Notices

Any Optional Redemption or Tax Redemption Notice shall be irrevocable. Any such notice shall specify(i) the Optional Redemption Date or, as the case may be, the Tax Redemption Date, (ii) the Conversion Price, theaggregate principal amount of the Notes outstanding and the closing price of the Ordinary Shares as derived fromthe Relevant Stock Exchange, in each case as at the latest practicable date prior to the publication of the OptionalRedemption Notice or, as the case may be, the Tax Redemption Notice and (iii) the last day on which ConversionRights may be exercised by Noteholders.

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(e) Redemption at the option of Noteholders

Following the occurrence of a Change of Control, the holder of each Note will have the right to require theIssuer to redeem that Note on the Change of Control Put Date at its principal amount, together with accruedinterest to such date. To exercise such right, the holder of the relevant Note must, at any time in the Change ofControl Period, deliver a duly completed and signed notice of exercise, in the form for the time being current,obtainable from the specified office of the Paying and Conversion Agent (a ‘‘Change of Control Put ExerciseNotice’’) at the specified office of the Paying and Conversion Agent. The ‘‘Change of Control Put Date’’ shallbe the fourteenth calendar day after the expiry of the Change of Control Period.

Payment in respect of any such Note shall be made by transfer to a bank in New York specified by therelevant Noteholder in the applicable Change of Control Put Exercise Notice.

A Change of Control Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem allNotes the subject of Change of Control Put Exercise Notices delivered as aforesaid on the Change of Control PutDate.

(f) Purchase

Subject to the requirements (if any) of any stock exchange on which the Notes may be admitted to listingand trading at the relevant time and subject to compliance with applicable laws and regulations, the Issuer or anySubsidiary of the Issuer may at any time purchase Notes in the open market or otherwise at any price. Anypurchase by tender shall be made available to all Noteholders alike. The Notes so purchased, while held by or onbehalf of the Issuer or such Subsidiary, shall not entitle the holder to vote at any meetings of the Noteholders andshall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders orfor the purposes of Conditions 13(a) and 14.

(g) Cancellation

All Notes which are redeemed or in respect of which Conversion Rights are exercised will be cancelled andmay not be reissued or resold. Subject to the requirements (if any) of any stock exchange on which the Notes maybe admitted to listing and trading at the relevant time and subject to compliance with all applicable laws andregulations, Notes purchased by the Issuer or any of its Subsidiaries may be re-sold by the Issuer at the Issuer’sdiscretion.

(h) Multiple Notices

If more than one notice of redemption is given pursuant to this Condition 7, the first of such notices to begiven shall prevail.

8 Payments

(a) Principal

Payment of principal in respect of the Notes and accrued interest payable on a redemption of the Notes otherthan on an Interest Payment Date will be made to the persons shown in the Register at the close of business on theRecord Date.

(b) Interest and other Amounts

(i) Payments of interest due on an Interest Payment Date will be made to the persons shown in theRegister at close of business on the Record Date.

(ii) Payments of all amounts other than as provided in Condition 8(a) and (b)(i) will be made as providedin these Conditions.

(c) Record Date

‘‘Record Date’’ means the seventh business day, in the place of the specified office of the Registrar, beforethe due date for the relevant payment.

(d) Payments

Each payment in respect of the Notes pursuant to Conditions 8(a) and (b)(i) will be made by U.S. dollarcheque mailed to the holder of the relevant Note at his address appearing in the Register. However, upon

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application by the holder to the specified office of the Registrar or the Paying and Conversion Agent not less than15 days before the due date for any payment in respect of a Note, such payment may be made by transfer to aU.S. dollar account maintained by the payee with a bank in New York.

Where payment is to be made by cheque, the cheque will be mailed, on the business day preceding the duedate for payment (at the risk and, if mailed at the request of the holder otherwise than by ordinary mail, expenseof the holder).

(e) Payments subject to fiscal laws

All payments in respect of the Notes are subject in all cases to any applicable fiscal or other laws andregulations. No commissions or expenses shall be charged to the Noteholders in respect of such payments.

(f) Delay in payment

Noteholders will not be entitled to any interest or other payment for any delay after the due date in receivingthe amount due (i) as a result of the due date not being a business day, or (ii) if a cheque mailed in accordancewith this Condition arrives after the date for payment.

(g) Business Days

In this Condition, ‘‘business day’’ means a day (other than a Saturday or Sunday) on which banks andforeign exchange markets are open for business, in New York City and in the place of the specified office of theRegistrar.

(h) Paying and Conversion Agent, Registrar, etc.

The initial Paying and Conversion Agent and Registrar and their initial specified offices are listed below. TheIssuer reserves the right under the Agency Agreement at any time, with the prior written approval of the Trustee,to vary or terminate the appointment of the Paying and Conversion Agent or the Registrar and appoint anadditional Paying and Conversion Agent or other Paying, Transfer and Conversion Agents, provided that it will(i) maintain a Paying and Conversion Agent or another Registrar, (ii) maintain a Paying and Conversion Agentwith a specified office in a jurisdiction that will not be obliged to withhold or deduct tax pursuant to EuropeanCouncil Directive 2003/48/EC or any other European Union Directive implementing the conclusions of theECOFIN council meeting of 26-27 November 2000 on the taxation of savings income or any law implementingor complying with, or introduced in order to conform to, such Directive and (iii) maintain a Registrar with aspecified office outside the United Kingdom. Notice of any change in the Paying and Conversion Agents or theRegistrar or their specified offices will promptly be given by the Issuer to the Noteholders in accordance withCondition 16.

(i) Fractions

When making payments to Noteholders, if the relevant payment is not of an amount which is a wholemultiple of the smallest unit of the relevant currency in which such payment is to be made, such payment will berounded down to the nearest unit.

9 Taxation

All payments made by on or behalf the Issuer in respect of the Notes will be made free from any restrictionor condition and be made without deduction or withholding for or on account of any present or future taxes,duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the CaymanIslands or any political subdivision or any authority thereof or therein having power to tax, unless deduction orwithholding of such taxes, duties, assessments or governmental charges is compelled by law.

In the event that any such withholding or deduction is required to be made, the Issuer will pay suchadditional amounts as will result in the receipt by the Noteholders of the amounts which would otherwise havebeen receivable had no such withholding or deduction been required, except that no such additional amount shallbe payable in respect of interest on any Note:

(a) to a holder (or to a third party on behalf of a holder) who is subject to such taxes, duties, assessmentsor governmental charges in respect of such Note by reason of his having some connection with theCayman Islands other than merely by holding the Note or by receipt of amounts in respect of the Noteor where the withholding or deduction could be avoided by the holder making a declaration of non-

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residence or other similar claim for exemption to the appropriate authority which such holder islegally capable and competent of making but fails to do so; or

(b) where such withholding or deduction is imposed on a payment to an individual and is required to bemade pursuant to European Council Directive 2003/48/EC or any other Directive implementing theconclusions of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of savingsincome or any law implementing or complying with, or introduced in order to conform to, suchDirective.

References in these Conditions to principal and interest shall be deemed also to refer to any additionalamounts which may be payable under this Condition or any undertaking or covenant given in addition thereto orin substitution therefor pursuant to the Trust Deed.

10 Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter inprincipal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution of theNoteholders shall (subject in each case to being indemnified and/or secured as to costs to its satisfaction), givenotice in writing to the Issuer that the Notes are, and they shall accordingly thereby immediately become, due andrepayable at their principal amount together with accrued interest if any of the following events (each an ‘‘Eventof Default’’) shall have occurred:

(a) default is made for more than five Oslo business days in the payment on the due date of principal orinterest or any other amount in respect of any of the Notes; or

(b) the Issuer does not perform or comply with any one or more of its other obligations in respect of theNotes or the Trust Deed, which default is (in the opinion of the Trustee) incapable of remedy or, ifcapable of remedy, is not (in the opinion of the Trustee) remedied within 30 days after the Issuerreceiving from the Trustee written notice of such default or such longer period as the Trustee maypermit in its absolute discretion; or

(c) (i) any other present or future indebtedness of the Issuer or any Principal Subsidiary of the Issuerfor or in respect of moneys borrowed or raised becomes due and payable prior to its statedmaturity otherwise than at the option of the Issuer or the relevant Principal Subsidiary; or

(ii) any such indebtedness is not paid when due or, as the case may be, within any applicable graceperiod (as initially agreed);

provided that the aggregate amount of such indebtedness in respect of which one or more of the eventsmentioned above in this paragraph (c) have occurred equals or exceeds U.S.$10,000,000 or itsequivalent; or

(d) a distress, attachment, execution or other legal process is levied, enforced or sued out on or against anypart of the property, assets or revenues of the Issuer or any Principal Subsidiary of the Issuer and is notdischarged or stayed within 30 days or such longer period as may be permitted by the Trustee; or

(e) any step is taken to enforce any mortgage, charge, pledge, lien or other encumbrance, present orfuture, created or assumed by the Issuer or any Principal Subsidiary of the Issuer (including the takingof possession or the appointment of a receiver, administrative receiver, administrator manager or othersimilar person); or

(f) the Issuer or any Principal Subsidiary of the Issuer is insolvent or bankrupt or unable to pay its debts,stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particulartype of) its debts, proposes or makes any agreement for the deferral, rescheduling or otherreadjustment of all of (or all of a particular type of) its debts (or of any part which it will or mightotherwise be unable to pay when due), proposes or makes a general assignment or an arrangement orcomposition with or for the benefit of the relevant creditors in respect of any of such debts or amoratorium is agreed or declared or comes into effect in respect of or affecting all or any part of (or ofa particular type of) the debts of the Issuer or any Principal Subsidiary of the Issuer; or

(g) an order is made or an effective resolution passed for the winding-up or dissolution of the Issuer orany Principal Subsidiary of the Issuer, or the Issuer or any Principal Subsidiary of the Issuer ceases orthreatens to cease to carry on all or (in the opinion of the Trustee) a material part of its business oroperations, except for the purpose of and followed by a reconstruction, amalgamation, reorganisation,merger or consolidation (i) on terms approved by the Trustee or by an Extraordinary Resolution of the

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Noteholders, or (ii) in the case of a Principal Subsidiary of the Issuer, whereby the undertaking andassets of the Principal Subsidiary of the Issuer are transferred to or otherwise vested in the Issuer oranother Principal Subsidiary of the Issuer; or

(h) any action, condition or thing (including the obtaining or effecting of any necessary consent, approval,authorisation, exemption, filing, licence, order, recording or registration) at any time required to betaken, fulfilled or done in order (i) to enable the Issuer lawfully to enter into, exercise its rights andperform and comply with its obligations under the Notes, or the Trust Deed, (ii) to ensure that thoseobligations are legally binding and enforceable and (iii) to make the Notes or the Trust Deedadmissible in evidence is not taken, fulfilled or done; or

(i) any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any ofthe events referred to in any of the foregoing paragraphs; or

(j) it is or will become unlawful for the Issuer to perform or comply with any of its obligations under orin respect of the Notes or the Trust Deed.

11 Undertakings

Whilst any Conversion Right remains exercisable, the Issuer will, save with the approval of an ExtraordinaryResolution or with the prior written approval of the Trustee where, in its opinion, it is not materially prejudicial tothe interests of the Noteholders to give such approval:

(a) not issue or pay up any Securities, in either case by way of capitalisation of profits or reserves, otherthan:

(i) by the issue of fully paid Ordinary Shares to Shareholders and other holders of shares in thecapital of the Issuer which by their terms entitle the holders thereof to receive Ordinary Shares;or

(ii) by the issue of Ordinary Shares paid up in full (in accordance with applicable law) and issuedwholly, ignoring fractional entitlements, in lieu of the whole or part of a cash dividend; or

(iii) by the issue of fully paid equity share capital (other than Ordinary Shares) to the holders ofequity share capital of the same class and other holders of shares in the capital of the Issuerwhich by their terms entitle the holders thereof to receive equity share capital (other thanOrdinary Shares); or

(iv) by the issue of Ordinary Shares or any equity share capital to, or for the benefit of, anyemployee or former employee, director or executive holding or formerly holding executiveoffice of the Issuer or any of its Subsidiaries or any associated company or to trustees ornominees to be held for the benefit of any such person, in any such case pursuant to anemployee, director or executive share or option scheme whether for all employees, directors, orexecutives or any one or more of them,

unless, in any such case, the same constitutes a Dividend or otherwise gives rise (or would, but for theprovisions of Condition 6(f) relating to the carry forward of adjustments, give rise) to an adjustment tothe Conversion Price;

(b) not modify the rights attaching to the Ordinary Shares with respect to voting, dividends or liquidationnor issue any other class of equity share capital carrying any rights which are more favourable than therights attaching to the Ordinary Shares but so that nothing in this Condition 11(b) shall prevent:

(i) any consolidation, reclassification or subdivision of the Ordinary Shares; or

(ii) any modification of such rights which is not, in the opinion of an Independent Financial Adviser(acting as an expert) selected by the Issuer, approved in writing by the Trustee, materiallyprejudicial to the interests of the holders of the Notes; or

(iii) any issue of equity share capital where the issue of such equity share capital results, or would,but for the provisions of Condition 6(f) relating to the carry forward of adjustments or the factthat the consideration per Ordinary Share receivable therefore is at least 90 per cent. of theCurrent Market Price per Ordinary Share, otherwise result, in an adjustment to the ConversionPrice; or

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(iv) any issue of equity share capital or modification of rights attaching to the Ordinary Shares,where prior thereto the Issuer shall have instructed an Independent Financial Adviser todetermine what (if any) adjustments should be made to the Conversion Price as being fair andreasonable to take account thereof and such Independent Financial Adviser shall havedetermined either that no adjustment is required or that an adjustment resulting in an increase inthe Conversion Price is required and, if so, the new Conversion Price as a result thereof and thebasis upon which such adjustment is to be made and, in any such case, the date on which theadjustment shall take effect (and so that the adjustment shall be made and shall take effectaccordingly);

(c) procure that no Securities (whether issued by the Issuer or any Subsidiary of the Issuer or procured bythe Issuer or any Subsidiary of the Issuer to be issued or issued by any other person pursuant to anyarrangement with the Issuer or any Subsidiary of the Issuer) issued without rights to convert into, orexchange or subscribe for, Ordinary Shares shall subsequently be granted such rights exercisable at aconsideration per Ordinary Share which is less than 90 per cent. of the Current Market Price perOrdinary Share at the close of business on the last dealing day preceding the date of the first publicannouncement of the proposed inclusion of such rights unless the same gives rise (or would, but forthe provisions of Condition 6(f) relating to the carry forward of adjustments, give rise) to anadjustment to the Conversion Price and that at no time shall there be in issue Ordinary Shares ofdiffering nominal values, save where such Ordinary Shares have the same economic rights;

(d) not make any issue, grant or distribution or any other action taken if the effect thereof would be that,on the exercise of Conversion Rights, Ordinary Shares could not, under any applicable law then ineffect, be legally issued as fully paid;

(e) not reduce its issued share capital, or any uncalled liability in respect thereof, or any non-distributablereserves, except:

(i) pursuant to the terms of issue of the relevant share capital; or

(ii) by means of a purchase or redemption of share capital of the Issuer to the extent permitted byapplicable law; or

(iii) by way of transfer to reserves as permitted under applicable law; or

(iv) where the reduction is permitted by applicable law and the Trustee is advised by an IndependentFinancial Adviser, acting as expert, that the interests of the Noteholders will not be materiallyprejudiced by such reduction; or

(v) where the reduction is permitted by applicable law and results in (or would, but for theprovisions of Condition 6(f) relating to the carry forward of adjustments, result in) anadjustment to the Conversion Price,

provided that, without prejudice to the other provisions of these Conditions, the Issuer may exercisesuch rights as they may from time to time enjoy pursuant to applicable law to purchase its OrdinaryShares and any depositary or other receipts or certificates representing Ordinary Shares without theconsent of Noteholders;

(f) if any offer is made to all (or as nearly as may be practicable all) Shareholders (or all (or as nearly asmay be practicable all) Shareholders other than the offeror and/or any associate (or affiliate) of theofferor) to acquire the whole or any part of the issued Ordinary Shares, or if any person proposes ascheme with regard to such acquisition, give notice of such offer or scheme to the Noteholders at thesame time as any notice thereof is sent to the Shareholders (or as soon as practicable thereafter) thatdetails concerning such offer or scheme may be obtained from the specified offices of the Paying andConversion Agent and, where such an offer or scheme has been recommended by the Board ofDirectors of the Issuer, or where such an offer has become or been declared unconditional in allrespects, use all reasonable endeavours to procure that a like offer or scheme is extended to the holdersof any Ordinary Shares issued during the period of the offer or scheme arising out of the exercise ofthe Conversion Rights by the Noteholders;

(g) use its reasonable endeavours to ensure that the Ordinary Shares issued upon exercise of ConversionRights will, as soon as is practicable, be admitted to listing and to trading on the Relevant StockExchange and will be listed, quoted or dealt in, as soon as is practicable, on any other stock exchangeor securities market on which the Ordinary Shares may then be listed or quoted or dealt in;

37

(h) procure that it shall not become domiciled or resident in or subject generally to the taxing authority ofany jurisdiction (other than the Cayman Islands) unless it would not thereafter be required pursuant tothen current laws and regulations to withhold or deduct for or on account of any present or futuretaxes, duties, assessments or governmental charges of whatever nature imposed or levied by or onbehalf of such jurisdiction or any political subdivision thereof or therein having power to tax in respectof any payment on or in respect of the Notes;

(i) in the event of a Newco Scheme, the Issuer shall take (or shall procure that there is taken) allnecessary action to ensure that (to the satisfaction of the Trustee) immediately upon completion of thescheme of arrangement, at its option, either (a) Newco is substituted under the Notes and theTrust Deed as principal debtor in place of the Issuer (with the Issuer providing an unconditional andirrevocable guarantee) subject to and as provided in the Trust Deed or (b) Newco becomes a guarantorunder the Notes and the Trust Deed and, in either case, that such other adjustments are made to theseConditions and the Trust Deed to ensure that the Notes may be converted into or exchanged forordinary shares of Newco mutatis mutandis in accordance with and subject to these Conditions andthe Trust Deed;

(j) for so long as any Note remains outstanding, (1) use its best endeavours to ensure that its issued andoutstanding Ordinary Shares shall be admitted to listing and to trading on the Oslo Stock Exchange oranother regulated, regularly operating, recognised stock exchange or securities market in the EuropeanUnion, Switzerland or the United States (2) use its reasonable endeavours to ensure that the Notes areadmitted to listing and trading on the Oslo Stock Exchange by not later than 45 days after the ClosingDate and to maintain such admission; and

(k) at all times keep available for issue free from pre-emptive rights out of its authorised but unissuedcapital sufficient authorised but unissued Ordinary Shares to enable the exercise of a ConversionRight, and all rights of subscription and conversion for Ordinary Shares, to be satisfied in full.

12 Prescription

Claims against the Issuer for payment in respect of the Notes shall be prescribed and become void unlessmade within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate RelevantDate in respect of such payment and thereafter any principal, interest or other sums payable in respect of suchNotes shall be forfeited and revert to the Issuer.

Claims in respect of any other amounts payable in respect of the Notes shall become void unless madewithin 10 years following the due date for payment thereof.

13 Meetings of Noteholders, Modification and Waiver, Substitution

(a) Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of Noteholders to consider matters affectingtheir interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditionsor any provisions of the Trust Deed. Such a meeting may be convened by the Issuer or the Trustee and shall beconvened by the Issuer or the Trustee if requested in writing by (i) Noteholders holding not less than 10 per cent.in principal amount of the Notes for the time being outstanding or (ii) the Oslo Stock Exchange, provided that ameeting called for by the Oslo Stock Exchange must be for the purpose of considering the replacement of theTrustee. The quorum for any meeting convened to consider an Extraordinary Resolution will be one or morepersons holding or representing a clear majority in principal amount of the Notes for the time being outstanding,or at any adjourned meeting one or more persons being or representing Noteholders whatever the principalamount of the Notes so held or represented, unless the business of such meeting includes consideration ofproposals, inter alia, (i) to modify the maturity of the Notes or the dates on which interest is payable in respect ofthe Notes, (ii) to reduce or cancel the principal amount, or interest on, the Notes or to reduce the amount payableor redemption of the Notes or to modify or cancel the Conversion Rights, (iii) to increase the Conversion Priceother than in accordance with these Conditions, (iv) to change the currency of any payment in respect of theNotes, or (v) to modify the provisions concerning the quorum required at any meeting of Noteholders or themajority required to pass an Extraordinary Resolution, in which case the necessary quorum will be one or morepersons holding or representing not less than three-quarters, or at any adjourned meeting not less than one-quarter, in principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution dulypassed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolutionwas passed).

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(b) Modification and Waiver

The Trustee may agree, without the consent of the Noteholders, to (i) any modification of any of theprovisions of the Trust Deed, any trust deed supplemental to the Trust Deed, the Agency Agreement, anyagreement supplemental to the Agency Agreement, the Notes or these Conditions which in the Trustee’s opinionis of a formal, minor or technical nature or is made to correct a manifest error or to comply with mandatoryprovisions of law, and (ii) any other modification to the Trust Deed, any trust deed supplemental to theTrust Deed, the Agency Agreement, any agreement supplemental to the Agency Agreement, the Notes or theseConditions (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposedbreach, of any of the provisions of the Trust Deed, any trust deed supplemental to the Trust Deed, the AgencyAgreement, any agreement supplemental to the Agency Agreement, the Notes or these Conditions which is, in theopinion of the Trustee, not materially prejudicial to the interests of the Noteholders. The Trustee may, without theconsent of the Noteholders, determine any Event of Default or a Potential Event of Default (as defined in theTrust Deed) should not be treated as such, provided that in the opinion of the Trustee, the interests of Noteholderswill not be materially prejudiced thereby. Any such modification, authorisation or waiver shall be binding on theNoteholders and, if the Trustee so requires, such modification shall be notified to the Noteholders promptly inaccordance with Condition 16.

(c) Substitution

The Trustee may, without the consent of the Noteholders, agree with the Issuer (01) to the substitution inplace of the Issuer (or any previous substitute or substitutes under this Condition) as the principal debtor underthe Notes and the Trust Deed of any Subsidiary of the Issuer subject to (a) the Notes being unconditionally andirrevocably guaranteed by the Issuer, and (b) the Notes continuing to be convertible or exchangeable intoOrdinary Shares as provided in these Conditions mutatis mutandis as provided in these Conditions, with suchamendments as the Trustee shall consider appropriate or (02) to the substitution of Newco as provided inCondition 11(i) provided that in any such case, (x) the Trustee is satisfied that the interests of the Noteholders willnot be materially prejudiced by the substitution, and (y) certain other conditions set out in the Trust Deed havebeen complied with. In the case of such a substitution the Trustee may agree, without the consent of theNoteholders, to a change of the law governing the Notes and/or the Trust Deed provided that such change wouldnot in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders. Any suchsubstitution shall be binding on the Noteholders and shall be notified promptly to the Noteholders.

(d) Entitlement of the Trustee

In connection with the exercise of its functions (including but not limited to those referred to in thisCondition) the Trustee shall have regard to the interests of the Noteholders as a class and, in particular butwithout limitation, shall not have regard to the consequences of the exercise of its trusts, powers or discretions forindividual Noteholders resulting from their being for any purpose domiciled or resident in, or otherwiseconnected with, or subject to the jurisdiction of, any particular territory, and the Trustee shall not be entitled torequire, nor shall any Noteholder be entitled to claim, from the Issuer or any other person any indemnification orpayment in respect of any tax consequence of any such exercise upon individual Noteholders.

14 Enforcement

The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer asit may think fit to enforce the provisions of the Trust Deed and the Notes, but it shall not be bound to take anysuch proceedings or any other action in relation to the Trust Deed or the Notes unless (i) it shall have been sodirected by an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of at leastone-quarter in principal amount of the Notes then outstanding, and (ii) it shall have been indemnified and/orsecured as to costs to its satisfaction. No Noteholder shall be entitled to proceed directly against the Issuer orunless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failureshall be continuing.

15 Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief fromresponsibility, including relieving it from taking proceedings unless indemnified and/or secured to its satisfaction.The Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuerwithout accounting for any profit. The Trustee may rely without liability to Noteholders on a report, confirmationor certificate or any advice of any accountants, financial advisers or investment bank, whether or not addressed to

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it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating theretoentered into by the Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise.The Trustee shall be obliged to accept and be entitled to rely on any such report, confirmation or certificate oradvice where the Issuer procures delivery of the same pursuant to its obligation to do so under a condition hereofor any provision of the Trust Deed and such report, confirmation or certificate or advice shall be binding on theIssuer, the Trustee and the Noteholders in the absence of manifest error.

16 Notices

Notices to Noteholders shall be valid if published in a daily newspaper of general circulation in London(which is expected to be the Financial Times) and, for so long as the Notes are listed on the Oslo Stock Exchange,on the Oslo Stock Exchange information system. Any such notice shall be deemed to have been given on the dateof the last such publication as provided above. Any notice to be given pursuant to these Conditions shall be givenby the Issuer, unless the Issuer specifically requests that the Paying and Conversion Agent gives such noticepursuant to the terms of the Agency Agreement.

17 Further Issues

The Issuer may from time to time without the consent of the Noteholders create and issue further notes,bonds or debentures either having the same terms and conditions in all respects as the outstanding notes, bonds ordebentures of any series (including the Notes) or in all respects except for the first payment of interest on themand so that such further issue shall be consolidated and form a single series with the outstanding notes, bonds ordebentures of any series (including the Notes) or upon such terms as to interest, conversion, premium, redemptionand otherwise as the Issuer may determine at the time of their issue. Any further notes, bonds or debenturesforming a single series with the outstanding notes, bonds or debentures of any series (including the Notes)constituted by the Trust Deed or any deed supplemental to it shall, and any other notes, bonds or debentures may,with the consent of the Trustee, be constituted by a deed supplemental to the Trust Deed. The Trust Deed containsprovisions for convening a single meeting of the Noteholders and the holders of notes, bonds or debentures ofother series in certain circumstances where the Trustee so decides.

18 Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights ofThird Parties) Act 1999.

19 Governing Law and Jurisdiction

(a) Governing Law

The Trust Deed and the Notes are governed by, and shall be construed in accordance with, English law. TheAgency Agreement is governed by, and shall be construed in accordance with, Norwegian law.

(b) Jurisdiction

The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connectionwith the Trust Deed or the Notes and accordingly any legal action or proceedings arising out of or in connectionwith the Trust Deed or the Notes (‘‘Proceedings’’) may be brought in such courts. The Issuer has in theTrust Deed irrevocably submitted to the jurisdiction of such courts and has waived any objection to Proceedingsin such courts whether on the ground of venue or on the ground that the Proceedings have been brought in aninconvenient forum. This submission is made for the benefit of the Trustee and each of the Noteholders and shallnot limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall thetaking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction(whether concurrently or not).

(c) Agent for Service of Process

The Issuer has irrevocably appointed Subsea 7 (UK) Limited at its registered office for the time being,currently at 17th Floor, Quadrant House, The Quadrant, Sutton, Surrey SM2 5AS as its agent in England toreceive service of process in any Proceedings in England. Nothing herein or in the Trust Deed shall affect theright to serve process in any other manner permitted by law.

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6. DESCRIPTION OF SUBSEA 7

6.1 The Company

Subsea 7 is a subsea contractor operating within the oil and gas industry. The Company performs totalsubsea field developments and provides design, engineering, construction, installation and maintenance offacilities for the subsea production of oil and gas.

The Company was incorporated on 10 January 2002 under the name DSND Inc., and renamed SiemOffshore Inc. pursuant to a resolution of the general meeting held on 9 July 2004. The Company was furtherrenamed from Siem Offshore Inc. to Subsea 7 Inc. at the annual general meeting of the Company held on 15 July2005.

As a company incorporated in the Cayman Islands, Subsea 7 is subject to Cayman Islands laws andregulations with respect to corporate governance. In addition, certain aspects of Norwegian securities law applydue to the Company’s listing on Oslo Børs.

The Company’s registered office is at Ugland House, South Church Street, George Town, Grand Cayman,Cayman Islands.

The Company’s principal place of business is at Harbour Place 5th Floor, P.O. Box 309 APO, 103 SouthChurch Street, George Town, Grand Cayman, Cayman Islands.

6.1.1 History in brief

The Company traces its roots back to Det Søndenfjelds-Norske Dampskipselskap AS (DSND) which wasestablished in 1854. The main operation for the Company until 1964 was shipping, with a focus on passengertransportation. In 1964, the Company’s passenger liner service between Hamburg and Oslo was closed down, andthe Company’s activity level was then limited until 1985.

DSND operated as an investment company between 1985 and 1995, with investments mostly in offshore-related activities. By early 1990, DSND had taken ownership of several dynamically positioned (DP) offshorevessels. As a consequence, the Board wanted to cultivate the Company’s investments profile and strategy, andother non-offshore related investments were gradually sold or spun-off from DSND.

By 1995, the Company owned six special offshore vessels, of which two were for offshore construction, twofor well maintenance and two for geo-technical drilling. The Company planned for further expansion into thesethree business areas through the addition of technology and human capital. DSND conducted eight acquisitions ofassets or businesses between 1995 and 2002, which gave the Company a significant position within the area ofoffshore maintenance and construction, both in terms of geography and resources. The acquisitions providedDSND with the skills and equipment to complete total construction contracts for deepwater subsea installations,as well as the installation of pipelines, floating production units and riser systems, and link-up and completion ofsubsea production installations.

However, DSND experienced low capacity utilisation of its vessels, insufficient presence in several keymarkets and the lack of critical mass to bid for the largest tenders. A process to identify a complementary partnerwas therefore initiated in 2001.

On 18 October 2001, DSND announced that they were in discussions with Halliburton on combining theirrespective activities within subsea construction and related services. On 23 May 2002 the two companiesannounced that they had completed a final agreement for the creation of the 50/50 joint venture companySubsea 7 Holding Inc. (formerly named Subsea 7 Inc.), registered in the Cayman Islands. The agreement involvedall substantial subsea-related assets, personnel and existing contracts from both companies to be included in thejoint venture.

After the merger in May 2002, both Halliburton and DSND actively contributed to the further industrialdevelopment of the Subsea 7 Holding Inc. business. During this period Subsea 7 also consolidated its non-subseaactivities through the divestment of loss-making activities and by a more concentrated focus. The holdingcompany was further relocated from Norway to the Cayman Islands in the 4th quarter of 2002 through a shareswap.

On 15 November 2004 the Company announced that it had entered into a heads of agreement withHalliburton Company to acquire the Halliburton Group’s 50 per cent. share of Subsea 7 Holding Inc. at a price ofU.S.$203 million in cash. Prior to completion of the transaction in January 2005, the Company raisedNOK 991 million in new equity, equivalent to U.S.$160 million, through a private placement of 41,300,000 new

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shares at a subscription price of NOK 24 per share. A subsequent repair offering was proposed to shareholders,holding less than 50,000 shares, who were not given the opportunity to participate in the private placement. Anadditional NOK 59 million was raised through this offering and the issuance of 2,458,549 new shares at asubscription price of NOK 24 per share. Further, Subsea 7 Holding Inc. refinanced its debt through a newU.S.$150 million secured reducing revolving credit facility and a U.S.$80 million guarantee facility with DnBNorBank ASA.

In July 2005 the Company decided that it would be beneficial for the further development of both the subseabusiness and the non-subsea business, as well as enhance shareholder value, to separate subsea and the non-subsea businesses and give them the opportunity to develop in distinct companies and under separatemanagement. The Company’s subsidiary Siem Supply Inc. which, following an internal restructuring, containedall the non-subsea business of the Group was renamed Siem Offshore Inc. and the shares of Siem Offshore Inc.were distributed to the shareholders of Subsea 7 through a payment of dividend in specie in the form ofrepayment from the share premium account (paid-in capital). On the distribution date, each shareholder inSubsea 7 received one share of Siem Offshore for each share in Subsea 7.

6.2 Principal activities

Subsea 7 is a subsea contractor within the oil and gas industry. The Company performs total subsea fielddevelopments and provides design, engineering, construction, installation and maintenance of facilities for thesubsea production of oil and gas.

Subsea 7 operates 17 multi-purpose, highly specialised dynamically-positioned (DP) vessels capable ofdeepwater pipe laying, deepwater subsea construction and diving and subsea surveys. Subsea 7 also owns theworld’s second largest fleet of remotely operated vehicles (ROVs). The ROV fleet totals more than 100 special-ised vehicles. In addition, the Company operates four spool bases for welding of pipelines.

Subsea 7’s business consists of seven business lines, which are interrelated and to a large degree overlap onspecific projects, as described below:

Deepwater Systems and Technology

This business segment includes the design, procurement, manufacturing, assembly and installation of oil andgas production structures on the seabed within deep waters, typically in excess of 400 metres. The productsinclude riser systems, including towers, steel catenary risers and flexible risers, mooring systems, subseaproduction and control systems, umbilicals, towed bundle and conventional flow line systems.

Towed Production System

By means of the controlled depth tow method, the Company is able to offer its customers onshoreconstructions of multiple flow lines within a single outer carrier pipe terminated at each end by structuresdesigned to accommodate the bundle. Once launched from the onshore site, the bundle is towed by tugs to itsoffshore location at a controlled water depth. On entry to the field, the bundle is lowered to the seabed andmanoeuvred into location. Subsea 7’s bundle yard is located in Wick, Scotland with a length of 7,800 metres andan annual production capacity of 28 000 tonnes.

Subsea Construction & IRM

Subsea 7 delivers subsea engineering, installation, construction and IRM (Inspection, Repair and Mainte-nance) for all upstream oil and gas applications. The deliveries and services are supported by more than 2,500qualified constructions, IRM, and project management personnel, based around the world, with expertise in EPICcontract and design issues.

The services include design, fabrication and installation of subsea manifolds, tie-in and testing of pipelinessystems, installation of subsea control systems, diving and survey services, hyperbaric welding capability, onlineinspection and certification reporting together with well abandonment.

Pipelay services

With a fleet of four dedicated dynamically-positioned reel-lay vessels and four onshore spool yards,Subsea 7 has the capability of installing rigid pipelines of up to 16 inches diameter in addition to umbilicals andflexible pipelines products of up to 20 inches. Other products delivered are subsea tie-in jumpers, fluid transferlines, surface wellhead jumpers and dynamic risers.

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Subsea 7’s most modern pipe lay vessel, Skandi Navica has successfully installed the world’s first reeledsteel catenary risers in water depths of 1,300 metres and has installed rigid pipelines, mid-line tees and pipelineend terminations in a world record breaking water depth of 1,870 metres.

Subsea 7 also operates four spool fabrication bases.

Survey & Positioning Services

Subsea 7 provides specialist positioning and data acquisition expertise complemented by the combined useof innovative technology and techniques to support Subsea 7’s own construction and IRM activities as well as theactivities of a variety of external clients.

The services include positioning services — both surface and sub-surface solutions, marine constructionsupport to pipelines, structures and field development, seabed mapping route and site surveys, precisionunderwater meteorology, high accuracy spool piece measurements, pipeline inspection by ROVs together withstructural inspection by ROVs and divers.

ROV services

Subsea 7, through it predecessor companies has more than 25 years of experience in providing ROVservices. Its predecessor company was the first contractor to design, build and operate its own vehicles in the1980’s. The fleet of ROVs consists of 72 standard work class ROVs, mostly designed and built in-house, capableof operating in water depths down to 5,000 metres, 32 observation class ROVs, three acoustic vehicles, includingthe Geosub Autonomous Underwater Vehicle (AUV) for special applications down to 3,000 metres and twoROVs able to provide a stable controllable platform for acoustic survey at high speed.

Remote technology

Subsea 7 has substantial activities within the area of advanced subsea technology and has been a pioneerwithin the design and operation of innovative underwater intervention systems, tooling packages and interfaces.The Company’s capabilities in this area include concept development, detailed design, building supervision,acceptance testing, offshore mobilisation and operation of equipment. The focus is delivering measurable benefitsto customers in terms of minimising costs, increased safety, environmental awareness and greater efficiency. Newsystems currently being developed include an electric work-class ROV, single mode fibre-optic multiplexers anda laser leak detection sensor.

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6.3 Vessels

The Group currently operates the following vessels:

Construction Support Pipelay Support

Subsea Viking Toisa Perseus Kommandor 3000 Lochnagar

Skandi Neptune Nordica Skandi Navica

ROV/Survey Diving Support

Kommandor Subsea Kommandor Subsea2000 Pelican Rockwater 1

Salgueiro Seisranger Rockwater 2 Toisa Polaris

Surveyor Fennica

Ship Owner Build. Year DP Main activities

Skandi Navica ************************** District Offshore 1999 Yes Pipelay supportKommandor 3000 *********************** Subsea 7 1984 Yes Pipelay supportLochnagar****************************** Subsea 7 1998 Yes Pipelay supportNordica******************************** Finstaship 1994 Yes Pipelay supportSubsea Viking ************************** Eidesvik 1999 Yes Construction supportSkandi Neptune ************************* DOF ASA 2001 Yes Construction supportToisa Perseus *************************** Sealion 1998 Yes Construction supportPelican ******************************** Subsea 7 1990 Yes DivingRockwater 1**************************** Subsea 7 1983 Yes DivingRockwater 2**************************** Subsea 7 1983 Yes DivingToisa Polaris**************************** Sealion 1999 Yes DivingKSS 2000****************************** Subsea 7 1996 Yes ROV/SurveyKommandor Subsea********************** Subsea 7 1986 Yes ROV/SurveySurveyor ******************************* Workships 1986 Yes ROV/SurveySalgueiro ****************************** Subsea 7 1980 Yes ROV/SurveySeisranger****************************** Forland Rederi 1993 Yes ROV/SurveyFennica******************************** Finstaship 1993 Yes ROV/Survey

6.3.1 New-building contracts

Subsea 7 currently has two new vessels under order, both with Merwede Shipyard and Huisman SpecialLifting Equipment.

The first contract is for a new-build rigid pipelay and construction vessel at an overall project cost ofapproximately U.S.$200 million. The vessel, which is 153 metres long and 28.4m wide, will have a top tensioncapability of 400 tonnes and will have a storage capacity of 3500 tonnes of steel pipe on the main reel. The vessel

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will also have a 400 tonnes deepwater crane, a built-in deepwater ROV spread and a comprehensive surveysystem. The completed ship is expected to be delivered in the second quarter of 2007.

The second contract is for a new-build flexlay, J-lay, and construction vessel at an overall project cost ofapproximately U.S.$200 million. The vessel will be 157 metres long and 28.4 metres wide. Its pipelay equipmentwill include a vertical lay system with top tension capability in excess of 400 tonnes, combined with a storagecapacity for flexible pipe based on two 1250 tonnes carousels below deck and a 3000 tonnes carousel or multiplereels on deck. The lay system will have the additional ability to J-lay rigid pipe.

The vessel will have a 400 tonnes deepwater crane, a built-in deepwater ROV spread and a comprehensivesurvey system. The completed ship is expected to be delivered in the second quarter of 2008.

6.4 Principal markets

The principal markets for Subsea 7 are currently North Sea, Brazil, Gulf of Mexico, West Africa and AsiaPacific.

After the combination of DSND, Subsea and Halliburton Subsea, Subsea 7 has managed to evolve into aplayer that is able to compete for most types of subsea contracts, including larger deepwater projects. There aresignificant parts of the subsea market that are currently not targeted by Subsea 7, including projects in shallowwaters in the Gulf of Mexico, Asia Pacific, Venezuela, Libya and the Middle East and deepwater projects in India.Further, Subsea 7 is focusing on intra field developments with pipe diameters of 16 inches and less. The regionalpositions in the targeted segments are therefore much stronger than indicated by the average global market share.

The following is the management’s assessment of Subsea 7’s market position in different areas.

6.4.1 North Sea

Subsea 7 holds a strong position with significant market shares in all core subsea segments .

6.4.2 Brazil

Subsea 7 holds a strong position with significant market shares in all core subsea segments.

6.4.3 Gulf of Mexico

Subsea 7’s position in the targeted markets, particularly in the deepwater market, is strengthening.

6.4.4 West Africa

Subsea 7 is a relative newcomer in this region. The Company has completed several large projects with othercontracts ongoing. Subsea 7 sees this region as a key future growth area.

6.4.5 Asia Pacific

Subsea 7 has a strong position in some targeted markets, such as the regional diving market. The totalregional subsea market is very fragmented, and Subsea 7’s overall market share is low. However, the recentlysigned joint venture with Technip and the expansion into larger EPIC-type projects is expected to increase itsoverall market share.

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6.5 Organisational structure

6.5.1 Legal structure

Subsea 7 is the parent company of the Subsea 7 Group. The current legal structure is as follows:

Subsea 7Holding Inc

Subsea 7(U.S.) LLC

Subsea 7(Luxembourg)

SARL

Subsea 7(Vessel Company)

BV

Subsea 7Australia PTY

Ltd

Subsea 7 BV

Subsea 7(UK) Ltd

Subsea 7(Singapore) PTE

Ltd

Subsea 7Norway

Subsea 7 DOBrasil Servicos

Ltda

Subsea 7 A/S

Subsea 7Marine LLC

Subsea 7 (UKService Company)

Ltd

Subsea 7(Cayman VesselCompany) Ltd

Subsea 7Nigeria Limited

Subsea 7(Vessel Company)

Ltd

Subsea 7 Ltd

Subsea 7International

Ltd

SevenseasAngola Ltd

Subsea 7Contractors

Ltd

Subsea 7Ireland Finance Ltd

Subsea 7Luxembourg

Finance SARL

DSNDCoreco Inc

Subsea 7 Inc.

Angolanbranch

Subsea 7 WestDelta Deep

Marine IV Ltd

Subsea 7Construction

Ltd

Subsea 7Engineering

Ltd

The companies within the Group are either holding companies, asset owning companies, contractingcompanies or employment companies, with some being a hybrid of one or more of these categories. Allsubsidiaries are wholly-owned entities.

Subsea 7 Inc. is a pure holding company with no operational activities. Operating activities are conductedwithin other group entities. Subsea 7 is dependent on upstreaming of funds from its subsidiaries in the form ofdividend payments, intra-group loans or otherwise in order to be able to service its debt.

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6.5.2 Business structure

The business structure of Subsea 7 consists of the regional profit centres Asia Pacific, Brazil, Gulf ofMexico, North Sea (Norway and UK) and West Africa supported by global functional departments withinBusiness Acquisition, Finance, Engineering and Technology, Human Resources and Vessel Management Group:

CEOMel Fitzgerald

HRRussell Stewart

Legal & InsuranceGraeme Murray

HESQMike O’Mera

PAJoyce Clarke

BA, Global Communications, StrageticDevelopment, Marketing, Public Relations

Senior Vice PresidentDavid Cassie

Financial Control, Treasury, IT & Sap,Taxation, Procurement & Material

CFOBarry Mahon

Operations, Vessel Management,Engineering, Asset Development, IRT

COOJohn Evans

VP Strategy Dev

Judith Tocher

Region Vice Presidents

Asia Pac Brazil GoM North Sea (R.Davies) W.Africa

MartinRidley

VictorBomfim

CraigBroussard

Norway

TorEspedel

SteveWisley

UKJan W vander Graaf

Ops, IRT, Engineering, VMG, Asset Development VPs

Ops TBA VMG Engineering Asset Dev

IanCobban

BillBoyle

IngeGabrielsen

GrahamSharland

Dr. StuartN Smith

Drill Rig Veripos

NeilMilne

GrahamSharland

The Company’s regional presence is illustrated as follows:

Locations

Future locations

Spoolbases

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6.5.2.1 North Sea

The UK project management and engineering organisation is based in Aberdeen. In addition, a global teamis based in Aberdeen, which provides support to the regional offices as required. In Leith there is a spool base,and in Wick there are large facilities for the fabrication of Towed Production Systems. The Norway projectorganisation is based in Stavanger with a spool base in Luster. The global Vessel Management Group is located inGrimstad, which has the overall responsibility for the support and maintenance of the 17 multi-purpose vesselfleet as well as equipment.

6.5.2.2 Brazil

The regional project management and engineering organisation is based in Rio de Janeiro. In Ubu, Subsea 7has a spool base supporting rigid pipelay operations in Brazilian waters.

6.5.2.3 Gulf of Mexico

The regional project management and engineering organisation is based in Houston. In New Orleans,Subsea 7 has a maintenance and logistics base facility which supports all operations in the Gulf of Mexico.Historically any pipe laying operations have been supported by using a third party spool base in the Gulf ofMexico.

6.5.2.4 West Africa

Subsea 7 has established offices in Nigeria and Angola and a spool base in Angola.

6.5.2.5 Asia Pacific

The regional project management and engineering organisation is based in Singapore. Subsea 7 also has anoffice in Perth, Australia. In addition, Subsea 7 has entered into a Shareholders Agreement with Technip ofFrance to form a joint venture for the performance of subsea construction contracts in the Asia Pacific Region.The joint venture is owned 55 per cent. by Technip and 45 per cent. by Subsea 7 but is jointly controlled. Subjectto certain exceptions relating to Woodside Frame contracts, the profit/losses of the joint venture will be split55 per cent./45 per cent. between Technip/Subsea 7 respectively. The joint venture’s principal office will be inPerth, Western Australia. The effective commencement date for the joint venture will be 1 July 2006.

6.6 Administrative, management and supervisory bodies

6.6.1 Board of Directors

Pursuant to the Company’s Articles of Association, the Board of Subsea 7 shall have from three to sevenshareholder-elected members. Currently the Board has five shareholder-elected members.

Kristian Siem (born 1949), Chairman of the Board

Mr. Siem is the chairman of Subsea 7 Inc., and is also chairman of Siem Offshore Inc., Siem Industries Inc.,Star Reefers Inc., Siem Industrikapital AB, and a director of Transocean Inc and North Atlantic SmallerCompanies Investments Trust PLC.

Michael Delouche (born 1957), Board Member

Mr. Delouche is the President and the Secretary of Siem Industries Inc., and is responsible for the financialand corporate management function. He is in charge of the Company’s operations at the head office in GeorgeTown, Cayman Islands. Mr. Delouche was previously an audit manager with KPMG Peat Marwick LLP.

Arild Schultz (born 1944), Board Member

Mr. Schultz has been in several leading positions within shipping chartering and broking, and has since 1980been conducting his own business within project financing and consulting. He is an educated business economistfrom University of Utah, USA.

John Smith (born 1956), Board Member

Mr. Smith is the previous CEO of Subsea 7 and now has his own consultancy business in offshore oil andgas. He is a chartered mechanical engineer with a degree from Glasgow University and has 25 years of oil and

48

gas contracting experience having held a number of senior positions in Norway, the UK and internationally.Mr. Smith currently serves on the boards of Consafe AB and Grenland Group. He is a past president of theInternational Marine Contractors Association.

Allen L. Stevens (born 1943), Board Member

Mr. Stevens has gained extensive marine industry and maritime financing experience, holding seniorexecutive and management positions with Great Lakes Transport Ltd, Mclean Industries Inc. and Sea-LandService Inc. As a graduate of the University of Michigan and Harvard Law School, Mr. Stevens brings with himto the role many years of experience in shipping, finance and management.

The business address of the above directors is at Harbour Place 5th Floor, P.O. Box 309 APO, 103 SouthChurch Street, George Town, Grand Cayman, Cayman Islands (telephone number 001 345 949 1030).

6.6.2 Management

Mel Fitzgerald, (born 1950) Chief Executive Officer

Mr. Fitzgerald became CEO of the Subsea 7 Joint Venture in July 2004. He came from the position asRegional Vice President for Western Europe in Halliburton’s Energy Services Group. He graduated from GalwayUniversity of Ireland with a degree in civil/structural engineering in 1974 and moved straight into postings inIndonesia, Malaysia, Singapore, Egypt, Bahrain and London for Brown & Root, before joining European MarineContractors (EMC) in 1988. He had several management positions in EMC and also completed an MBA at theUniversity of Kingston in 1992, before he joined Halliburton Subsea as a Vice President in 2000. Mr. Fitzgeraldassumed the role as CEO of Subsea 7 from 15 July 2005.

David Cassie, (born 1956) Senior Vice President — Global Business Acquisition

Mr. Cassie joined the Subsea 7 Joint Venture in 2002, with responsibility for acquiring new business and theimplementation of the Company’s growth strategy. Mr. Cassie is a Chartered Quantity Surveyor and has, since1979, held different technical and management positions in Construction John Brown, Press & Worley Offshore,Britoil, Coflexip Stena Offshore and latterly at Technip where his role was as Executive Vice President for NorthSea, Canada and Caspian. Mr. Cassie assumed the role as Senior Vice President Global Acquisition of Subsea 7from 15 July 2005.

John Evans, (born 1963) Chief Operating Officer

Mr. Evans was appointed to the new position of Chief Operations Officer (COO) of Subsea 7 with effectfrom 1 July 2005. Mr. Evans has over nineteen years of experience in the engineering and contracting sector as aSenior Manager and Chartered Engineer. During eighteen years with Kellogg Brown & Root (KBR) and EMC,he gained a successful record in general management, commercial and operational roles in the offshore oil andgas industry. Between 2002 and mid 2005, Mr. Evans was Chief Operating Officer for KBR’s Government andInfrastructure business in Europe and Africa.

Barry Mahon, (born 1962) Chief Financial Officer

Mr. Mahon was appointed CFO of the Subsea 7 Joint Venture in July 2004, coming from Halliburton’sEnergy Services Group, where he was a Business Director. Mr. Mahon graduated from University College Dublinwith a Bachelor of Commerce in 1983 and joined KPMG where he qualified as a Chartered Accountant in 1987.In 1992, he joined Orbital Engine Corporation as the Group Financial Controller and later as Company Secretary.In 1996, he joined Halliburton as Shared Services Manager, and became Shared Services Director for HalliburtonSubsea in 2000. Mr. Mahon assumed the role as CFO of Subsea 7 from 15 July 2005.

The business address of the above members of Subsea 7’s management is at Peregrine Road, WesthillBusiness Park, Aberdeen, Scotland.

6.7 Board practices

6.7.1 Corporate Governance

As far as the Company is aware there are no conflicts of interest between any duties to the Company of themembers of the administrative, management or supervisory bodies, and their private interests and/or other duties.

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As a company incorporated in the Cayman Islands, Subsea 7 is subject to Cayman Islands laws andregulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based onEnglish law. The main aspects of Cayman Islands company law are described in Section 9.3. In addition, due tothe Company’s listing on the Oslo Stock Exchange, certain aspects of Norwegian Securities law apply to theCompany, including the requirement to adhere to the Norwegian Code of Practice for Corporate Governance (the‘‘Code’’).

The Company endeavours to comply with the Code and generally to maintain high standards of corporategovernance and is committed to ensure that all shareholders of the Company are treated equally.

It is the opinion of the Board that the Company in all material respects complies with the Code, subject tothe following:

1. As stated, Subsea 7 is subject to Cayman Islands laws and regulations which do not require the objectsclause of the Company’s Memorandum and Articles of Association to be clearly defined. However,the Company has defined clear strategies and objectives for its business, namely:

) to be the subsea partner of choice in the challenging and exciting global oil and gas industry;

) to build its business around a motivated and valued workforce; and

) to be the recognised leader in safety and quality, delivering exceptional performance with theappropriate technical solutions and creating sustainable value to all its stakeholders.

2. The Board’s mandate to increase the Company’s issued share capital is limited only to the extent ofthe authorised share capital of the Company in accordance with the Company’s Memorandum andArticles of Association. This is in accordance with Cayman Islands law. The authorised capital of theCompany is currently U.S.$2,000,000 divided into 200,000,000 shares of U.S.$0.01 each of which148,121,737 shares were in issue at 10 May 2006.

3. The appointment of a nomination committee is not a requirement under Cayman Islands law, and theCompany has so far not seen sufficient reason to appoint such a committee. However, prior toproposing candidates to the general meeting for election to the Board, the Board seeks to consult withthe Company’s major shareholders. The Board further endeavours to ensure that it is constituted byDirectors with a varied background and with the necessary expertise and capacity. The Company doesnot have a corporate assembly.

4. By approval of the Board, as a result of his knowledge and experience of the business and the countriesinvolved, a Director, Mr John Smith, was engaged by the Company in the capacity as a consultant toassist with the establishment of a joint venture in Asia Pacific. Details of the remuneration associatedwith this assignment are set out in note 31 to the financial statements of the Company’s Annual Report2005.

5. The Articles of Association of the Company permit the Board to approve the granting of share optionsto employees. During 2005, 1,460,000 share options were granted to employees. The granting of suchoptions will be presented to the next Annual General Meeting of the Company for approval.

6.7.2 Audit Committee

The Directors who served on the committee during the year were as follows:

Kristian Siem

Michael Delouche

The audit committee met twice during the year. The agenda for each meeting is pre-planned to ensure thateach aspect of the committee’s responsibilities is discharged as part of an annual cycle.

The main responsibilities of the audit committee are to:

) monitor the integrity and clarity of the financial information and of the major financial statements of theCompany, and to review any significant financial reporting issues and judgements those statementscontain;

) approve the annual external audit plan and to review with the external auditors the nature, scope andresults of their audit, and any control issues raised by them;

50

) make recommendations as to the appointment, terms of engagement and remuneration of the externalauditors and review any question of their resignation or removal, and to review the effectiveness of theexternal auditors and their independence;

) review the consistency of and any changes to accounting policies, the application of appropriateaccounting standards, and the methods used to account for significant or unusual transactions;

) review the Company’s internal controls and systems and practices for the identification and managementof risk; and

) monitor compliance with the Company’s policies to prevent illegal and questionable corporate conductand to review arrangements for ‘whistle-blowing’.

The external auditors attend meetings of the committee, other than when their appointment or performanceis being reviewed, and the chief financial officer and members of the finance function attend as appropriate. It isthe intention of the committee to meet with the auditors in the absence of management at least twice a year.

The external auditors are appointed annually at the annual general meeting. The Board audit committeeconsiders the reappointment of the auditors and reports its findings to the Board. The Board audit committeeperiodically considers the performance, cost and independence of the external auditors, including a comparison ofaudit fees with similar trading companies and reviews the level of service provided by the audit team throughoutthe Group.

7. SHARE CAPITAL AND SHAREHOLDERS’ MATTERS

7.1 General

Subsea 7 is a company limited by shares organised under the laws of the Cayman Islands. The main aspectsof Cayman Islands company law are described in Section 9.3.

Information regarding the Company and its shares is given in the table below:

Registered office and company registration Ugland House, South Church Street, George Town,Grand Cayman, Cayman Islands.

Internet site www.subsea7.comCompany registration number CR-115108VPS securities number ISIN KYG8549P1081CUSIP identification number G8549P 10 8Ticker code Oslo Børs SUBAccount manager Nordea Bank Norge AS, Oslo, Norway

7.2 Current share capital

The authorised share capital of the Company is U.S.$2,000,000 divided into 200,000,000 Common Sharesof a nominal value of 0.01 each.

The issued share capital as at 10 May 2006 was U.S.$1,481,217.00 divided into 148,121,737 shares eachwith a nominal value of U.S.$0.01.

In addition, the Company has issued the equity instruments as described in Section 7.10 below.

7.3 Historical development in share capital and number of shares

The table below summarises the development in the share capital of DSND ASA from 1997 to the listing ofDSND Inc. (Siem Offshore) on Oslo Børs on 17 October 2002, as well as the development of the share capital inSubsea 7 up until the date of this Prospectus.

Change in Change in no. New share Par Value No. of sharesYear Event Currency Share Capital of shares capital per share after change

1997 *************** Private Placement NOK 2,000,000 2,000,000 31,746,175 1 31,746,1751998 *************** Private placement — NOK 72,500 72,500 31,818,675 1 31,818,675

senior management1998 *************** Private placement — NOK 100,000 100,000 31,918,675 1 31,918,675

Seateam Tech. board1998 *************** Merger Seateam NOK 8,508,984 8,508,984 40,427,659 1 40,427,659

Technology

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Change in Change in no. New share Par Value No. of sharesYear Event Currency Share Capital of shares capital per share after change

1998 *************** Private placement NOK 1,083,000 1,083,000 41,510,659 1 41,510,6591998 *************** Private placement — NOK 45,125 45,125 41,555,784 1 41,555,784

senior management1999 *************** Rights issue NOK 6,925,965 6,925,965 48,481,749 1 48,481,7491999 *************** Private Placement — NOK 122,716 122,716 48,604,465 1 48,604,465

Nemo Engineering AS1999 *************** Private Placement — NOK 73,530 73,530 48,677,995 1 48,677,995

remaining sharesConsub

1999 *************** Private Placement NOK 4,400,000 4,400,000 53,077,995 1 53,077,9951999 *************** Private Placement — NOK 8,000 8,000 53,085,995 1 53,085,995

senior management1999 *************** Private placement — NOK 1,747,010 1,747,010 54,833,005 1 54,833,005

Hays Ships2001 *************** Private Placement NOK 5,483,000 5,483,000 60,316,005 1 60,316,0052002 *************** Share Swap DSND U.S.$ –5,543,684 547,723 0.01 54,772,321

Subsea ASA vs. DSNDInc Cayman Islands

2002 *************** Voluntary Offer DSND U.S.$ 11,047 1,104,674 558,770 0.01 55,876,995Subsea ASA

2002 *************** Private Placement U.S.$ 217,647 21,764,706 776,417 0.01 77,641,7012003 *************** Mandatory Offer U.S.$ 31,611 3,161,097 808,028 0.01 80,802,798

DSND Subsea ASA2004 *************** Private Placement U.S.$ 80,000 8,000,000 888,028 0.01 88,802,7982004 *************** Private Placement U.S.$ 413,000 41,300,000 1,301,028 0.01 130,102,7982005 *************** Subsequent Offering U.S.$ 24,589 2,458,549 1,325,613 0.01 132,561,3472005 *************** Conversion of Notes U.S.$ 1,025 102,500 1,326,638 0.01 132,663,8472005 *************** Conversion of Notes U.S.$ 5 500 1,326,663 0.01 l32,664,3472005 *************** Conversion of Notes U.S.$ 500 50,000 1,327,143 0.01 132,714,3472005 *************** Conversion of Notes U.S.$ 60 6,000 1,327,203 0.01 132,720,3472005 *************** Conversion of Notes U.S.$ 510 51,000 1,327,713 0.01 132,771,3472005 *************** Conversion of Notes U.S.$ 965 96,500 1,328,678 0.01 132,867,8472005 *************** Conversion of Notes U.S.$ 1,170 117,000 1,329,848 0.01 132,984,8472005 *************** Exercise of employee U.S.$ 1,200 120,000 1,331,048 0.01 133,104,847

options2005 *************** Conversion of Notes U.S.$ 17,190 1,719,000 1,348,238 0.01 134,823,8472005 *************** Conversion of Notes U.S.$ 440 43,998 1,348,678 0.01 134,867,8452005 *************** Exercise of employee U.S.$ 94 9,375 1,348,772 0.01 134,877,220

options2005 *************** Conversion of Notes U.S.$ 4,149 414,873 1,352,921 0.01 135,292,0932005 *************** Exercise of employee U.S.$ 481 48,125 1,353,402 0.01 135,340,218

options2005 *************** Conversion of Notes U.S.$ 44,536 4,453,639 1,397,938 0.01 139,793,8572005 *************** Purchase of own shares U.S.$ –1,078 –107,800 1,396,860 0.01 139,686,0572005 *************** Conversion of Notes U.S.$ 5 523 1,396,865 0.01 139,686,5802006 *************** Conversion of Notes U.S.$ 82,771 8,277,095 1,479,636 0.01 147,963,6752006 *************** Exercise of employee U.S.$ 684 68,375 1,480,320 0.01 148,032,050

options2006 *************** Exercise of employee U.S.$ 897 89,687 1,481,217 0.01 148,121,737

options

7.4 Authority to issue new shares

The Company’s Articles of Association state that subject to provisions of law and of the Memorandum ofAssociation of the Company, the unissued shares in the Company shall be at the disposal of the Board which mayoffer, allot, grant options over or otherwise dispose of them to such persons, at such times and for suchconsideration, and upon such terms, as the Board shall determine.

The Articles of Association further state that no shares shall be issued to bearer and all shares shall be issuedfully paid.

7.5 Authority to acquire own shares

According to the Articles of Association, the Board has the opportunity, under certain conditions, topurchase or otherwise acquire any of its own shares.

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In October 2005, the Company repurchased 107,800 shares in the Company. Further details of thistransaction are outlined in note 29 of the Annual Report for 2005 included in Appendix 2.

Subsea 7 has announced it may use part of the net proceeds from the issue of the Notes to purchase up to5,000,000 of its Ordinary Shares in open market repurchases on the Oslo Børs.

7.6 Share price development

The Company’s shares were first listed for trading on Oslo Børs on 17 October 2002 and were quoted asDSND Inc. and subsequently as Siem Offshore. Since 22 July 2005 the Company has been quoted on Oslo Børsas Subsea 7.

The graph below illustrates the share price development and the trading volume of the Company’s CommonShares on the Oslo Børs over the last year.

40.32

59.74

79.16

98.58

118.00

11 May 2005 09 August 2005 07 November 2005 05 February 2006 06 May 2006

His

tori

cal P

rice

NO

K

0

1,300,768

2,601,536

3,902,304

5,203,072

Tun

over

Vol

ume

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7.7 Ownership structure

As at 10 May 2006 the Company had 2,737 registered shareholders.

The following table lists the 20 largest holders of shares in the Company as at 10 May 2006 as registered inthe VPS:

Number OwnerShareholder of shares interest

SIEM INDUSTRIES INC *********************************************** 56,224,145 37.96%LEHMAN BROTHERS INTERNATL. EUROPE **************************** 8,000,0002 5.40%FIDELITY FUNDS-EUROP. GROWTH/SICAV ***************************** 6,477,500 4.37%MORGAN STANLEY AND CO.INTL.LIMITED**************************** 6,447,352 4.35%THIRD AVENUE INTL. VALUE FUND*********************************** 4,138,100 2.79%BANK OF NEW YORK, BRUSSELS BRANCH **************************** 4,038,000 2.73%JPMORGAN CHASE BANK ******************************************** 2,935,031 1.98%NORDEA BANK DENMARK AS **************************************** 2,743,004 1.85%JPMORGAN CHASE BANK ******************************************** 2,521,307 1.70%MORGAN STANLEY & CO. INC. *************************************** 2,455,892 1.66%MP PENSJON ******************************************************** 2,112,500 1.43%BANK OF NEW YORK, BRUSSELS BRANCH **************************** 1,822,000 1.23%VITAL FORSIKRING ASA(OMLØP) ************************************* 1,749,802 1.18%STATE STREET BANK & TRUST CO. *********************************** 1,697,000 1.15%STATE STREET BANK & TRUST CO. *********************************** 1,372,080 0.93%STATE STREET BANK & TRUST CO. *********************************** 1,355,881 0.92%BNP PARIBAS SEC.SERVICES PARIS *********************************** 1,115,000 0.75%UBS AG, LONDON BRANCH ****************************************** 1,081,700 0.73%AVANSE NORGE (II) ************************************************** 1,065,353 0.72%DNB NOR NORGE (IV)************************************************ 977,319 0.66%

Total 20 largest shareholders ******************************************* 110,328,966 74.49%

Other shareholders ***************************************************** 37,792,771 25.51%

Total number of shares ************************************************ 148,121,737 100.00%

2 The 8,000,000 shares registered in the name of Lehman Brothers International (Europe) are beneficially held by Siem Industries Inc. butsubject to a share lending facility whereby Lehman Brothers is entitled to borrow some or all of the shares from time to time.

The major shareholder of the Company is Siem Industries Inc. which, including shares lent to others andshares registered in nominee accounts, holds 44.8 per cent. of the Company’s shares. To the Company’sknowledge, no party directly or indirectly controls the Company.

7.8 Shareholder and dividend policy

The Company’s shares carry equal rights to dividend payments. The Company has not paid any dividends tothe shareholders in the last three financial years.

7.9 Restrictions, voting, trading etc.

The shares in Subsea 7 are freely transferable and there are no restrictions on trading in the Company’sshares. The Board however, under certain conditions as set out in the Articles of Association, may refuse toregister a transfer of shares.

Each of the Company’s shares represents one vote on a poll at a general meeting. However, the Articles ofAssociation establish a right to divide the share capital into different classes of shares with varied rights attachedto the shares.

7.10 Equity instruments

The Company has in place a share option scheme for the senior management. Further details of this optionscheme are outlined in note 22 to the Annual Report for 2005 included in Appendix 2.

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7.11 Company incentive scheme

Following a review of the Company’s compensation package, the Board is proposing to the annual generalmeeting of the Company to be held on 12 July 2006 that the shareholders approve the following share optionscheme and share purchase plan (the ‘‘Plan’’) in order to reward, incentivise, attract and retain key employees.

The operation of the Plan will be supervised by the Compensation Committee.

There are three parts to the share option scheme. The main plan is the so called Umbrella Plan, under whichoptions would be granted to key employees of the Group. In addition there would be two sub-plans which areintended for option grants to employees resident in the UK (for options up to a specified limit) and the U.S. tomaximise tax efficiency. Both sub-plans are broadly the same unless indicated to the contrary in this summary.

The duration of the Plan will be 10 years.

7.11.1 The Umbrella Plan

Operation and Eligibility

The Plan has been written to be flexible but the Compensation Committee will operate the Plan and mayvary the Plan as the Company develops by introducing such things as performance conditions for example.Options may be granted to such key employees of the Group as the Compensation Committee in its solediscretion selects or approves.

Grant of Options

Options may be granted at any time unless there are insider trading rules that prevent the Company making agrant. No more than 10 per cent. of the Company’s issued share capital from time to time may be subscribed toon the exercise of options over a ten year period under the Plan.

Exercise Price

The exercise price of options will be not less than the fair market value of the shares at the time of grant.

Vesting, exercise and lapse of options

Options granted under the Plan have a ten year life.

Options vest 20 per cent. per annum and become exercisable on vesting.

Vested options can only be exercised in the seven day period following the quarterly announcements of theCompany. There is however a facility for the Compensation Committee to specify an extension of exercise‘‘windows’’ in the future.

On a cessation of employment vested options may be exercised until the end of the next seven day exerciseperiod occurring immediately after the cessation of employment.

On a cessation of employment the unvested part of an option lapses unless the Compensation Committee inits absolute discretion determines that it may vest.

Change of control and variation of share capital

On a change of control the Compensation Committee may determine that options are not exercisableprovided that a replacement option is made available over shares in the acquiring company — those replacementoptions will have the same vested or unvested options as the original options had at the date of exchange unlessthe Compensation Committee specifies otherwise. Where a replacement option is not made available or the Boardis comfortable that options may be exercised it is only the vested part of an option that is exercisable. TheCompensation Committee does however have the discretion to provide that all or part of the unvested part ofoptions should also become exercisable.

7.11.2 The UK Approved Plan

The UK Approved Plan is a plan approved by Her Majesty’s Revenue and Customs in the UK. Under theUK Approved Plan, approved options may be granted to individuals in the UK which will, provided certainconditions are met, provide participants with certain tax and National Insurance Contributions (NIC) benefits andthe Company with NIC benefits. The main condition to obtain these benefits is that the option must not be

55

exercised before the third anniversary of the date of grant (‘‘an Approved exercise’’). Although a vested optioncan be exercised earlier than this, by doing so the tax and NIC relief would be lost. For an Approved exercise noUK income tax or NIC liability will arise, but only capital gains tax on the sale of the shares (potentially at alower rate than income tax and with various exemptions and reliefs available).

There is however a limit on the total value of shares that may be subject to an approved option (currently£30,000) calculated based on the fair market value of the shares at the date of grant. If an individual is to receivean option over shares with a value in excess of this £30,000 limit then the excess will be granted under theUmbrella Plan.

7.11.3 The U.S. Plan

In the U.S. it is possible to grant what are known as Qualifying Incentive Stock Options (QISOs) and NonQualifying Stock Options (NQISOs). QISOs can provide participants with certain tax benefits provided certainconditions are met including conditions as to the timing of exercise of the option and sale of shares. Thecondition as to timing of exercise and sale of shares is that options are exercised at least one year after the date ofgrant and that the shares acquired on exercise are sold at least two years after the date of exercise. No U.S. socialsecurity is payable in respect of QISOs.

7.11.4 Employee share purchase plan

The purpose of the employee share purchase plan (the ‘‘ESPP’’) is to provide the employees of Subsea 7Inc. and its Subsidiaries with an added incentive to continue in their employment, to encourage increased effortsto promote the best interests of the Group, and to provide greater alignment of employees’ economic interestswith those of the wider shareholders of Subsea 7.

The ESPP will provide for monthly deductions from salary to be applied by participants in purchasingSubsea 7 shares.

The purchase price will be the lower price at the beginning or end of predetermined six month periods, andincorporate either a discount of 15 per cent. (U.S. only) or be on the basis of receiving one free share for every sixpurchased. Free shares awarded to employees in locations other than the U.S. will only vest absolutely inemployees if they remain in employment with Subsea 7 for three years from the date of purchase. ForU.S. employees, there will be restrictions on the sale of 15 per cent. of the shares purchased for a period of threeyears from the date of purchase.

It is currently proposed that the maximum annual deduction permitted will be U.S.$2,600 (or itsapproximate equivalent in the local currency in each relevant location) from the salary of each employee whoelects to participate.

The operation of the ESPP will be supervised by the Compensation Committee.

The target launch date for the ESPP is 1 July 2006 and it will initially be operated in Norway, the UK, theU.S. and Brazil.

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8. FINANCIAL INFORMATION

The figures below have been extracted without material adjustment from the consolidated annual report ofthe Company for the year ended 31 December 2005.

IFRS IFRSIn US$ millions (unless otherwise stated) 31 Dec 2005 31 Dec 2004

Income Statement dataRevenue from continuing operations *************************************** 1,287.0 —Profit/(Loss) from continuing operations************************************ 45.2 (4.6)Loss from discontinued operations **************************************** (4.0) (9.1)Profit/(Loss) attributable to equity shareholders ****************************** 41.2 (13.7)

Balance Sheet dataNon-current assets****************************************************** 419.2 412.9Current assets ********************************************************* 461.7 417.1Total assets *********************************************************** 880.9 830.0Shareholders’ equity **************************************************** 288.7 286.4Non-current liabilities*************************************************** 66.8 206.6Current liabilities ****************************************************** 525.4 337.0Total shareholders’ equity and liabilities************************************ 880.9 830.0

Per share dataAverage number of shares issued (’000) ************************************ 134,327 84,400Earnings per share (U.S.$) *********************************************** 0.31 (0.16)Earnings per share, from continuing operations (U.S.$) *********************** 0.34 (0.05)Average number of shares issued, diluted (’000) ***************************** 142,916 84,400Earnings per share, diluted (U.S.$) **************************************** 0.30 (0.16)Earnings per share, diluted, from continuing operations (U.S.$)***************** 0.33 (0.05)

Subsea 7 is not aware of any significant changes in its financial or trading position or any material adversechange in its prospects that has occurred after the financial statements of the annual report of the period ending31 December 2005.

The annual report for the year ended 31 December 2005, prepared in accordance with IFRS, is included inAppendix 2.

The accounts for the year ended 31 December 2004, prepared in accordance with NGAAP, are included inAppendix 3.

Subsea 7 Inc.’s auditor is PricewaterhouseCoopers LLP, independent registered auditors and charteredaccountants, located at 32 Albyn Place, Aberdeen. PricewaterhouseCoopers has been the auditor of Subsea 7 andits predecessor companies since 1997 and has issued unqualified opinions during the whole period. Price-waterhouseCoopers LLP is a member of the Institute of Chartered Accountants of England and Wales.

9. LEGAL AND TAX MATTERS

9.1 Material contractual disputes and legal proceedings

Subsea 7 Norway submitted a request for arbitration in respect of a dispute relating to a contract betweenSubsea 7 Norway and Allseas for the Halfdan Northeast Development Project on the Danish Continental Shelf.The preliminary claim amounts to DKK 114 million (plus legal interests) and relates to a number of individualclaims relating to changes in design during the life of the project.

In addition Subsea 7 Norway has commenced arbitration proceedings in Denmark against DONG in respectof a dispute relating to the Stine Project in the Danish Continental Shelf. Subsea 7’s claim amounts toDKK 87 622 615 (plus legal fees) and relates to a number of individual claims regarding contractual liability forthe soil conditions and the liability for trenching and rock dumping.

Oceanographia began proceedings against Subsea 7 (U.S.) LLC for failing to provide the vessel ‘‘Botnica’’.This has been defended on the basis that Oceanographia is suing the wrong party, and that this is evidenced bythe fact that the arbitration proceedings have already been heard in London between DSND and Oceanographiaregarding the same claim. The initial arbitration hearing founded in favour of DSND. Proceedings in this casehave been suspended, pending the outcome of the appeal which Oceanographia have raised to the Londonarbitration proceedings.

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9.2 Material Contracts

9.2.1 New-building Vessel contracts

Subsea 7 currently has two new vessels on order both with Merwede Shipyard and Huisman Special LiftingEquipment.

The first contract is for a new-build rigid pipelay and construction vessel at an overall project cost ofapproximately U.S.$200 million. The vessel, which is 157 metres long and 28.4 metres wide, will have a toptension capability of 400 tonnes and will have a storage capacity of 3,500 tonnes of steel pipe on the main reel.The vessel will also have a 400 tonnes deepwater crane, a built-in deepwater ROV spread and a comprehensivesurvey system. The completed ship is expected to be delivered in the second quarter of 2007.

The second contract is for a new-build flexlay, J-lay and construction vessel at an overall project cost ofapproximately U.S.$200 million. The vessel will be 153 metres long and 28.4 metres wide. Its pipelay equipmentwill include a vertical lay system with top tension capability in excess of 400 tonnes, combined with a storagecapacity for flexible pipe based on two 1,250 tonnes carousels below deck and a 3,000 tonnes carousel or multiplereels on deck. The lay system will have the additional ability to J-lay rigid pipe. The vessel will have a 400 tonnesdeepwater crane, a built-in deepwater ROV spread and a comprehensive survey system. The completed ship isexpected to be delivered in the second quarter of 2008.

9.2.2 Operational Contracts

a. Brazil, Roncador

Subsea 7 was, in joint venture with Technip, awarded the EPIC (Engineering, Procurement, Installation andCommissioning) contract from Petroleo Brasileiro S.A. (Petrobras). The contract is for the design, supply andinstallation of flexible risers and flow lines and the installation of umbilicals and jumpers on the P52 platform inthe Roncador field in the Campos Basin. Subsea 7 will undertake all installation works for the contract with avalue in excess of U.S.$150 million.

The workscope includes the design, manufacture, supply, installation, pull and hook-up to the P52 platformincluding pre-commissioning of risers, associated flowlines and ancillary equipment for 4’’ to 9’’ diameterflexible lines totalling 221 km in length and the installation of a further 83 km of jumpers and 163 km ofumbilicals free issued by the client.

b. Brazil, PDEG(B)

Also awarded as part of a joint venture with Technip, this EPIC contract from Petrobras is for pipelineinstallation in the deeper part of the development programme for the re-distribution of oil and gas transport withinthe Campos Basin known as PDEG (B). The contract is valued in excess of U.S.$250 million.

The work scope includes engineering, procurement, fabrication, installation and pre-commissioning of sixpipelines, including both 10’’ and 12’’ diameter lines totalling 168 km in length, all located in the Campos Basin.

c. Angola, Lobito Tomboco

The EPIC work scope, with a value of about U.S.$270 million, is for the development of the Lobito andTomboco fields, in Block 14 , offshore the Province of Cabinda in Angola.

The project is to tie-back three subsea well centres which are located approximately 10 km from theBenguela-Belize Compliant Production Tower. The project scope includes the fabrication and the installation ofsteel pipelines, flowline jumpers, connectors and umbilicals as well as the installation of operator suppliedequipment such as manifolds and distribution units. The Lobito and Tomboco fields are in water depths ofbetween 400 and 600 metres.

d. Malaysia, Kikeh

This EPIC contract for work associated with the Kikeh field, located offshore Sabah, Malaysia, in waterdepths of 1,330msw is valued in the region of U.S.$165 million. The project will run for two years beginning inthe second quarter of 2006.

The scope of work for this contract includes the commissioning of the infield pipelines, pipeline to FPSOrisers, and the fabrication and installation of the support piles for the subsea structures. The contract also includesthe installation of the subsea umbilical, subsea jumpers and subsea structures for the Kikeh development project.

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e. United Kingdom, BP

This 5 year frame contract, which was announced in January 2006 runs through 31 December 2011.

The contract is for provision of a deepwater construction vessel with its in-house designed and builtHercules deepwater work class ROV systems. The vessel will be permanently employed in a programme of work,supporting the development and maintenance of BP’s deepwater west of Shetland oil and gas fields, and willundertake a wide variety of construction tasks as well as inspection, repair and maintenance (IRM) activities. Theoffshore programme is supported by a dedicated onshore project management and project engineering team withadded specialist knowledge of remote intervention activities in harsh environmental areas.

f. Norway, Oseberg Delta

In Norway, Subsea 7 has been awarded an EPIC contract for Oseberg Delta Project from Norsk Hydro ASA.The contract, valued in excess of NOK420 million, is a tieback to the Norsk Hydro operated Oseberg FieldCentre via two 10’’ ID carbon steel production flowlines and an integrated service and control umbilical.

The basic work scope includes engineering, procurement, fabrication, installation and pre-commissioning oftwo 10’’ pipelines totalling 18 km in length, procurement and installation of an integrated service umbilical andone flexible riser, all subsea installation and construction work including trenching and rock dumping of the flowlines and the umbilical system.

9.3 Corporate law on Cayman Islands relevant to Subsea 7

The purpose of this summary is to provide a review of the laws and rules of corporate governance to whichSubsea 7 is subject and to highlight certain similarities to and differences from those rules that would apply to aNorwegian company. This summary should be read in conjunction with and qualified in its entirety by theArticles of Association set out in Appendix 1.

9.3.1 General

Subsea 7 is incorporated in the Cayman Islands with limited liability as an exempted company. This meansthat the Company may not trade in the Cayman Islands with any person, firm or corporation, except infurtherance of the business of the Company carried on outside the Cayman Islands.

The Company and its activities are primarily governed by the Companies Law (2004 Revision) and theCompany’s Memorandum and Articles of Association. As the Company is listed on the Oslo Børs, certain aspectsof the Company’s activities are governed by Norwegian law pursuant to the Listing Agreement between the OsloBørs and the Company. In addition, the Norwegian Stock Exchange Act the Stock Exchange Regulations and thelisting rules of Oslo Børs will apply.

The constitutional documents of the Company consist of the Memorandum and Articles of Association,which are significantly more extensive than the Articles (vedtekter) of a Norwegian company. The Articles dealprimarily with the Company’s administration, internal regulation and the distribution of rights and authoritiesbetween the Company’s shareholders and the Directors.

Under the Companies Law (2004 Revision), a company’s Memorandum and Articles may be amended by aspecial resolution of the company in general meeting. This is the same majority requirement as in the NorwegianPublic Companies Act of 13 June 1997 no. 45 (‘‘Norwegian Public Companies Act’’).

9.3.2 Shares and share capital

Introduction

According to the Memorandum and Articles the authorised share capital of Subsea 7 is U.S.$2,000,000divided into 200,000,000 Common Shares each of U.S.$0.01 nominal value. The Company’s shares are registeredshares (as opposed to bearer shares), which means that the shares cannot be transferred by delivery of a sharecertificate alone.

The Company’s register of shareholders is located at the office of Nordea Verdipapirservice, who will act asregistrar for the Company.

The Articles of the Company draw a distinction between ‘‘issued’’ and ‘‘unissued’’ shares. Unissued sharesform part of the Company’s authorised share capital, but have not yet been issued to any person. These unissuedshares may, subject to the pre-emption rights of shareholders, be disposed of by the Board upon such terms as the

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Board may determine, except that they may not be issued at a discount to their nominal value. According to theArticles, the Company can only issue shares fully paid.

Shareholders/transfer of shares

According to the Articles, shareholders can transfer their shares by an instrument of transfer in the usualcommon form or in such other form as the Board may approve. The shares are registered in the VPS system andare tradable in the same manner as other VPS registered shares.

The shares in Subsea 7 are transferable and there are no restrictions on trading in the Company’s shares. TheBoard may however, in its absolute discretion, refuse to register a transfer of any share which is not fully paid upor on which the Company has a lien and also in certain circumstances set out in the Articles.

The Board shall decline to register the transfer of any share to a person where the Board is of the opinionthat such transfer might breach any law or requirement of any authority or any Exchange until it has receive suchevidence as it may require satisfying itself that no such breach would occur.

Changes to the share capital, share issues and shareholders’ rights

According to the Articles, the authorised share capital of the Company may be increased, consolidated orsub-divided by an ordinary resolution of a general meeting. The Norwegian Public Companies Limited Actrequires that two-thirds of the votes in a shareholders’ meeting be cast in favour of an increase of or otherwisechanges to the share capital.

Likewise, a company may by a special resolution authorise a reduction of its share capital, capitalredemption, reserve or any share premium account. Under Norwegian law two-thirds majority at a shareholders’meeting is required to decrease the share capital and, except when otherwise provided for in the articles ofassociation, all shares must be treated equally in case of such reduction.

All or any of the rights attached to any class of shares of the Company for the time being issued (unlessotherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of theCompanies Law (2004 Revision), and to applicable regulations of an Exchange, be varied or abrogated with theconsent in writing of the holders of not less than two-thirds in nominal value of the issued shares of that class or,with the sanction of a special resolution passed at a separate meeting of the holders of shares of that class. Bycomparison the Norwegian Public Companies Act requires the consent of all those shareholders whose rights arealtered in order to vary the rights of the different classes of shareholders.

Redemption and Repurchase of Shares

Subject to the Companies Law (2004 Revision), to relevant regulations of an Exchange, and to any rightsconferred on the holders of any class of shares, the Company shall have the power to purchase or otherwiseacquire any of its own shares in the manner set out in the Articles, to purchase or otherwise acquire warrants forthe subscription or purchase of its own shares and to give, directly or indirectly, financial assistance for thepurpose of or in connection with a purchase or other acquisition made or to be made by any person of any sharesor warrants in the Company. The Company may pay for such shares or warrants in any manner authorised or notprohibited by law, including out of capital.

Under the Norwegian Public Companies Act, there are limited rights for a company to acquire its ownshares. These limits are not reflected in the Articles.

Warrants

The Board is authorised to issue warrants to subscribe for shares of the Company on such terms as theCompany in general meeting may by special resolution from time to time determine.

9.3.3 Mandatory Offer

The Articles of the Company contains an implementation of Chapter 4 of the Norwegian Securities TradingAct, comprising the duty to put forward a mandatory offer to purchase all the issued shares of the Company whena person acquires more than 40 per cent. of the issued shares having the right to attend and vote at a generalmeeting of the Company.

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9.3.4 General Meeting

The Board decides the venue of the Company’s general meeting which can be anywhere other than Norway.According to Norwegian law, unless otherwise decided in specifically in the Articles of Association, the venue ofthe general meeting is in the municipality where the Company has its registered office.

A general meeting must be held once every year and 14 days’ notice is required for the holding of an annualgeneral meeting or an extraordinary general meeting. Consent to a shorter notice period may be given inaccordance with the provisions of the Articles. According to Norwegian law, the Articles of Association may setout a longer notice period, and there is no regulation allowing consents to be given to a shorter notice period.

A general meeting may be called by the Board or at the requisition of the members. A member requisition isa requisition of members holding at the date of deposit of the requisition not less than ten per cent. in par value ofthe capital of the Company, which as at the date carries the right of voting at general meetings. The requisitionmust state the objects of the meeting and must be signed by the requisitionist and deposited at the registeredoffice, and may consist of several documents in like form each signed by one or more requisitionists. If the Boarddoes not within twenty-one days from the date of the deposit of the requisition proceed to convene a generalmeeting to be held within a further twenty-one days, the requisitionist, or any of them representing more thanone-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting soconvened shall not be held after the expiration of three months after the expiration of the said twenty-one days.This differs from the provisions of the Norwegian Public Companies Act.

Save as set out above, no business shall be transacted at a general meeting of the Company other than suchbusiness as shall be specified in the notice of the meeting. For business to be brought before a general meeting bya member, the member must have given notice in writing to the Secretary as set out on the Articles. The noticegiven by such member shall set out, inter alia, a brief description of the business desired to be brought before themeeting and the reasons for conducting such business at the meeting and/or the name and address of the person orpersons to be nominated as Directors.

For all purposes the quorum for a general meeting shall be one or more members present in person or byproxy holding not less than one third of the issued shares of the Company entitled to vote at the meeting inquestion.

Shareholders may be represented at the general meeting by proxy or, in the case of a body corporate, by itsduly authorised representative. If two or more persons are registered as joint holders and present then the vote ofthe most senior shall be accepted to the exclusion of the votes of the other joint holders.

A resolution of a general meeting is adopted by ordinary resolution unless the Companies Law (2004Revision) or the Articles specify otherwise.

9.3.5 The Board of Directors

Election, quorum and voting requirements

The Board shall consist of not less than three nor more than seven persons (excluding alternate Directors).The necessary quorum for the transaction of business of the Directors is, unless fixed by the Board at any othernumber, not less then half of the Directors.

At least 50 per cent. of the Directors shall be elected for a term of two years or such shorter term as shall bespecified in the ordinary resolution pursuant to which they shall be appointed. Each Director shall hold officeuntil the expiration of his term and until his successor shall have been elected and qualified.

The Board may appoint any person as a Director to fill a casual vacancy. Any Director appointed by theBoard shall hold office only until the next following annual general meeting of the Company and shall then beeligible for re-election at the meeting. This differs from the practise in Norway whereby the procedure ofappointment is the same in relation to all Directors, including alternates.

The Company may by ordinary resolution at any time remove for any cause any new Director (including anexecutive officer) and may by ordinary resolution elect another person in his stead. Directors shall also berequired to vacate their office based on, inter alia, mental status, bankruptcy, or prohibitions by law.

A Director need not hold any qualification shares. No Director shall be required to vacate office by reasononly of his having attained a particular age. A Director may appoint an alternate Director.

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A Board meeting may be held in any part of the world and may be held by means of a telephone conference.A resolution in writing signed by all the Directors for the time being shall be as valid and effective as a validresolution passed by a meeting of the Board.

The Board elects the chairman of the Board. Questions arising at the Board meeting shall be decided by amajority of the votes cast. The chairman of the Board shall have a second or casting vote. This is in accordancewith the Norwegian Public Companies Act.

Powers of the Board

The purpose of the Board is to manage and conduct the business of the Company and its power and rightsare limited only by the Companies Law, the Articles and any direction given by the Company in general meeting.In principle, this is in accordance with Norwegian company law, but it should be borne in mind that the Articlesand Cayman Islands statutory law delegates certain power to the Board which would have been the powers of theshareholders’ meeting of a Norwegian company or do not exist under Norwegian law such as the Directors’power to issue shares within the authorised share capital and the Directors’ discretionary power to distributedividends or make allocations to the Company’s reserves.

In addition, a Norwegian company with a share capital of NOK 1 million or more shall have a managingdirector (who may or may not be a member of the Board) whose responsibility is the day-to-day management ofthe Company. This is not required under Cayman Islands law.

Pursuant to the Articles, the Board has full power to charge any of the Company’s assets and to borrowmoney without any sanction by the shareholders’ meeting.

The Board may by power of attorney appoint a person or company as the Company’s attorney with suchpower, authority and discretion as the Board thinks fit, provided however that this does not exceed the powersvested in the Board by the Articles. The Board may also authorise the attorney to sub-delegate any or all powers,authorities and discretions vested in him by the Board. Furthermore, the Board may delegate any of its powers tocommittees consisting of such member or members of the Board as it thinks fit. Every committee so formed shallconform to any regulations that may from time to time be imposed upon it by the Board. Under Norwegian law,the board of a company can delegate authority and appoint attorneys, but the authority or power that may bedelegated or vested in an attorney is considerably more restricted.

Directors’ interests

A Director may be engaged by the Company for the purpose of performing services which go beyond hisordinary duties as a Director, but he may not be the Company’s auditor. The Director performing such servicesfor the Company is entitled to such extra remuneration as the Board may decide.

A Director or a company owned by him may also enter into commercial agreements with the Companyprovided that the relevant Director declares his interest in such contract at the Board meeting where the contractis first considered. He shall not be counted in quorum and cannot vote in any case where he has declared amaterial interest. Furthermore, a Director shall not vote or be counted in the quorum regarding any resolutionrelevant to his appointment to a position in the Company.

9.3.6 Transactions with interested shareholders

Subject to provisions of the Companies Law and except as otherwise expressly provided in the Article, aspecial resolution of the shareholders shall be required to approve certain Business Combinations with InterestedShareholders or their Affiliates, unless the Business Combination shall have been approved by a majority of theDisinterested Directors.

9.3.7 Dividends and Capitalisation of Reserves

The Directors may from time to time declare dividends (including interim dividends) and distributions onshares of the Company outstanding and authorise payment of the same out of the funds of the Company lawfullyavailable therefor. The Directors may declare that any dividends or distribution be paid wholly or partly in specie.

Under Norwegian company law the declaration of dividends always requires a sanction of a shareholders’meeting.

The shareholders may upon recommendation of the Board by ordinary resolution resolve to capitalise all orany parts of any reserve or account otherwise available for distribution amongst the shareholders who would

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otherwise have been entitled thereto if distributed by way of dividend and in the same proportion thereto. Thecapitalisation can take place by paying up amounts for the time being unpaid on any shares or in issuing fullypaid shares, debentures, or other securities of the Company amongst such shareholders. There are similar rules inthe Norwegian Public Companies Act whereby new shares can be issued from a company’s funds to the existingshareholder. Such a decision would in a Norwegian company require a two-thirds majority at a shareholders’meeting.

9.3.8 Accounts

The Articles and the Companies Law contain regulations concerning accounting. According to theCompanies Law, the Directors must ensure that accounts are kept sufficient to give a true and fair view of thestate of the Company’s affairs and to explain its transactions. The accounts or books or documents of theCompany are not public and only the Directors have access to them unless otherwise authorised by law, theDirectors or by the Company in general meeting. The shareholders will receive annually certain accounts andfinancial statements of the Company. Under Norwegian law, a company’s accounts are public and filed with theCompany Register.

9.4 Norwegian Tax Issues

9.4.1 General

The following is a summary of certain Norwegian tax considerations relevant to the acquisition of Notes,conversion of such Notes into Ordinary Shares and of the ownership and disposition of Notes and OrdinaryShares in the Company by holders that are residents of Norway for purposes of Norwegian taxation.

International investors who are not residents of Norway for tax purposes will normally not be liable for anyNorwegian tax unless their investment is linked to a permanent establishment or any business conducted inNorway.

The summary is based on applicable Norwegian laws, rules and regulations as they exist as of the date ofthis Prospectus. Such laws, rules and regulations are subject to change, possibly on a retroactive basis. Thesummary does not purport to be a comprehensive description of all the tax considerations that may be relevant tothe holders and does not address foreign tax laws. Each holder should consult his or her own tax advisor todetermine the particular tax consequences for him or her and the applicability and effect of any Norwegian orforeign tax laws and possible changes in such laws.

9.4.2 Norwegian taxation related to the Notes

9.4.2.1 Taxation of interest

Norwegian tax legislation generally provides that Noteholders must include interest income in taxableincome in the year such interest accrues.

Interest income is subject to tax at the general tax rate of 28 per cent.

9.4.2.2 Taxation of capital gains upon the realisation of Notes

Gains from a sale or other disposition of Notes are taxable as general income at a rate of 28 per cent. Lossesare deductible against general income. A gain or loss is calculated for each Note as the difference between theconsideration received and the tax basis of the Note. The tax basis of the Note is determined as the issue price oracquisition cost.

Costs incurred in connection with the purchase and sale of Notes may be deducted in the year of realisationof the Notes.

9.4.2.3 Tax on capital gains on conversion to new shares

The conversion of the Notes to Ordinary Shares is considered a realisation of the Notes for Norwegian taxpurposes. Capital gains on the disposal of the Notes will be taxable as general ordinary income, subject to the taxrate of 28 per cent. The calculation of the capital gain will be made using the quoted stock price of Subsea 7 Inc.at the time the conversion takes place. From the quoted stock price, the conversion price per share is deducted.

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9.4.2.4 Net Wealth Tax

Corporate holders are exempt from Norwegian net wealth tax. For individual holders, Notes will be part ofthe holder’s capital and be subject to net wealth tax in Norway. The current marginal wealth tax rate is 1.1 percent. of taxable values.

Notes are valued at their nominal value on 1 January in the assessment year.

9.4.2.5 Inheritance tax

The transfer of Notes by inheritance or gift may involve a liability to pay inheritance or gift tax to Norway ifthe deceased, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway, or if theNotes are effectively connected with a business carried out through a permanent establishment in Norway.However, in the case of inheritance tax, if the deceased was a citizen but not a resident of Norway, Norwegianinheritance tax will not be levied if inheritance tax or a similar tax is levied in the country where the deceasedwas resident.

The basis for the tax calculation is the nominal value of the Notes, unless the assumed sales price is lower.

9.4.2.6 Stamp duty

There is currently no Norwegian stamp duty or transfer tax on the transfer or issuance of Notes.

9.4.3 Norwegian Taxation related to the Ordinary Shares

9.4.3.1 Net Wealth Tax

Corporate shareholders are exempt from Norwegian net wealth tax. For individual shareholders, shares willbe part of the shareholder’s capital and be subject to net wealth tax in Norway. The current marginal wealth taxrate is 1.1 per cent. of taxable values.

Listed shares are valued at 80 per cent. of their quoted value on 1 January in the assessment year.

9.4.3.2 Taxation of Dividends

Dividends distributed to corporate shareholders from a limited liability company resident in the CaymanIslands for tax purposes, are subject to tax at a flat rate of 28 per cent. as the Cayman Islands is regarded as a lowtax jurisdiction situated outside the EEA.

Dividends distributed to resident individual shareholders are taxable as ordinary income at a flat rate of28 per cent. to the extent the dividends exceed a tax-free allowance. The tax-free allowance is computedseparately for each share on the basis of the tax purchase price of the share (adjusted for any RISK-amounts up to1 January 2006) multiplied by a risk-free interest rate. The risk-free interest rate shall be based on the averageinterest rate on 3-month treasury bills (statskasseveksler) in the relevant year. Any unused allowance in any oneyear will be added to the tax purchase price of the share by the computation of the allowance the following year,and may also be carried forward and set off against future dividends received on, or against gains upon therealisation of, the same share.

9.4.3.3 Taxation of capital gains upon the realisation of shares

As the Cayman Islands is regarded as a low tax jurisdiction outside the EEA, any capital gain on therealisation of the Ordinary Shares will be taxed at a rate of 28 per cent. Corresponding losses are tax deductible.

Resident individual shareholders are subject to tax in Norway for capital gains upon the realisation of shares,and have a corresponding right to deduct losses. This applies irrespective of how long the shares have been ownedby the individual shareholder and irrespective of how many shares that are realised. Gains are taxable as ordinaryincome at a tax rate of 28 per cent. in the year of realisation, and losses may be deducted from ordinary income inthe year of realisation.

Capital gains or losses are calculated per share as the consideration received by the realisation less the taxpurchase price of the share. Any unused allowance on a share may be set off against gains upon the realisation ofthe same share, but may not lead to or increase a deductible loss, i.e. any unused allowance exceeding the capitalgain upon the realisation of a share will be annulled. Costs incurred in connection with the purchase andrealisation of shares may be deducted in the year of realisation.

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If shares acquired at different times are realised, the shares that were first acquired will be deemed as firstsold upon calculating taxable gain or loss (the ‘‘FIFO’’ principle).

9.4.3.4 Inheritance tax

The transfer of shares by inheritance or gift may involve a liability to pay inheritance or gift tax to Norway ifthe deceased, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway, or if theshares are effectively connected with a business carried out through a permanent establishment in Norway.However, in the case of inheritance tax, if the deceased was a citizen but not a resident of Norway, Norwegianinheritance tax will not be levied if inheritance tax or a similar tax is levied in the country where the deceasedwas resident.

In the case of listed shares, the basis for the tax calculation is the market value of the shares.

9.4.3.5 Duties on the Transfer of Shares

No stamp or similar duties are currently imposed in Norway on the transfer of shares, whether on acquisitionor disposal.

9.4.4 Norwegian Controlled Foreign Corporation Taxation (NOKUS)

Shareholders resident in Norway for tax purposes controlling a foreign company resident in a low taxjurisdiction may become subject to Norwegian Controlled Foreign Corporation Taxation (NOKUS). A foreigncompany will be deemed as Norwegian controlled where Norwegian shareholders directly or indirectly own orcontrol at least 50 per cent. of the shares or the capital of the foreign company at the commencement or end of theincome year. If the Norwegian shareholders become subject to NOKUS taxation, they are taxed in Norway on acurrent basis for their proportionate share of the profits generated by the Company, calculated according toNorwegian tax regulations, irrespective of whether such profits are distributed to the shareholders or not.

10. SUBSCRIPTION AND SALE

10.1 General

The Manager entered into a Subscription Agreement dated 3 May 2006 with the Company. Upon the termsand subject to the conditions contained therein, the Manager has agreed to subscribe for the aggregate principalamount of the Notes at the issue price of 100 per cent. of their principal amount.

The Subscription Agreement may be terminated in certain circumstances prior to the issue of the Notes.

The Company has agreed to pay to the Manager a combined management underwriting and sellingcommission of 1.75 per cent. of the aggregate principal amount of the Notes.

The Company has also agreed to reimburse the Manager for certain of its expenses incurred in connectionwith the management of the issue of the Notes.

Each of the Company (pursuant to the terms of the Subscription Agreement) and Siem Industries Inc.(pursuant to the terms of a Lock-Up Deed dated 3 May 2006) has undertaken that during the period commencingon the date of the Subscription Agreement and ending 90 days thereafter, it will not, without the prior writtenconsent of the Manager, (i) directly or indirectly, issue, offer, pledge, sell, contract to issue or sell, issue or sellany option or contract to purchase, purchase any option or contract to issue or sell, grant any option, right orwarrant to purchase or otherwise transfer or dispose of, directly or indirectly, any Ordinary Shares or RelevantSecurities (as defined below) or any securities convertible into or exercisable or exchangeable for Ordinary Sharesor Relevant Securities; or (ii) enter into any swap or any other agreement or any transaction that transfers, inwhole or in part, directly or indirectly, any of the economic consequences of ownership of Ordinary Shares orRelevant Securities, whether any such swap or transaction described in (i) or (ii) above is to be settled by deliveryof Ordinary Shares or Relevant Securities or such other securities, in cash or otherwise. The foregoing sentenceshall not apply to (a) the issue of the Notes, (b) any Ordinary Shares issued pursuant to conversion of the Notes,(c) the issue of Ordinary Shares pursuant to any options, warrants or other rights existing at the date of theSubscription Agreement and described in this Prospectus or (d) the issue of Ordinary Shares pursuant to anyemployee share schemes existing at the date of the Subscription Agreement and described in this Prospectus.‘‘Relevant Securities’’ shall include any participation certificates and any depositary or other receipt, instrument,rights or entitlement representing Ordinary Shares.

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10.2 United States

The Notes and the Ordinary Shares have not been and will not be registered under the Securities Act andmay not be offered or sold within the United States except pursuant to an exemption from, or in a transaction notsubject to, the registration requirements of the Securities Act. The Manager has represented that it has not offeredor sold, and agreed that it will not offer or sell, any Notes or any Ordinary Shares within the United States exceptin accordance with Rule 903 of Regulation S under the Securities Act. Accordingly, neither it, its affiliates, norany persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect tothe Notes or any Ordinary Shares. Terms used in this paragraph have the meanings given to them byRegulation S.

10.3 United Kingdom

The Manager has represented, warranted and agreed that:

(i) it has only communicated or caused to be communicated and will only communicate or cause to becommunicated any invitation or inducement to engage in investment activity (within the meaning ofsection 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) received by it inconnection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMAdoes not apply to the Company and

(ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anythingdone by it in relation to the Notes in, from or otherwise involving the United Kingdom.

10.4 European Economic Area

In relation to each Member State of the European Economic Area which has implemented the ProspectusDirective (each, a ‘‘Relevant Member State’’), the Manager has represented and agreed that with effect fromand including the date on which the Prospectus Directive is implemented in that Relevant Member State (the‘‘Relevant Implementation Date’’), it has not made and will not make an offer of the Notes to the public in thatRelevant Member State prior to the publication of a prospectus in relation to the Notes which has been approvedby the competent authority in that Relevant Member State or, where appropriate, approved in another RelevantMember State and notified to the competent authority in that Relevant Member State, all in accordance with theProspectus Directive, except that it may, with effect from and including the Relevant Implementation Date, makean offer of the Notes to the public in that Relevant Member State (i) at any time to legal entities which areauthorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporatepurpose is solely to invest in securities, (ii) to any legal entity which has two or more of (a) an average of at least250 employees during the last financial year, (b) a total balance sheet of more than EUR 43,000,000, and (c) anannual net turnover of more than EUR 50,000,000, as shown in its last annual or consolidated accounts, or (iii) atany time in any other circumstances which do not require the publication by the Company of a prospectuspursuant to Article 3 of the Prospectus Directive.

For the purposes of the preceding paragraph, the expression ‘‘an offer of Notes to the public’’ in relation toany Notes in any Relevant Member State means the communication in any form and by any means of sufficientinformation on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchaseor subscribe the Notes, as the same may be varied in that Member State by any measure implementing theProspectus Directive in that Member State.

10.5 Cayman Islands

The Manager has represented, warranted and agreed that no invitation (whether directly or indirectly) maybe made to the public in the Cayman Islands to subscribe for the Notes, unless the Notes are listed on the CaymanIslands Stock Exchange.

10.6 Switzerland

The Manager has represented, warranted and agreed that the Notes will not be offered, directly or indirectly,to the public in Switzerland and that the Prospectus will not constitute a public offering prospectus as that term isunderstood pursuant to art. 652a or art. 1156 of the Swiss Federal Code of Obligations.

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11. GENERAL INFORMATION — APPENDICES AND DOCUMENTS ON DISPLAY

11.1 Listing

An application has been made to list the Notes on Oslo Børs.

It is expected that the admission of the Notes for listing will be granted on or around 6 June 2006.

11.2 Approvals

The Board of Subsea 7 Inc. resolved to issue the Notes on 23 May 2006 pursuant to the authority vested inthe Board by the Articles of Association.

11.3 Expenses

The Company estimates the expenses associated with the issue and the listing of the Notes, includingcommission to the sole book runner and underwriter, to be approximately U.S.$5,750,000.

11.4 ISIN and Common Code

The Notes will be issued with ISIN: NO 001 0315344 and Common Code: 025391446.

11.5 Yield

The yield on the Notes will be 2.80 per cent. The yield is calculated on the Closing Date on the basis of theIssue Price. It is not an indication of future yield.

11.6 Address of the Paying, Transfer and Conversion Agent and Registrar

The Paying and Conversion Agent and the Registrar have the following address:

Nordea Bank Norge ASA, VerdipapirserviceMiddeltunsgate 170362 Oslo

11.7 Appendices

Appendix 1: Articles of Association

Appendix 2: Annual Report 2005

Appendix 3: Annual Report 2004

All documents incorporated by reference in this Prospectus will be available for inspection at:

Subsea 7 Inc.Harbour Place 5th FloorP.O. Box 309 APO103 South Church StreetGeorge Town, Grand CaymanCayman IslandsTelephone +1 344 949 1030www.subsea7.com3

The Trust Deed may be obtained from the above address, on www.oslobors.no or from the Trustee at thefollowing address:

The Law Debenture Trust Corporation p.l.c.Fifth Floor100 Wood StreetLondon EC2V 7EXUnited Kingdom

3 Only the documents referred to above are incorporated by reference in this Prospectus, not all of the material that is otherwise availableon the Company’s website.

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12. DEFINITIONS AND GLOSSARY

Definitions

In addition to the definitions listed below reference is made to the definitions included in Section 5 hereof‘‘Terms and Conditions of the Notes’’. Terms defined in Section 5 shall have the same meaning when usedotherwise in this Prospectus.

Articles of Association or Articles The Memorandum and Articles of Association of Subsea 7 Inc. attached asAppendix 1 hereto

Board The Board of Directors of Subsea 7 Inc.

Code The Norwegian Code of Practice for Corporate Governance

Company or Issuer Subsea 7 Inc.

Compensation Committee A committee of the Board supervising management compensation includ-ing but not limited to the Plan

Directors The Directors of Subsea 7 Inc.

DSND Inc. The former name of Subsea 7 Inc., before it was named Siem Offshore Inc.

EEA European Economic Area, an economic area encompassing all the mem-bers of the European Union and the European Free Trade Association(EFTA), with the exception of Switzerland

FSMA United Kingdom Financial Services and Markets Act 2000

Group Subsea 7 Inc. and its Subsidiaries

IFRS International Financial Reporting Standard

Manager Lehman Brothers International (Europe)

NGAAP Norwegian Generally Accepted Accounting Principles

NOK Norwegian kroner, the lawful currency of the Kingdom of Norway

NOKUS Norwegian Controlled Foreign Corporation Taxation

Norwegian Public Companies Act The Norwegian Public Companies Act of 13 June 1997 No 44

Norwegian Securities Trading Act The Norwegian Securities Trading Act of 19 June 1997 No 79

Notes The U.S.$300,000,000 2.80 per cent. Subsea 7 Inc. Convertible Note issue2006/2011 or if the context so requires, the individual denominationsthereof of U.S.$100,000

Noteholders Registered holders of Notes in VPS

Ordinary Shares or Shares Common shares issued by Subsea 7 Inc.

Oslo Børs The Oslo Stock Exchange

Plan Share option scheme to be considered at the annual general meeting of theCompany on 12 July 2006

Prospectus This Prospectus, dated 6 June 2006

Prospectus Directive Directive 2003/71/EC

Relevant Member State Each Member State of the European Economic Area which has imple-mented the Prospectus Directive

Relevant Implementation Date The date on which the Prospectus Directive is implemented in the RelevantMember State

Subscription Agreement The Subscription Agreement between the Company and the Manager dated3 May 2006

Subsea 7 Subsea 7 Inc., or if the context so requires, the Group.

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Subsea 7 Joint Venture Joint venture between Subsea 7 Inc. and Halliburton

Subsidiary A company in which Subsea 7 Inc. directly or indirectly controls more than50 per cent. of the voting securities or otherwise has the power to appoint amajority of the Directors.

Trust Deed The trust deed for the Notes to be entered into between the Company andthe Trustee on 6 June 2006

Trustee The Law Debenture Trust Corporation p.l.c.

U.S.$ U.S. dollars, the lawful currency of the United States of America

VPS The Norwegian Central Securities Depository (‘‘Verdipapirsentralen’’)

Glossary

AUV Autonomous Underwater Vehicle

Bare Boat Charter Rental or lease of a vessel where the charterer hires vessel without crewand pays all expenses, including crew costs, insurance, maintenance andoperating expenses

CDTM Controlled depth tow method, a transportation method to the offshorelocation developed by Subsea 7, which allows for onshore construction of abundle of flow lines within a single outer carrier pipe terminated at eachend by structures designed to accommodate the bundle

DP Dynamic Positioning — active positioning of a stationary vessel or rig bythrusters (as compared to anchoring)

DSV Dive Support Vessel

FPSO Floating Production Storage and Offloading — floating offshore oil andgas production units

IODP Integrated Ocean Drilling Programme, an international research pro-gramme that explores the history and structure of the Earth as recorded inseafloor sediments and rocks, started in 2003 and has a planned durationuntil 2013. The IODP is an international nonprofit corporation and itsmembership consists of scientific institutions involved in deep sea drilling

IRM Inspection, Repair and Maintenance

LTI-frequence Loss Time Injury or Illness, defined as the number of working hours lostdue to injury or illness after the shift on which the injury occurred,calculated per 200,000 man-hours

NQISO Non Qualifying Stock Options

NWT Net Weight Ton

Operator Commercially responsible for operations

QISO Qualifying Incentive Stock Options

Riser A pipe which connects a rig or platform to a subsea wellhead or pipelineduring drilling or production operations

ROTV Remotely Operated Towed Vehicle

ROV Remotely Operated Vehicle

SURF Subsea Umbilical Riser and Flowline installation

Time charter An arrangement whereby the shipowner lets, and the charterer hires thevessel complete with crew for a voyage or a period of time. The chartererpays port charges and for fuel. Time charter hire is customarily paid inadvance

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Umbilical Narrow, reinforced, flexible pipeline containing several different cores,which are used to carry electrical power, chemicals and control fluids tothe wellhead or other subsea equipment

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13. CROSS REFERENCE GUIDE

Chapter 8 (financial information) is incorporated by reference to the annual reports for the years ended31 December 2004 and 2005 which are attached as Appendices 2 and 3 to the Prospectus.

Reference to Reference toAnnual Annual

Nr. Report 2005 Report 2004

11. FINANCIAL INFORMATION CONCERNING THE ISSUER’SASSETS AND LIABILITIES, FINANCIAL POSITION ANDPROFITS AND LOSSES

11.1. Historical Financial InformationAudited historical financial information covering the latest 2 financial p. 12-15 p. 18-21years (or such shorter period that the issuer has been in operation),and the audit report in respect of each year. p. 9-11 p. 36

Such financial information must be prepared according to Regulation p. 15-26 p. 22(EC) No 1606/2002 s, or if not applicable to a Member’s Statenational accounting standards for issuers from the Community. Forthird country issuers, such financial information must be preparedaccording to the international accounting standards adopted pursuant tothe procedure of Article 3 of Regulation (EC) No 1606/2002 or to athird country’s national accounting standards equivalent to thesestandards. Otherwise, the following information must be included inthe registration document:

(a) a prominent statement that the financial information included inthe registration document has not been prepared in accordancewith the international accounting standards adopted pursuant tothe procedure of Article 3 of Regulation (EC) No 1606/2002 andthat there may be material differences in the financial informationhad Regulation (EC) No 1606/2002 been applied to the historicalfinancial information

(b) immediately following the historical financial information anarrative description of the differences between the internationalaccounting standards adopted pursuant to the procedure ofArticle 3 of Regulation (EC) No 1606/2002 and the accountingprinciples adopted by the issuer in preparing its annual financialstatements.

The most recent year’s historical financial information must bepresented and prepared in a form consistent with that which will beadopted in the issuer’s next published annual financial statementshaving regard to accounting standards and policies and legislationapplicable to such annual financial statements.

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Reference to Reference toAnnual Annual

Nr. Report 2005 Report 2004

If the audited financial information is prepared according to nationalaccounting standards, the financial information required under thisheading must include at least the following:(a) the balance sheet;(b) the income statement;(c) the accounting policies and explanatory notes.

The historical annual financial information must be independentlyaudited or reported on as to whether or not, for the purposes of theregistration document, it gives a true and fair view, in accordance withauditing standards applicable in a Member State or an equivalentstandard. Otherwise, the following information must be included in theregistration document:

a) a prominent statement disclosing which auditing standards havebeen applied;

b) an explanation of any significant departures from InternationalStandards on Auditing.

11.2. Financial statementsIf the issuer prepares both own and consolidated financial statements, p. 12-15 p. 18-21include at least the consolidated financial statements in the registrationdocument.

11.3. Auditing of historical annual financial information

11.3.1. A statement that the historical financial information has been audited. p. 9 p. 36If audit reports on the historical financial information have beenrefused by the statutory auditors or if they contain qualifications ordisclaimers, such refusal or such qualifications or disclaimers must bereproduced in full and the reasons given.

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Appendix 1: Articles of Association of Subsea 7 Inc. (former Siem Offshore Inc.)

THE COMPANIES LAW (2004 REVISION)

OF THE CAYMAN ISLANDS

COMPANY LIMITED BY SHARES

MEMORANDUM AND ARTICLES

OF

ASSOCIATION

OF

____________________________________

SIEM OFFSHORE INC.

____________________________________

(Adopted by Special Resolution on 7th December, 2004)

“A”

CAYMAN ISLANDS

THE COMPANIES LAW (2004 REVISION)

COMPANY LIMITED BY SHARES

----------------

MEMORANDUM OF ASSOCIATION

OF

SIEM OFFSHORE INC.

(Adopted by special resolution on 7th December, 2004)

1. The name of the Company is Siem Offshore Inc.

2. The Registered Office of the Company shall be at the offices of M&C Corporate Services Limited, P.O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies or at such other place in the Cayman Islands as the Board may from time to time decide.

3. The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any objective not prohibited by any law as provided by Section 7(4) of the Companies Law (2004 Revision) as may be amended, modified or re-enacted from time to time (the “Law”).

4. Except as prohibited or limited by the Law, the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Law (2004 Revision) and shall have and be capable of from time to time and at all times exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate, irrespective of any question of corporate benefit, in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects and whatever else may be considered by it as incidental or conducive thereto or consequential thereon, including, but without in any way restricting the generality of the foregoing, the power to make any alterations or amendments to this Memorandum of Association and the Articles of Association of the Company considered necessary or convenient in the manner set out in the Articles of Association of the Company, PROVIDED THAT the Company shall only carry on the businesses for which a licence is required under the laws of the Cayman Islands when so licensed under the terms of such laws.

5. The liability of each member is limited to the amount from time to time unpaid on such member’s shares.

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6. The share capital of the Company is US$2,000,000 divided into 200,000,000 Common Shares of a nominal or par value of US$0.01 each with power for the Company insofar as is permitted by law, to redeem or purchase any of its shares and to increase or reduce the said capital subject to the provisions of the Law the Articles of Association and to issue any part of its capital, whether original, redeemed or increased with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions and so that unless the conditions of issue shall otherwise expressly declare every issue of shares whether declared to be preference or otherwise shall be subject to the powers hereinbefore contained.

7. If the Company is registered as exempted, its operations will be carried on subject to the provisions of Section 193 of the Law and, subject to the provisions of the Law and the Articles of Association, it shall have the power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands.

“B”

CAYMAN ISLANDS

The Companies Law (2004 Revision)

Company Limited by Shares

----------------

ARTICLES OF ASSOCIATION

OF

SIEM OFFSHORE INC.

(Adopted by special resolution on 7th December, 2004)

TABLE A

1. The regulations contained in Table A in the First Schedule to the Companies Law shall not apply to the Company.

INTERPRETATION

2. In these Articles, unless there be something in the subject or context inconsistent therewith:

“these Articles” shall mean the present Articles of Association and all supplementary, amended or substituted Articles for the time being in force;

“Auditors” shall mean the persons appointed by the Company from time to time to perform the duties of auditors of the Company;

“Board” shall mean the majority of the Directors present and voting at a meeting of Directors at which a quorum is present;

“capital” shall mean the share capital from time to time of the Company;

“the Chairman” shall mean the Chairman presiding at any meeting of members or the Board;

“Common Shares” means the Common Shares in the capital of the Company of par value US$0.01 each;

“the Company” or “this Company” shall mean Siem Offshore Inc.

“the Companies Law” or “the Law” shall mean the Companies Law (2004 Revision) of the Cayman Islands and any amendments thereto or re-enactments

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thereof for the time being in force and includes every other law incorporated therewith or substituted therefor;

“Directors” shall mean the directors from time to time of the Company;

“dividend” shall include bonus dividends and distributions permitted by the Law to be categorised as dividends;

“dollars” and “US$” shall mean the legal currency of the United States;

“electronic transmission” shall include telephone, telegram, telex, cable, facsimile and electronic mail;

“Exchange” shall mean any securities exchange or other system on which the shares of the Company may be listed or otherwise authorised for trading from time to time, including, without limitation, the Oslo Stock Exchange;

“month” shall mean a calendar month;

“ordinary resolution” shall mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting held in accordance with these Articles;

“Oslo Stock Exchange” and “OSE” shall mean the Oslo Stock Exchange, Norway;

“paid up” shall mean paid up and/or credited as paid up;

“principal register” shall mean the register of members of the Company maintained at such place within or outside the Cayman Islands as the Board shall determine from time to time;

“the register” shall mean the principal register and any branch registers;

“Registrar” shall mean Nordea ASA (“Nordea”), Verdipapirservice, or such other person or body corporate who may from time to time be appointed by the Board in place of Nordea, Verdipapirservice, as Registrar of the Company under these Articles of Association;

“registered office” shall mean the registered office for the time being of the Company;

“seal” shall include the common seal of the Company, the securities seal or any duplicate seal adopted by the Company pursuant to these Articles;

“Secretary” shall mean the person appointed as company secretary by the Board from time to time;

“share” shall mean a share in the capital of the Company, including, without limitation, Common Shares;

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“shareholders” or “members” shall mean the persons who are duly registered as the holders from time to time of shares in the register including persons who are jointly so registered;

“special resolution” shall mean a resolution passed by not less than two thirds of the votes of such members of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given;

“subsidiary” and “holding company” shall have the meanings ascribed to such terms in the Companies Act of the United Kingdom;

subject as aforesaid, any words defined in the Law shall, if not inconsistent with the subject and/or context, bear the same meanings in these Articles;

“VPS” shall mean Verdipapirsentralen, the computerized central share registry maintained in Oslo, Norway, for bodies corporate whose shares are listed for trading on Oslo Stock Exchange, and includes any successor registry;

“writing” or “printing” shall include writing, printing, lithograph, photograph, type-writing and every other mode of representing words or figures in a legible and non-transitory form;

words importing either gender shall include the other gender and the neuter;

words importing persons and the neuter shall include companies and corporations and vice versa; and

words denoting the singular shall include the plural and words denoting the plural shall include the singular.

3. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted.

4. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration.

SHARE CAPITAL

5. The authorised share capital of the Company (being the total nominal or par value of the shares that the Company is authorised to issue) at the date of the adoption of these Articles is US$2,000,000.00 divided into 200,000,000 Common Shares of a nominal or par value of US$0.01 each.

6. Subject to the provisions of these Articles and without prejudice to any special rights conferred on the holders of any existing shares or attaching to any class of shares, any share may be issued with or have attached thereto such preferred, deferred, qualified or

5

other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such times and for such consideration as the Company in general meeting by special resolution may determine.

INCREASE OF CAPITAL

7. (1) Subject always to the terms of these Articles, the Company in general meeting may, from time to time, whether or not all the shares for the time being authorised shall have been issued and whether or not all the shares for the time being issued shall have been fully paid up, by ordinary resolution, increase its share capital by the creation of new shares, such new capital to be of such amount and to be divided into shares of such respective amounts as the resolution shall prescribe.

(2) The new shares shall be subject to all the provisions of these Articles with reference to lien, the payment of calls, forfeiture, transfer, transmission and otherwise.

MODIFICATION OF RIGHTS

8. If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class of shares for the time being issued (unless otherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of the Law, and to applicable regulations of an Exchange, be varied or abrogated with the consent in writing of the holders of not less than two-thirds in nominal value of the issued shares of that class or, with the sanction of a special resolution passed at a separate meeting of the holders of shares of that class. To every such separate meeting all the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting and of any adjournment thereof shall be a person or persons together holding (or represented by proxy) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class, and that any holder of shares of the class present in person or by proxy may demand a poll.

9. The special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

REDEMPTION AND REPURCHASE OF SHARES

10. Subject to the Law, to relevant regulations of an Exchange, and to any rights conferred on the holders of any class of shares, the Company shall have the power:

(i) to purchase or otherwise acquire any of its own shares (which expression as used in this Article includes redeemable shares), provided either:

(a) that the manner of purchase has first been authorised by the Company in general meeting; or

6

(b) such purchases are made in open market transactions on an Exchange; or

(c) such purchases may be effected from time to time, as authorised by the Company in general meeting, at a price per share no higher than the average of the closing prices of said shares on an Exchange, for the five days on which said shares are traded immediately preceding any such purchase (the “Average Market Price”); or

(d) such purchases may be effected from time to time, as authorised by the Company in general meeting at a price per share in excess of the Average Market Price, provided that: the shares thus to be purchased shall be in blocks consisting of a number equal to or greater than five per cent. of the number of shares then outstanding and the price to be paid therefor shall have been found to be fair in a written opinion of independent investment bankers who have been selected for the purpose by a disinterested committee of Directors; or

(e) an offer is made to all shareholders of the Company to purchase a specified number of shares at a specified price, all tenders of shares made in response to such offer to be accepted pro rata in the event that more shares are to be tendered than the Company has offered to purchase, except that all tenders of 99 shares or less may be accepted in full at the discretion of the Directors,

PROVIDED THAT, the Company shall not, in any 12 month period, purchase in aggregate more than such number of shares as shall be equal to 10 per cent. of the lowest number of shares in issue during such period except to the extent authorised by special resolution;

(ii) to purchase or otherwise acquire warrants for the subscription or purchase of its own shares; and

(iii) to give, directly or indirectly, by means of a loan, a guarantee, a gift, an indemnity, the provision of security or otherwise howsoever, financial assistance for the purpose of or in connection with a purchase or other acquisition made or to be made by any person of any shares or warrants in the Company. The Company may pay for such shares or warrants in any manner authorised or not prohibited by law, including out of capital. Should the Company purchase or otherwise acquire its own shares or warrants, neither the Company nor the Board shall be required to select the shares or warrants to be purchased or otherwise acquired rateably or in any other manner as between the holders of shares or warrants of the same class or as between them and the holders of shares or warrants of any other class or in accordance with the rights as to dividends or capital conferred by any class of shares.

11. Subject to the provisions of the Law and the Memorandum of Association of the Company, and to any special rights conferred on the holders of any shares or attaching to any class of shares, shares may be issued on the terms that they may be, or at the option of the Company or the holders are, liable to be redeemed on such terms and in such manner, including out of capital, as the Board may deem fit.

7

12. The holder of the shares being purchased, surrendered or redeemed shall be bound to immediately notify the VPS of such purchase, surrender or redemption and thereupon the Company shall pay to him the purchase or redemption monies in respect thereof and the relevant shares shall be treated as cancelled.

ISSUE OF SHARES AND WARRANTS

13. Subject to the provisions of the Law and of the Memorandum of Association of the Company, the unissued shares in the Company (whether forming part of its original or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration, and upon such terms, as the Board shall determine.

14. No shares shall be issued to bearer and all shares shall be issued fully paid.

15. The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it shall from time to time determine.

16. No warrants shall be issued to bearer.

COMMISSION ON SHARES

17. The Company may, unless prohibited by law, at any time pay a commission to any person for subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares in the Company or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the Company, but so that the conditions and requirements of the Law shall be observed and complied with.

NON-RECOGNITION OF TRUSTS

18. Except as otherwise expressly provided by these Articles or as required by law or as ordered by a court of competent jurisdiction, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any shares or any interest in any fractional part of a share or any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.

REGISTER OF MEMBERS

19. The Board shall cause to be kept at such place within or outside the Cayman Islands as they deem fit a principal register of the members and there shall be entered therein the particulars of the members and the shares issued to each of them and other particulars required under the Law and an Exchange.

20. If the Board considers it necessary or appropriate, the Company may establish and maintain a branch register or registers of members at such location or locations within or outside the Cayman Islands as the Board thinks fit. The principal register and the

8

branch register(s) shall together be treated as the register for the purposes of these Articles.

21. The Board may, in its absolute discretion, at any time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

22. The Company shall as soon as practicable and on a regular basis record in the principal register all transfers of shares effected on any branch register and shall at all times maintain the principal register in such manner as to show at all times the members for the time being and the shares respectively held by them, in all respects in accordance with the Companies Law.

23. The register may be closed at such times and for such periods as the Board may from time to time determine, either generally or in respect of any class of shares, provided that the register shall not be closed for more than five days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond five days in any year).

24. The Company shall not be bound to register more than four persons as joint holders of any share. If any share shall stand in the names of two or more persons, the person first named in the register shall be deemed the sole holder thereof as regards service of notices and, subject to the provisions of these Articles, all or any other matters connected with the Company, except the transfer of the share.

TRANSFER OF SHARES

25. The shares of the Company are freely transferable subject to the provisions set out in Articles 25 to 34 (inclusive). All transfers of shares may be effected by an instrument of transfer in the usual common form or in such other form as the Board may approve. All instruments of transfer must be left at the registered office of the Company or at such other place as the Board may appoint and all such instruments of transfer shall be retained by the Company.

26. The instrument of transfer shall be executed by or on behalf of the transferor and by or on behalf of the transferee PROVIDED that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. The instrument of transfer of any share shall be in writing and shall be executed with a manual signature or facsimile signature (which may be machine imprinted or otherwise) by or on behalf of the transferor and transferee PROVIDED that in the case of execution by facsimile signature by or on behalf of a transferor or transferee, the Board shall have previously been provided with a list of specimen signatures of the authorised signatories of such transferor or transferee and the Board shall be reasonably satisfied that such facsimile signature corresponds to one of those specimen signatures. The transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof.

27. The Board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share and direct the Registrar to decline (and the Registrar shall, if so directed, decline) to register the transfer of any shares held through the

9

VPS, which is not fully paid up or on which the Company has a lien. The Board may also decline (and instruct the Registrar to decline) to register any transfer of any shares unless:

(a) the instrument of transfer is lodged with the Company and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;

(b) the instrument of transfer is in respect of only one class of shares;

(c) the instrument of transfer is properly stamped (in circumstances where stamping is required);

(d) in the case of a transfer to joint holders, the number of joint holders to which the share is to be transferred does not exceed four;

(e) the shares concerned are free of any lien in favour of the Company; and

(f) a fee of such maximum amount as the Exchange (if any) may from time to time determine to be payable (or such lesser sum as the Board may from time to time require) is paid to the Company in respect thereof.

28. The Board shall decline to register the transfer of any share and shall direct the Registrar to decline (and the Registrar shall, if so directed, decline) to register the transfer of any interest in any share held through the VPS:

(a) to a person where the Board is of the opinion that such transfer might breach any law or requirement of any authority or any Exchange until it has received such evidence as it may require to satisfy itself that no such breach would occur; or

(b) where the transfer would result in such person being required to make an offer pursuant to Article 42(1), unless such person undertakes in writing to the Company and to the Oslo Stock Exchange that he will comply with the requirements of Article 42(1)(i) and (ii), and does thereafter so comply.

29. For the purposes of these Articles, each shareholder (other than the Registrar in respect of those shares registered in its name in the register as nominee of persons whose interests in such shares are reflected in the VPS) shall be deemed to be resident for tax purposes in the jurisdiction specified in the address shown in the Register for such shareholder, and each person whose interests in shares are reflected in the VPS shall be deemed to be resident for tax purposes in the jurisdiction specified in the address shown in the VPS for such person. If such shareholder or person is not resident for tax purpose in such jurisdiction or if there is a subsequent change in his residence for tax purposes, such shareholder or person shall notify the Company immediately of his residence for tax purposes.

30. Where any shareholder or person whose interests in shares are reflected in the VPS fails to notify the Company in accordance with Article 29, the Board and the Registrar may suspend sine die such shareholder’s or person’s entitlement to vote or otherwise exercise any rights attaching to the shares or interests therein and to receive payments of income or capital which become due or payable in respect of such shares or interests and the Company shall have no liability to such shareholder or person arising

10

out of the late payment or non-payment of such sums and the Company may retain such sums for its own use and benefit. In addition to the foregoing, the Board and the Registrar may dispose of the shares in the Company or interests therein of such shareholder or person at the best price reasonably obtainable in all the circumstances. Where a notice informing such shareholder or person of the proposed disposal of his shares or interests therein has been served, his shares or interest therein may not be transferred otherwise than in accordance with this Article 30 and any other purported transfer of such shares or interests therein shall not be registered in the books of the Company or the VPS and shall be null and void.

31. If the Board shall refuse to register a transfer of any share, it shall, within two months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.

32. No transfer shall be made to an infant or to a person in respect of whom an order has been made by an competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs or under other legal disability.

33. Upon every transfer of shares the Company shall retain the instrument(s) of transfer.

34. The registration of transfers may be suspended and the register closed at such times for such periods as the Board may from time to time determine, provided always that such registration shall not be suspended or the register closed for more than five days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond five days in any year).

TRANSMISSION OF SHARES

35. In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares; but nothing herein contained shall release the estate of a deceased holder (whether sole or joint) from any liability in respect of any share solely or jointly held by him.

36. Any person becoming entitled to a share in consequence of the death or bankruptcy or winding-up of a member may, upon such evidence as to his title being produced as may from time to time be required by the Board and subject as hereinafter provided, either be registered himself as holder of the share or elect to have some other person nominated by him registered as the transferee thereof.

37. If the person so becoming entitled shall elect to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have his nominee registered he shall testify his election by executing in favour of his nominee a transfer of such share. All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy or winding-up of the member had not occurred and the notice or transfer were a transfer executed by such member.

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38. A person becoming entitled to a share by reason of the death or bankruptcy or winding-up of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share. However, the Board may, if it thinks fit, withhold the payment of any dividend payable or other advantages in respect of such share until such person shall become the registered holder of the share or shall have effectually transferred such share, but, subject to the requirements of Article 66 being met, such a person may vote at meetings.

ALTERATION OF CAPITAL

39. The Company may from time to time by ordinary resolution:

(a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. On any consolidation of fully paid shares and division into shares of larger amount, the Board may settle any difficulty which may arise as it thinks expedient and in particular (but without prejudice to the generality of the foregoing) may as between the holders of shares to be consolidated determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Board for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to the Company for the Company’s benefit;

(b) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled subject to the provisions of the Law; and

(c) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association of the Company, subject nevertheless to the provisions of the Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares.

40. The Company may by special resolution reduce its share capital, any capital redemption reserve or any share premium account in any manner authorised and subject to any conditions prescribed by Law.

DISCLOSURE OF MATERIAL INTERESTS

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41. (1) Any person (other than the Registrar in respect of those shares registered in its name in the Register as the nominee of persons whose interests in such shares are reflected in the VPS) who acquires or disposes of an interest in shares in circumstances in which the requirements of the Oslo Stock Exchange in effect from time to time concerning the duty to flag changes in a person’s interest in shares require such changes to be notified, shall notify the Oslo Stock Exchange according to section 3-2 of the Norwegian Securities Act of 1997 immediately of such acquisition or disposal and the resulting interest of that person in shares.

(2) For the purposes of this Article 41, a person shall be deemed to have an interest in shares:

(i) owned by such person’s spouse, minor child or co-habitant;

(ii) owned by any body corporate in which such person owns shares representing the majority of the votes attaching to all of the issued shares of such body corporate or over which he has as owner of shares in such body corporate or by virtue of an agreement a determining influence and a substantial participation (as those terms are interpreted by the Norwegian courts from time to time) in the results of such body corporate’s operations;

(iii) owned by any person with whom such person acts in concert (as such term is interpreted from time to time by the Oslo Stock Exchange), by virtue of any agreement or otherwise;

(iv) registered in the name of the Registrar in the Register as nominee of such person or of any person referred to in paragraph (i), (ii), or (iii) above in relation to such person;

(v) which are issuable on the exercise of any options, convertible bonds, subscription rights or any other rights to acquire shares in which such person has an interest;

(vi) subject to a lien or other security interest in favour of such person;

(vii) which are issuable on the exercise of purchase rights, pre-emption rights, or other rights related thereto in which such person has an interest and which are activated by the acquisition, disposal or conversion of shares;

(viii) subject of any other agreed restriction on a shareholder’s right to dispose of same or to exercise such shareholder’s rights as a shareholder, in favour of such person, except agreements to separate the dividend right from the ownership right of a share;

(ix) in connection with the acquisition of which there was given guarantee of their purchase price by such person or such person otherwise undertook a risk with respect to the value thereof and which guarantee or risk remains outstanding.

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(3) If a person fails to give notification of a change in his interest in shares in accordance with this Article 41 and the Board believes that such person has acquired or disposed of an interest in shares in circumstances in which he would be subject to the notification requirements of this Article 44, the Board shall require the Registrar to serve upon that person a notice:

(i) requiring him to comply with the notification requirements in relation to the change in his interest in shares; and

(ii) informing him that, pending compliance with the notification requirements, the registered shareholder or shareholders of the shares in which that person is interested shall not be entitled to vote or otherwise exercise any rights attaching to the shares to which the notice relates nor shall such registered shareholder or shareholders be entitled to receive payments of income or capital which become due or payable in respect of such shares. The registered shareholder’s or shareholders’ entitlement to such payments shall be suspended pending compliance with the notification requirements without any liability of the Company to such registered shareholder or shareholders arising for late payment or non payment and the Company may retain such sums for its own use and benefit during such period of suspension.

(4) The provisions of these Articles relating to the protection of purchasers of shares sold under a lien or upon forfeiture shall apply mutatis mutandis to disposals under this Article 41.

MANDATORY OFFER

42. (1) Any person, who acquires or becomes interested in or at any time has an interest in more than 40 per cent. of the issued shares which have the right attached thereto to attend and vote at a general meeting of the Company, shall:

(i) promptly notify the Oslo Stock Exchange and the Company; and

(ii) make a mandatory offer for the purchase of the remaining shares in the Company on the terms, and subject to the conditions, of Chapter 4 of the Norwegian Securities Trading Act as if the Company was a Norwegian company. Any director or shareholder consents deemed to be given under Chapter 4 of the Norwegian Securities Trading Act in relation to a mandatory offer shall, in the circumstances set out therein, be deemed to be given by the Directors and the shareholders.

(2) In the event of any dispute as to whether identification of closely related persons according to section 4-5 of the Norwegian Securities Trading Act shall be made, the Board shall have the power to settle the dispute, and shall inform the identified parties of its decision.

The Board shall also have the power to decide on whether or not the Board as such, or any of its members, shall be considered incompetent to provide a statement according to section 4-16 of the Norwegian Securities Trading Act,

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as well as which actions are to be taken if any or all of the Board members are considered incompetent.

(3) If a person fails to give notification of a change in his interest in shares in accordance with sub-paragraph (1)(i) of this Article 42, and the Board believes that such person has acquired or become interested in or at any time has an interest in shares in circumstances in which he would be subject to the notification requirements, the Board shall require the Registrar to serve upon that person a notice:

(i) requiring him to comply with the notification requirements in relation to the change in his interest in shares; and

(ii) informing him that, pending compliance with the notification requirements, the registered holder or holders of the shares in which that person is interested shall not be entitled to vote or otherwise exercise any rights attaching to the shares to which the notice relates nor shall such registered holder or holders be entitled to receive payments of income or capital which become due or payable in respect of such shares. The registered holder’s or holders’ entitlement to vote and exercise such rights attaching to such shares and to such payments shall be suspended pending compliance with the notification requirements and the Company shall have no liability to such holder or holders arising for late payment or non-payment and the Company may retain such sums for its own use and benefit during such period of suspension.

(4) If a person fails to give notification of a change in his interest in shares in accordance with sub-paragraph (1)(i) of this Article 42, the Board shall require the Registrar to serve upon that person a notice in respect of those shares which give the person to whom the notice is addressed an interest in shares representing more than 40 per cent. of the issued shares which have the right attached thereto to attend and vote at a general meeting of the Company:

(i) requiring him to either sell shares or to make an offer in accordance with Chapter 4 of the Norwegian Securities Trading Act; and

(ii) incorporating the information referred to in sub-paragraphs (3)(i) and (ii) above and the provisions of sub-paragraph (3)(ii) shall apply to such shares.

(5) If the notice served by the Registrar referred to in paragraph (4) of this Article 42 is not complied with within 30 days of the date of the service of such notice and the notice has not been withdrawn, the Board shall, so far as it is able, dispose of the shares or interests therein to which such notice relates at the best price reasonably obtainable in all the circumstances and it shall give written notice of such proposed disposal (the “Sale Notice”) to the Registrar who will forward a copy of same to the person or persons on whom such notice was served. Except as hereinafter provided, such a disposal shall be completed as soon as reasonably practicable after the giving of the Sale Notice under this paragraph as may in the opinion of the Board be consistent with obtaining the best price reasonably obtainable and in any event within 30

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days of the date of such Sale Notice. Where a Sale Notice has been served, the shares and any interest therein to which such notice refers may not be transferred otherwise than in accordance with this paragraph (5) and any purported transfer of such shares shall not be registered in the books of the Company and shall be null and void.

(6) For the purpose of effecting a disposal in accordance with paragraph (5) of this Article 42, the Board may authorise in writing any officer or employee of the Company to execute any necessary transfer on behalf of any holder. The net proceeds of such disposal shall be received by the Company, whose receipt shall be a good discharge for the purchase money, and shall be paid (without any interest being payable thereon) to the former holder in respect of the shares sold and formerly held by him.

BORROWING POWERS

43. (1) The Board may from time to time at its discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof.

(2) The Board may raise or secure the payment or repayment of such sum or sums in such manner and upon such terms and conditions in all respects as it thinks fit and, in particular, by the issue of debentures, bonds or other securities of the Company, whether outright or as collateral security for any debts, liability or obligations of the Company or of any third party.

44. Debentures, debenture stock, bonds and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued.

45. Any debentures, debenture stock, bonds or other securities may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.

46. The Board shall cause a proper register to be kept, in accordance with the provisions of the Law, of all mortgages and charges specifically affecting the property of the Company and shall duly comply with the requirements of the Law in regard to the registration of mortgages and charges therein specified and otherwise.

47. If the Company issues debentures or debenture stock (whether as part of a series or as individual instruments) not transferable by delivery, the Board shall cause a proper register to be kept of the holders of such debentures.

48. Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by notice to the members or otherwise, to obtain priority over such prior charge.

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GENERAL MEETINGS

49. The Board shall convene and the Company shall in each year hold a general meeting as its annual general meeting in addition to any other meeting in that year and shall specify the meeting as such in the notices calling it; and not more than 15 months shall elapse (or such longer period as the Exchange may authorise) between the date of one annual general meeting of the Company and that of the next. So as long as the first annual general meeting of the Company is held within 15 months from the date of its incorporation, it need not be held in the year of its incorporation. The annual general meeting shall be held at such time and place as the Board shall appoint, other than in Norway.

50. All general meetings other than annual general meetings shall be called extraordinary general meetings.

51. The Board may, whenever it thinks fit, convene an extraordinary general meeting, and shall on a members requisition forthwith proceed to convene an extraordinary general meeting. A members requisition is a requisition of members holding at the date of deposit of the requisition not less than ten per cent. in par value of the capital of the Company as at that date carries the right of voting at general meetings. The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office, and may consist of several documents in like form each signed by one or more requisitionists. If the Board does not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days. A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by the Board.

52. An annual general meeting and any extraordinary general meeting shall be called by not less than 14 days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the time, place, and agenda of the meeting, particulars of the resolutions to be considered at the meeting and in the case of special business (as defined in Article 60) the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to all members other than such as, under the provisions hereof or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company.

53. Notwithstanding that a meeting of the Company is called by shorter notice than that referred to in Article 52, it shall be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all the members of the Company entitled to attend and vote thereat or their proxies; and

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(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right.

54. There shall appear with reasonable prominence in every notice of general meetings of the Company a statement that a member entitled to attend and vote is entitled to appoint a proxy to attend and, on a poll, vote instead of him and that a proxy need not be a member of the Company.

55. The accidental omission to give any such notice to, or the non-receipt of any such notice by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting.

56. In cases where instruments of proxy are sent out with notices, the accidental omission to send such instrument of proxy to, or the non-receipt of such instrument of proxy by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting.

PROCEEDINGS AT GENERAL MEETINGS

57. (1) All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(i) the declaration and sanctioning of dividends;

(ii) the consideration and adoption of the accounts and balance sheets and the reports of the Directors and Auditors and other documents required to be annexed to the balance sheet;

(iii) the election of Directors in place of those retiring;

(iv) the appointment of Auditors;

(v) the fixing of, or the determining of the method of fixing of, the remuneration of the Directors and of the Auditors.

(2) No business shall be transacted at a general meeting of the Company other than such business as shall be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board, (ii) otherwise properly brought before the meeting by or at the direction of the Board or (iii) brought before the meeting by a member present and entitled to vote at such meeting in accordance with the following procedure. For business to be brought before a general meeting of the Company by a member, including without limitation, the nomination of persons for election as Directors, the member must have given timely notice in writing to the Secretary. To be timely, a member’s notice must be transmitted to, and received by, the Secretary at the principal executive offices of the Company not later than (i) in the case of an annual general meeting of the Company, not less than 90

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days prior to the anniversary of the date of the immediately preceding annual general meeting that was specified in the initial formal notice of such meeting (but if the date of the forthcoming annual general meeting is more than 30 days before or after such anniversary date, such written notice must instead be received by the Secretary by the close of business on the 10th day following the date on which the Company first makes public disclosure of the meeting date) and (ii) in the case of an extraordinary general meeting of the Company, the close of business on the 10th day following the date on which the Company first makes public disclosure of the meeting date. Each notice given by such member shall set forth: (a) the name and address of the member who intends to propose such business and/or make the nomination; (b) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and/or the name and address of the person or persons to be nominated; (c) a representation that the Member is a registered holder of shares entitled to vote at such meeting (or if the record date for such meeting is subsequent to the date required for such member notice, a representation that the Member is a registered holder at the time of such notice and intends to be a registered holder on the date of such meeting) and intends to appear in person or by proxy at such meeting to propose such business and/or nominate the person or person specified in the notice; and (d) (where the member makes a nomination) a description of all person or persons pursuant to which the nomination or nominations are to be made by the member, such other information regarding each nominee proposed by such member as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Oslo Stock Exchange and the consent of each nominee to serve as director of the Company if so elected.

58. For all purposes the quorum for a general meeting shall be one or more members present in person or by proxy holding not less than one third of the issued shares of the Company entitled to vote at the meeting in question. No business (except the appointment of the Chairman) shall be transacted at any general meeting unless the requisite quorum shall be present at the commencement of the business.

59. If within fifteen minutes from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved and, in any other case, shall stand adjourned to the same day in the next week and at such time and place as shall be decided by the Board, and if at such adjourned meeting a quorum is not present within one hour from the time appointed for holding the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting was called.

60. The Chairman shall take the chair at every general meeting, or, if there be no such Chairman or, if at any general meeting such Chairman shall not be present within fifteen minutes after the time appointed for holding such meeting or is unwilling to act, the Directors present shall choose another Director as chairman of the meeting, and if no Director be present, or if all the Directors present decline to take the chair, or if the Chairman chosen shall retire from the chair, then the members present shall choose one of their own number to be chairman of the meeting.

61. The Chairman may, with the consent of any general meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn any meeting from time to

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time and from place to place as the meeting shall determine. Whenever a meeting is adjourned for 14 days or more, at least seven clear days’ notice, specifying the place, the day and the hour of the adjourned meeting shall be given in the same manner as in the case of an original meeting but it shall not be necessary to specify in such notice the nature of the business to be transacted at the adjourned meeting. Save as aforesaid, no member shall be entitled to any notice of an adjournment or of the business to be transacted at any adjourned meeting. No business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place.

62. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is duly demanded. A poll may be demanded by the Chairman of the meeting or any other shareholder present in person or by proxy before or on the declaration of the result of the show of hands. Unless a poll is so demanded and not withdrawn, a declaration by the Chairman that a resolution has on a show of hands been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the Company’s book containing the minutes of proceedings of meetings of the Company shall be conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of or against such resolution. The demand for a poll may be withdrawn, with the consent of the Chairman, at any time before the close of the meeting at which the poll was demanded or the taking of the poll, whichever is earlier. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded. Any poll duly demanded on the election of a Chairman or a meeting or on any question of adjournment shall be taken at the meeting and without adjournment.

63. If a poll is demanded as aforesaid, it shall (subject as provided in Article 71) be taken in such manner (including the use of ballot or voting papers or tickets) and at such time and place, not being more than 30 days from the date of the meeting or adjourned meeting at which the poll was demanded as the Chairman directs. No notice need be given of a poll not taken immediately. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.

64. In the case of an equality of votes, whether on a show of hands or on a poll the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a second or casting vote.

VOTES OF MEMBERS

65. Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting on a show of hands every holder of Common Shares who is present in person (or, in the case of a holder being a corporation by its duly authorised representative) shall have one vote and on a poll every holder of Common Shares present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each Common Share registered in his name in the register. On a poll a member entitled to more than one vote is under no obligation to cast all his votes in the same way.

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66. Any person entitled under Article 36 to be registered as a holder of Common Shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that at least 48 hours before the time of the holding of the meeting or adjourned meeting (as the case may be) at which he proposed to vote, he shall satisfy the Board of his right to be registered as the holder of such shares or the Board shall have previously admitted his right to vote at such meeting in respect thereof.

67. Where there are joint registered holders of any share carrying a right to vote, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding. Several executors or administrators of a deceased member in whose name any share stands shall for the purposes of this Article be deemed joint holders thereof.

68. Save as expressly provided in these Articles or as otherwise determined by the Board, no person other than a member duly registered shall be entitled to be present or to vote (save as proxy for another member), or to be reckoned in a quorum, either personally or by proxy at any general meeting.

69. In the case of any dispute as to the admission or rejection of any vote, the Chairman of the meeting shall determine the same and such determination shall be final and conclusive.

70. Save where a greater majority is required by the Law or these Articles, any question proposed for consideration at any general meeting shall be decided on by ordinary resolution.

PROXIES

71. Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person (who must be an individual) as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. Forms of proxy shall be sent by the Company to each member together with the notice convening each annual and general meeting of the Company. On a poll votes may be given either personally or by proxy. A proxy need not be a member of the Company. A member may appoint any number of proxies to attend in his stead at any one general meeting (or at any one class meeting).

72. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised in writing, or if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorised to sign the same. The appointment of a proxy may be made by electronic transmission.

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73. The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered to the Secretary at any time before the polls for the general meeting close or may be delivered at the registered office of the Company (or at such other place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 24 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 24 hours before the time appointed for the taking of the poll, and in default the instrument of proxy shall not be treated as valid provided always that the Chairman of the meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of electronic transmission from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

74. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in common form or such other form as the Board may from time to time approve, provided that it shall enable a member, according to his intention, to instruct his proxy to vote in favour of or against (or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy relates.

75. The instrument appointing a proxy to vote at a general meeting shall:

(i) be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit; and

(ii) unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates, provided that the meeting was originally held within 12 months from such date.

76. A vote given in accordance with the terms of an instrument of proxy or resolution of a member shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or power of attorney or other authority under which the proxy or resolution of a member was executed or revocation of the relevant resolution or the transfer of the share in respect of which the proxy was given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at its registered office, or at such other place as is referred to in Article 55, at least two hours before the commencement of the meeting or adjourned meeting at which the proxy is used.

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CORPORATE REPRESENTATIVES

77. Any corporation which is a member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of members of any class of shares of the Company and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company and where a corporation is so represented, it shall be treated as being present at any meeting in person.

TRANSACTIONS WITH INTERESTED SHAREHOLDERS

78. (1) Subject to the provisions of the Law and except as otherwise expressly provided in this Article, a special resolution of the shareholders shall be required to approve:

(i) any merger or consolidation of the Company or any subsidiary with (i) any Interested Shareholder (as hereinafter defined in this Article) or (ii) any other company or other entity (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Shareholder; or

(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder, or any Affiliate of any Interested Shareholder, of any assets of the Company or any subsidiary having an aggregate Fair Market Value (as hereinafter defined in this Article) equaling or exceeding twenty-five per cent. (25%) of the Fair Market Value of the combined assets immediately prior to such transfer of the Company and its subsidiaries; or

(iii) the issuance or transfer by the Company or any subsidiary (in one transaction or a series of transactions) to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof), of any securities of the Company or any subsidiary having an aggregate Fair Market Value equaling or exceeding twenty-five per cent. (25%) of the Fair Market Value of the combined assets immediately prior to such transfer of the Company and its subsidiaries except pursuant to an employee benefit plan of the Company or any subsidiary thereof; or

(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Shareholder or any Affiliate of any Interested Shareholder; or

(v) any reclassification of securities of the Company (including any reverse share split), recapitalization of the Company, merger or consolidation of the Company with any of its subsidiaries or other transaction (whether or not with or into or otherwise involving an

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Interested Shareholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Company or any subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder (a “Disproportionate Transaction”); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase in the proportionate ownership of the Interested Shareholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally.

The term “Business Combination” as used in this Article 78 shall mean any transaction which is referred to in any one or more of paragraphs (i) through (v) of this Article 78(1).

(2) The provisions of Article 78(1) requiring a special resolution of shareholders shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote as is required by the Law or by these Articles of Association (other than Article 78(3)(ii)), whichever is greater, if the Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined in this Article).

(3) For the purposes of this Article:

(i) “Affiliate” means with respect to any person, any other person controlling or controlled by or under common control with such specified person. For the purposes of this definition, “control”, when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

(ii) “Disinterested Director” means any member of the Board of Directors who is unaffiliated with the Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Shareholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.

(iii) “Interested Shareholder” shall mean any person (other than the Company) and any holding company thereof who or which:

(a) is the beneficial owner directly or indirectly, of more than twenty per cent. (20%) of the voting power of the outstanding shares of the Company; or

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(b) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of twenty per cent. (20%) or more of the voting power of the then-outstanding shares; or

(c) is an assignee of or has otherwise succeeded to any shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering.

A person shall not be deemed an Interested Shareholder if such person would become an Interested Shareholder solely as a result of a reduction of the number of shares of the Company outstanding, including repurchases of outstanding shares of the Company by the Company, which reduction increases the percentage of outstanding shares of the Company of which such person is the beneficial owner, until such person shall thereafter become the beneficial owner of any additional shares.

(iv) “Fair Market Value” means:

(a) in the case of shares, the highest closing sale price of a share during the 30-day period immediately preceding the date in question of such share admitted to trading on an Exchange or any other system then in use, the Fair Market Value shall be the highest closing sale price reported by the Exchange or such other system during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of such share as determined by the Board of Directors in good faith, in each case with respect to any class of share, appropriately adjusted for any dividend or distribution in shares or any combination or reclassification of outstanding shares of such share into a smaller number of shares; and

(b) in the case of property other than cash or shares, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.

(4) A majority of the Disinterested Directors of the Company shall have the power and duty to determine for the purposes of this Article, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder; (b) the number of shares of which any person is the beneficial owner; (c) whether a Person is an Affiliate of another; and (d) whether the assets which are the subject of any Business Combination have, or any securities to be issued or transferred by the Company or any Subsidiary in any Business Combination have, an aggregate Fair Market Value equaling or exceeding twenty-five per cent. (25%) of the Fair Market Value of the

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combined assets immediately prior to such transfer of the Company and its subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article.

BOARD OF DIRECTORS

79. The Board shall consist of not less then three nor more than seven persons (exclusive of alternate Directors) PROVIDED HOWEVER, that the Board may from time to time increase or reduce the limits in the number of Directors.

80. (1) The first Directors of the Company shall be determined in writing by, or appointed by a resolution of, the subscribers to the Memorandum of Association.

(2) At least 50% of the Directors must be individuals who are neither executive officers of, nor employed by, the Company.

(3) Each Director shall be elected for a term of two years or such shorter term as shall be specified in the ordinary resolution pursuant to which he shall be appointed.

81. Each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified.

82. The Board shall have power from time to time and at any time to appoint any person as a Director to fill a casual vacancy. Any Director appointed by the Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.

83. The Company may by ordinary resolution at any time remove any Director (including an executive officer) before the expiration of his period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director, and may by ordinary resolution elect another person in his stead or as an additional Director.

84. Nothing in Article 83 should be taken as depriving a Director removed under any provisions of that Article of compensation or damages payable to him in respect of the termination of his appointment as Director or of any other appointment or office as a result of the termination of his appointment as Director or as derogatory from any power to remove a Director which may exist apart from the provision of that Article.

85. The Company shall keep at its office a register of directors and officers containing their names and addresses and occupations and any other particulars required by the Law and shall send to the Registrar of Companies of the Cayman Islands a copy of such register and shall from time to time notify to the Registrar of Companies of the Cayman Islands any change that takes place in relation to such Directors as required by the Law.

86. A Director need not hold any qualification shares. No Director shall be required to vacate office by reason only of his having attained any particular age.

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ALTERNATE DIRECTORS AND PROXIES FOR DIRECTORS

87. A Director may at any time by notice in writing delivered to the registered office of the Company or at a meeting of the Board, appoint any person including another Director to be his alternate Director in his place during his absence and may in like manner at any time determine such appointment.

88. The appointment of an alternate Director shall determine on the happening of any event which, were he a Director, would cause him to vacate such office or if his appointor ceases to be a Director.

89. An alternate Director shall be entitled to receive and waive (in lieu of his appointor) notices of meetings of the Directors and shall be entitled to attend and vote as a Director and be counted in the quorum at any such meeting at which the Director appointing him is not personally present and generally at such meeting to perform all the functions of his appointor as a Director and for the purposes of the proceedings at such meeting the provisions of these Articles shall apply as if he (instead of his appointor) were a Director. If he shall be himself a Director or shall attend any such meeting as an alternate for more than one Director his voting rights shall be cumulative and he need not use all his votes or cast all the votes he uses in the same way. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this Article shall also apply mutatis mutandis to any meeting of any such committee of which his appointor is a member. An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.

90. An alternate Director shall be entitled to contract and be interested in and benefit from contracts or arrangements or transactions and to be repaid expenses and to be indemnified to the same extent mutatis mutandis as if he were a Director, but he shall not be entitled to receive from the Company in respect of his appointment as alternate Director any remuneration except only such part (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct.

91. In addition to the foregoing provisions of this Article, a Director may be represented at any meeting of the Board (or of any committee of the Board) by a proxy appointed by him, in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. A proxy need not himself be a Director and the provisions of Articles 71 to 76 shall apply mutatis mutandis to the appointment of proxies by Directors save that an instrument appointing a proxy shall not become invalid after the expiration of twelve months from its date of execution but shall remain valid for such period as the instrument shall provide or, if no such provision is made in the instrument, until revoked in writing.

REMUNERATION OF DIRECTORS

92. The Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such

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manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

93. The Board may grant special remuneration to any Director, who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be agreed.

94. The remuneration of an Executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Board and may be by way of salary, commission, or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration shall be in addition to such remuneration as the recipient may be entitled to receive as a Director.

95. The Directors shall be entitled to be paid all expenses, including travel expenses, reasonably incurred by them in or in connection with the performance of their duties as Directors including their expenses of travelling to and from Board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors.

VACATION OF OFFICE OF DIRECTOR

96. The office of a Director shall be vacated:

(i) if he resigns his office by notice in writing to the Company at its registered office;

(ii) if an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated;

(iii) if, without leave, he is absent from meetings of the Board (unless an alternate Director or proxy appointed by him attends in his place) for a continuous period of 12 months, and the Board resolves that his office be vacated;

(iv) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;

(v) if he ceases to be or is prohibited from being a Director by law or by virtue of any provisions in these Articles; or

(vi) if he shall be removed from office by a special resolution of the members of the Company pursuant to Article 83.

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DIRECTORS’ INTERESTS

97. Subject to the Law, and provided that a Director has disclosed to the Board the nature and extent of his material interest he notwithstanding his office:

(i) may hold any other office or place of profit with the Company (except that of Auditor) in conjunction with the office of Director and may act by himself or through his firm in a professional capacity for the Company (otherwise than as Auditor) and in either such case on such terms as to remuneration (whether by way of salary, commission, participation in profits or otherwise) and otherwise as the Board may determine; any such remuneration shall be either in addition to or in lieu of any remuneration provided for, by or pursuant to any other Article;

(ii) may be a party to, or otherwise interested in, any contract with the Company or in which the Company is otherwise interested;

(iii) may be a director or other officer of, or employed by, or a party to any contract with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is otherwise interested; and

(iv) shall not, by reason of his office, be accountable to the Company for any remuneration or benefit which he derives from any such office or employment or from any such contract or from any interest in such body corporate and no such contract shall be liable to be avoided on the ground of any such interest or benefit.

For the purposes of this Article 97:

(a) a general notice given to the Board that a Director is to be regarded as having an interest of the nature and extent specified in the notice in any contract in which a specified person or class of persons is interested shall be deemed to be a disclosure that the Director has an interest in any such contract of the nature and extent so specified; and

(b) an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as his interest.

98. The Board may cause any voting power conferred by the shares in any other company held or owned by the Company or any power of appointment to be exercised in such manner in all respects as it thinks fit, including the exercise of either of such powers in favour of a resolution appointing the Directors, or any of them, to be directors or officers of the other company, or in favour of the payment of remuneration to the directors or officers of the other company.

99. Save as otherwise provided by these Articles, a Director shall not vote on, or be counted in the quorum in relation to, any resolution of the Board or of a committee of the Board concerning any matter in which he has to his knowledge, directly or indirectly, an interest (other than his interest in shares or debentures or other securities of, or otherwise in or through, the Company) or duty which (together with any interest of a person connected with him as described in Article 100) is material and, if he shall

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do so, his vote shall not be counted. A Director shall be entitled to vote on and be counted in the quorum in respect of any resolution concerning any of the following matters:

(i) the giving to him of any guarantee, security or indemnity in respect of money lent or obligations incurred by him or by any other person at the request of or for the benefit of, the Company or any of its subsidiary undertakings;

(ii) the giving by the Company of any guarantee, security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiary undertakings for which he himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security;

(iii) his subscribing or agreeing to subscribe for, or purchasing or agreeing to purchase, any shares, debentures or other securities of the Company or any of its subsidiary undertakings, or his being, or intending to become, a participant in the underwriting or sub-underwriting of an offer of any such shares, debentures, or other securities by the Company or any of its subsidiary undertakings for subscription, purchase or exchange;

(iv) any contract concerning any company not being a company in which the Director owns one per cent. or more (as defined in Article 101 below), in which he is interested, directly or indirectly, and whether as an officer, shareholder, creditor or otherwise;

(v) any contract concerning the adoption, modification or operation of a superannuation fund, retirement, death or disability benefit scheme or personal pension scheme which relates both to Directors and employees of the Company or of any of its subsidiaries and which does not accord to any Director as such any privilege or advantage not accorded to the employees to which such fund or scheme relates;

(vi) any contract for the benefit of employees of the Company or any of its subsidiary undertakings under which he benefits in a similar manner as the employees and which does not accord to any Director as such any privilege or advantage not accorded to the employees to whom the contract relates; and

(vii) any contract concerning any insurance which the Company is empowered to purchase or maintain for, or for the benefit of, any Directors or for persons who include Directors.

100. A Director shall not vote on, or be counted in the quorum in relation to, any resolution of the Board concerning his own appointment, or the settlement or variation of the terms or the termination of his own appointment, as the holder of any office or place of profit with the Company or any company in which the Company is interested but, where proposals are under consideration concerning the appointment, or the settlement or variation of the terms or the termination of the appointment, of two or more Directors to offices or places of profit with the Company or any company in which the Company is interested, a separate resolution may be put in relation to each Director

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and in that case each of the Directors concerned shall be entitled to vote on and be counted in the quorum in relation to each resolution which does not concern either:

(i) his own appointment or the settlement or variation of the terms or the termination of his own appointment; or

(ii) the appointment of another Director to an office or place of profit with a company in which the Company is interested and in which the Director seeking to vote or be counted in the quorum is interested by virtue of owning of one per cent. or more (as defined in Article 101).

For the purposes of this Article 100, an interest of a person who is, for any purpose of the Law (excluding any statutory modification thereof not in force when this Article 100 becomes binding on the Company), connected with a Director shall be treated as an interest of the Director and, in relation to an alternate Director, an interest of his appointor shall be treated as an interest of the alternate Director without prejudice to any interest which the alternate director has otherwise.

101. A company shall be deemed to be a company in which a Director owns one per cent. or more if and so long as he is directly or indirectly the holder of or beneficially interested in one per cent. or more of any class of the equity share capital of such company or of the voting rights available to members of such company. For this purpose, there shall be disregarded any shares held by a Director as bare or custodian trustee and in which he has no beneficial interest, any shares comprised in a trust in which the Director’s interest is in reversion or remainder (if and so long as some other person is entitled to receive the income from such trust) and any shares comprised in an authorised unit trust scheme in which the Director is interested only as a unit holder.

102. Where a company in which a Director owns one per cent. or more is materially interested in a contract, he shall also be deemed to be materially interested in that contract.

103. References in this Article to a contract include references to any proposed contract and to any transaction or arrangement whether or not constituting a contract.

104. If any question shall arise at any meeting of the Board as to the materiality of the interest of a Director (other than the chairman of the meeting) or as to the entitlement of any Director (other than the chairman of the meeting) to vote or be counted in the quorum and the question is not resolved by his voluntarily agreeing to abstain from voting or not to be counted in the quorum, the question shall be referred to the chairman of the meeting and his ruling in relation to the Director concerned shall be conclusive except in a case where the nature or extent of his interest (so far as it is known to the Director) has not been fairly disclosed to the Board. If any question shall arise in respect of the chairman of the meeting, the question shall be decided by resolution of the Board (for which purpose the chairman shall be counted in the quorum but shall not vote on the matter) and the resolution shall be conclusive except in a case where the nature or extent of the interest of the chairman (so far as it is known to the chairman) has not been fairly disclosed to the Board.

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EXECUTIVE OFFICERS

105. The Board may from time to time appoint one or more Chairman of the Board, President, Managing Director, Chief Executive Officer, Chief Financial Officer and such other officers as it considers necessary in the management of the business of the Company and as it may decide for such period and upon such terms as it thinks fit and upon such terms as to remuneration as it may decide in accordance with these Articles, and may confer upon an officer all or any of the powers of the Board that it may think fit.

106. Every Director appointed to an office under Article 105 hereof shall, without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company, be liable to be dismissed or removed therefrom by the Board. A Director appointed to an office under Article 105 shall be subject to the same provisions as to removal as the other Directors of the Company, and he shall, without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company, ipso facto and immediately cease to hold such office if he shall cease to hold the office of Director for any cause.

MANAGEMENT

107. (1) The management of the business of the Company shall be vested in the Board which, in addition to the powers and authorities by these Articles expressly conferred upon it, may exercise all such powers and do all such acts and things as may be exercised or done or approved by the Company and are not hereby or by the Law expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Law and of these Articles and to any regulation from time to time made by the Company in general meeting not being inconsistent with such provisions or these Articles, PROVIDED THAT no regulation so made shall invalidate any prior act of the Board which would have been valid if such regulation had not been made.

(2) The Board of Directors may authorize any officer, officers, agent or agents to enter into any contract or agreement of any nature whatsoever, including, without limitation, any contract, deed, bond, mortgage, guarantee, agreement, or any other document or instrument of any nature whatsoever, and to execute and deliver any such contract, agreement, document or other instrument of any nature whatsoever for and in the name of and on behalf of the Company, and such authority may be general or confined to specific instances.

PROCEEDINGS OF DIRECTORS

108. The Board may meet together for the despatch of business, adjourn and otherwise regulate its meetings and proceedings as it thinks fit in any part of the world and may determine the quorum necessary for the transaction of business. Unless otherwise determined by the Board Directors being in number not less than half of the Directors

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shall be a quorum. For the purposes of this Article an alternate Director shall be counted in a quorum in place of the Director who appointed him and an alternate Director who is an alternate for more than one Director shall for quorum purposes be counted separately in respect of himself (if he is a Director) and in respect of each Director for whom he is an alternate (but so that nothing in this provision shall be construed as authorising a meeting to be constituted when only one person is physically present except if at any time there is only a sole Director where the quorum shall be one). A meeting of the Board or any committee of the Board may be held by means of a telephone or tele-conferencing or any other telecommunications facility provided that all participants are thereby able to communicate contemporaneously by voice with all other participants and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.

109. Any Director may, and the Secretary shall upon the request of a Director at any time summon a meeting of the Board. Twenty-four hours notice thereof shall be given to each Director either in writing or by electronic transmission at the address or telephone, facsimile or telex number from time to time notified to the Company by such Director or in such other manner as the Board may from time to time determine.

110. Questions arising at any meeting of the Board shall be decided by a majority of votes, and in case of an equality of votes the Chairman shall have a second or casting vote.

111. The Board may elect a Chairman to act as chairman of the meetings of the Board; but if no such Chairman is elected, or if at any meeting the Chairman is not present within 15 minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting.

112. A meeting of the Board for the time being at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions by or under these Articles for the time being vested in or exercisable by the Board generally.

113. The Board may delegate any of its powers to committees consisting of such member or members of the Board (including alternate Directors in the absence of their appointers) as the Board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed upon it by the Board.

114. All acts done by any such committee in conformity with such regulations and in fulfilment of the purposes for which it is appointed, but not otherwise, shall have the like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any such committee, and charge such remuneration to the current expenses of the Company.

115. The meetings and proceedings of any such committee consisting of two or more members of the Board shall be governed by the provisions herein contained for regulating the meetings and proceedings of the Board so far as the same are applicable thereto and are not replaced by any regulations imposed by the Board pursuant to Article 119.

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116. The Board shall cause minutes to be made of:

(i) all appointments of officers made by the Board;

(ii) the names of the Directors present at each meeting of the Board and any of committees of the Board;

(iii) all declarations made or notices given by any Director of his interest in any contract or proposed contract or of his holding of any office or property whereby any conflict of duty or interest may arise; and

(iv) all resolutions and proceedings at all meetings of the Company and of the Board and of such committees.

117. Any such minutes shall be conclusive evidence of any such proceedings if they purport to be signed by the chairman of the meeting or by the chairman of the succeeding meeting.

118. All acts bona fide done by any meeting of the Board or by a committee of Directors or by any person acting as Director shall, notwithstanding that it shall be afterwards discovered that there was some defect in the appointment of such Director or persons acting as aforesaid or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director or member of such committee as the case may be.

119. The continuing Directors may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Director or Directors may act for the purpose of increasing the number of Directors to that number or of summoning a general meeting of the Company but for no other purpose.

120. A resolution in writing signed by each and every one of the Directors (or their respective alternates) shall be as valid and effectual as if it had been passed at a meeting of the Board duly convened and held and may consist of several documents in like form each signed by one or more of the Directors or alternate Directors.

SECRETARY

121. A Secretary may be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit, and any Secretary so appointed may be removed by the Board. Anything by the Law or these Articles required or authorised to be done by or to the Secretary, if the office is vacant or there is for any other reason no Secretary capable of acting, may be done by or to any assistant or deputy Secretary appointed by the Board, or if there is no assistant or deputy Secretary capable of acting, by or to any officer of the Company authorised generally or specifically in that behalf by the Board.

122. A provision of the Law or of these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as or in place of the Secretary.

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GENERAL MANAGEMENT AND USE OF SEAL

123. The Board shall provide for the safe custody of the seal which shall only be used by the authority of the Board or of a committee of the Board authorised by the Board in that behalf, and every instrument to which such seal shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Board for the purpose. The securities seal which shall be a facsimile of the common seal with the word “Securities” engraved thereon shall be used exclusively for sealing securities issued by the Company and for sealing documents creating or evidencing securities so issued. The Board may either generally or in any particular case resolve that the securities seal or any signatures or any of them may be affixed to warrants, debentures or any other form of security by facsimile or other mechanical means specified in such authority or that any such warrant, debenture or other form of security sealed with the securities seal need not be signed by any person. Every instrument to which the seal is affixed as aforesaid shall, as regards all persons dealing in good faith with the Company, be deemed to have been affixed to that instrument with the authority of the Directors previously given.

124. The Company may have a duplicate seal as and where the Board shall determine, and the Company may by writing under the seal appoint any agents or agent, committees or committee abroad to be the agents of the Company for the purpose of affixing and using such duplicate seal and they may impose such restrictions on the use thereof as may be thought fit. Wherever in these Articles reference is made to the seal, the reference shall, when and so far as may be applicable, be deemed to include any such duplicate seal as aforesaid.

125. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments, and all receipts for moneys paid to the Company shall be signed, drawn, accepted, indorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine. The Company’s banking accounts shall be kept with such banker or bankers as the Board shall from time to time determine.

126. The Board may from time to time and at any time, by power of attorney under the seal or by document executed as a deed, appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.

127. The Company may, by writing under its seal or by document executed as a deed, empower any person, either generally or in respect of any specified matter, as its attorney to execute deeds and instruments on its behalf in any part of the world and to enter into contracts and sign the same on its behalf and every deed signed by such attorney on behalf of the Company and, if required, under his seal shall bind the Company and have the same effect as if it were under the seal of the Company.

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PENSION FUNDS

128. The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or provident or superannuation funds or (with the sanction of an ordinary resolution) employee or executive share option schemes for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependents of any such persons. The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well-being of the Company or of any such other company as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. Any Director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.

CAPITALISATION OF RESERVES

129. The Company in general meeting may upon the recommendation of the Board by ordinary resolution resolve that it is desirable to capitalise all or any part of the amount for the time being standing to the credit of any of the Company’s reserve accounts or funds or to the credit of the profit and loss account or otherwise available for distribution (and not required for the payment or provision of dividend on any shares with a preferential right to dividend) and accordingly that such sums be set free for distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportion on condition that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares, debentures or other securities of the Company to be allotted and distributed credited as fully paid up to and amongst such members in proportion aforesaid or partly in one way and partly in the other, and the Board shall give effect to such resolution, provided that a share premium account and a capital redemption reserve and any reserve or fund representing unrealised profits may, for the purposes of this Article, only be applied in paying up unissued shares to be issued to members of the Company as fully paid up shares or paying up calls or instalments due or payable on partly paid securities of the Company subject always to the provisions of the Law.

130. Wherever such a resolution as referred to in Article 129 shall have been passed the Board shall make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid up shares, debentures or other securities, if any, and generally shall do all acts and things required to give effect thereto, with full power to the Board:

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(i) to make such provision by the issue of fractional certificates or by payment in cash or otherwise (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned) as they think fit in cases where shares, debentures or other securities become distributable in fractions;

(ii) to exclude the right of participation or entitlement of any member with a registered address outside any territory where in the absence of a registration statement or other special or onerous formalities the circulation of an offer of such right or entitlement would or might be unlawful or where the Board consider the costs, expense or possible delays in ascertaining the existence or extent of the legal and other requirements applicable to such offer or the acceptance of such offer out of proportion to the benefits of the Company; and

(iii) to authorise any person to enter on behalf of all members entitled thereto into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares, debentures or other securities to which they may be entitled upon such capitalisation, or, as the case may require, for the payment up by the Company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares, and any agreement made under such authority shall be effective and binding on all such members.

131. The Board may, in relation to any capitalisation sanctioned under these Articles in its absolute discretion specify that, and in such circumstances and if directed so to do by a member or members entitled to an allotment and distribution credited as fully paid up of unissued shares or debentures in the Company pursuant to such capitalisation, shall allot and distribute credited as fully paid up the unissued shares, debentures or other securities to which that member is entitled to such person or persons as that member may nominate by notice in writing to the Company, such notice to be received not later than the day for which the general meeting of the Company to sanction the capitalisation is convened.

DIVIDENDS, DISTRIBUTIONS AND RESERVE

132. Subject to the Law, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorise payment of the same out of the funds of the Company lawfully available therefor.

133. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company.

134. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the share premium account or as otherwise permitted by the Law.

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135. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share.

136. The Directors may deduct from any dividend or distribution payable to any member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

137. The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all members and may vest any such specific assets in trustees as may seem expedient to the Directors.

138. Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders.

139. No dividend or distribution shall bear interest against the Company.

DOCUMENT DESTRUCTION

140. The Company shall be entitled to destroy all instruments of transfer, probate, letters of administration, stop notices, powers of attorney, certificates of marriage or death and other documents relating to or affecting title to securities in or of the Company (“Registrable Documents”) which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of two years from the date of recording thereof and it shall conclusively be presumed in favour of the Company that every entry in the register if purporting to have been made on the basis of an instrument of transfer or Registrable Document so destroyed was duly and properly made and every instrument of transfer or Registrable Document so destroyed was a valid and effective instrument or document duly and properly registered and every other document hereinbefore mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company, provided always that:

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(i) the provisions aforesaid shall apply only to the destruction of a document in good faith and without express notice of the Company of any claim (regardless of the parties thereto) to which the document might be relevant;

(ii) nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any other circumstances which would not attach to the Company in the absence of this Article; and

(iii) references herein to the destruction of any document include references to the disposal thereof in any manner.

ACCOUNTS

141. The books of account shall be kept at such place or places as the Board thinks fit and shall always be open to the inspection of the Directors.

142. The Board shall from time to time determine whether, to what extent, at what times and places and under what conditions or regulations, the accounts and books of the Company, or any of them, shall be open to the inspection of the members (other than officers of the Company) and no member shall have any right of inspecting any accounts or books or documents of the Company except as conferred by the Law or any other relevant law or regulation or as authorised by the Board or by the Company in general meeting.

143. The Board shall, commencing with the first annual general meeting cause to be prepared and to be laid before the members of the Company at every annual general meeting a profit and loss account for the preceding financial year together with a balance sheet as at the last day of the preceding financial year and a report for the period covered by the profit and loss account and the state of the Company’s affairs as at the end of such period, an Auditors' report on such accounts prepared pursuant to Article 145 and such other reports and accounts as may be required by law.

144. Printed copies of those documents to be laid before the members of the Company at an annual general meeting shall not less than 14 days before the date of the meeting be sent to every member of the Company and every holder of debentures of the Company, provided that the Company shall not be required to send printed copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.

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AUDIT

145. The Auditors shall audit the profit and loss account and balance sheet of the Company in each year and shall prepare a report thereon to be annexed thereto. Such report shall be laid before the Company at its annual general meeting in each year and shall be open to inspection by any member. The Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Board or any general meeting of the members, make a report on the accounts of the Company in general meeting during their tenure of office.

146. The Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting. The remuneration of the Auditors shall be fixed by the Company at the annual general meeting at which they are appointed provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Board. No person may be appointed as the, or an, Auditor, unless he is independent of the Company. The Board may before the first annual general meeting appoint an auditor or auditors of the Company who shall hold office until the first annual general meeting unless previously removed by an ordinary resolution of the members in general meeting in which case the members at that meeting may appoint Auditors. The Board may fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Board under this Article may be fixed by the Board.

147. Every statement of accounts audited by the Auditors and presented by the Board at an annual general meeting shall after approval at such meeting be conclusive except as regards any error discovered therein within three months of the approval thereof. Whenever any such error is discovered within that period, it shall forthwith be corrected, and the statement of account amended in respect of the error shall be conclusive.

SERVICE OF NOTICES AND OTHER DOCUMENTS

148. Any notice or other document may be served on or delivered to any member by the Company either personally or by sending it through the post in a prepaid letter addressed to such member at his registered address as appearing in the principal register or by delivering it to or leaving it at such registered address addressed as aforesaid. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed a sufficient service on or delivery to all the joint holders.

149. Any such notice or other document, if sent by post, shall be deemed to have been served or delivered on the day after the day when it was put in the post (if sent to an address in the same country) and on the second day after the day when it was put in the post (if sent from one country or territory to an address in another country), and in proving such service or delivery it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post. Any notice or other document delivered or left at a registered address otherwise than by post shall be deemed to have been served or delivered on the day it was so delivered or left.

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150. Any notice or other document delivered or sent by post to or left at the registered address of any member in pursuance of these Articles shall, notwithstanding that such member is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such member as sole or joint holder unless his name shall, at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share and such service or delivery shall for all purposes be deemed a sufficient service or delivery of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share.

151. The signature to any notice to be given by the Company may be written or printed by means of facsimile.

INFORMATION

152. No member shall be entitled to require discovery of or any information in respect of any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the members or the Company to communicate to the public.

153. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its members including, without limitation, information contained in the register of members and transfer books of the Company.

WINDING UP

154. If the Company shall be wound up (whether the liquidation is voluntary, under supervision or by the court) the liquidator may, with the authority of a special resolution of the Company and any other sanction required by the Law divide among the members in specie or kind the whole or any part of the assets of the Company (whether the assets shall consist of property of one kind or shall consist of properties of different kinds) and may for such purpose set such value as he deems fair upon any property to be divided and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority or sanction vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members as the liquidator, with the like authority or sanction and subject to the Law, shall think fit, and the liquidation of the Company may be closed and the Company dissolved, but so that no member shall be compelled to accept any assets, shares or other securities in respect of which there is a liability.

INDEMNITY

155. (1) The Company shall indemnify, to the full extent now or hereafter permitted by law, any person (including his heirs, executors and administrators) who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or

41

investigative (including, without limitation, an action by or in the right of the Company), by reason of his acting as, or having in the past acted as, a Director, officer, employee or agent of, or his acting in any other capacity for or on behalf of, the Company, (including his serving for, on behalf of or at the request of the Company as a Director, officer employee or agent of another company, partnership, joint venture, trust or other enterprise, or in a fiduciary or other capacity with respect to any employee benefit plan maintained by the Company) against any expense (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person (or his heirs, executors and administrators) in respect thereof. The Company shall advance the expenses of defending any such action, suit or proceeding (including appeals) in accordance with and to the full extent now or hereafter permitted by law.

(2) The Board of Directors may, notwithstanding any interest of the directors in such action, authorize the Company to purchase and maintain insurance on behalf of any person described in Article 155(1), against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of this Article 155.

(3) Directors of the Company shall have no personal liability to the Company or its members for monetary damages for breach of fiduciary or other duties as a director, except (i) for any breach of a director’s duty of loyalty to the Company or its members, (ii) for act or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which a director derived an improper personal benefit.

(4) The provisions of this Article 155 shall be applicable to all actions, claims, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after its adoption. The provisions of this Article 155 shall be deemed to be a contract between the Company and each director, officer, employee or agent who serves in such capacity at any time while this Article and the relevant provisions of the law, if any, are in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts or any action, suit or proceeding then or theretofore existing, or any action, suit or proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Article 158 shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect any other application of such provision or the validity of the remaining provisions hereof. The rights of indemnification and advancement of expenses provided in this Article shall neither be exclusive of, nor be deemed in limitation of, any rights to which any such officer, director, employee or agent may otherwise be entitled or permitted by contract, vote of members or directors or otherwise, or as a matter of law, both as to actions in his official capacity and actions in any other capacity while holding such office, it being the policy of the Company that indemnification of the specified individuals shall be made to the fullest extent permitted by law.

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FINANCIAL YEAR

156. The financial year of the Company shall end on 31st December in each year or as otherwise prescribed by the Board from time to time.

REGISTERED OFFICE

157. The registered office of the Company shall be at such place in the Cayman Islands as the Board shall from time to time appoint.

AMENDMENT OF MEMORANDUM AND ARTICLES

158. Subject to the Law, the Company may at any time and from time to time by special resolution alter or amend its Memorandum of Association and Articles of Association in whole or in part.

RECORD DATE

159. For the purpose of determining members entitled to notice of or to vote at any meeting of members or any adjournment thereof, or members entitled to receive payment of any dividend, or in order to make a determination of members for any other proper purposes, the Directors of the Company may provide that the register shall be closed for transfers for a stated period but not to exceed in any case five days.

160. In lieu of or apart from closing the register, the Directors may fix in advance a date as the record date for any such determination of members entitled to notice of or to vote at a meeting of the members and for the purpose of determining the members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination.

161. If the register is not so closed and no record date is fixed for the determination of members entitled to notice of or to vote at a meeting of members or members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of members. When a determination of members entitled to vote at any meeting of members has been made as provided in this section, such determination shall apply to any adjournment thereof.

Appendix 2: Subsea 7 Inc. Annual Report 2005

Subsea 7 Annual Report 2005 3

4 MessagefromtheChairman

5 Companyprofile

6 Financialhighlights

8 Visionandvalues

10 Towardsthevision

25 Managementteam

27 FinancialReport

28 Board of Directors’ Report

32 Board of Directors

33 Independent Auditors’ Report

34 Consolidated Income Statement

35 Consolidated Balance Sheet

36 Consolidated Statement of changes in Shareholders’ Equity

37 Consolidated Cash Flow Statement

38 Accounting Policies

46 Notes to the Financial Statements

77 Pro Forma Information (Unaudited)

80 Share Capital Information

81 Financial Calendar

4 Subsea Partner of Choice

2005 was a defining year for Subsea 7. It was the year when Subsea 7 began to deliver on its true potential as a global subsea construction company. We performed to a consistently high quality level in our project execution across all regions and received numerous commendations from our clients for exceptional performance, both in schedule delivery and safety.

We made progress in our financial performance as a result of improved productivity of our people and our fleet, accompanied by stronger market conditions. In 2005 our revenues increased by 58% to USD 1,287 million (compared to proforma USD 813 million in 2004) with a corresponding increase in EBITDA of 163% to USD 166 million (compared to proforma USD 63 million in 2004) which represents an EBITDA margin percentage of 13% compared to 8% in 2004. Our net profit for the year from continuing operations was USD 45 million compared to a proforma net loss in 2004 of USD 31 million.

Acquiring Halliburton’s 50% share in Subsea 7 and moving the non-core subsea assets and activities into a separate company has enabled Subsea 7 to maintain a clear focus on its strategic intent and act quickly to maximise the opportunities presented in a very strong market.We have made great progress towards delivering on our strategy by establishing Subsea 7 as a major EPIC (engineering, procurement, installation and construction) contractor with a track record in North Sea, West Africa, Brazil and Asia Pacific. The capital investments made in our two newbuild deepwater Rigid pipelay and Flexible pipelay construction vessels gives us the capability to compete in the growing global deepwater market. We are achieving this whilst maintaining focus on consolidating and growing our traditional North Sea tie-back projects, inspection, repair and maintenance and drill rig support business segments.

We recognise that people and teamwork are our strength and that attracting, training and retaining key people at every level of our organisation is critical to our success. We have in place a very strong experienced and dynamic global management team that is leading Subsea 7 towards achieving our vision of being the “Subsea Partner of Choice”, building our business around a motivated and valued workforce. We have invested in training to develop technical and leadership skills which support our vision and we are seeing positive results.As we look to 2006 and beyond we see a sustainable

strong market in each of the subsea business segments in which we participate. Our strong position and track record in the mature North Sea basin, where the importance of maintaining the asset base hubs and subsea development of the surrounding hydrocarbon pools will ensure that Subsea 7’s traditional market position will remain strong. Our 30 years of remote technology experience, including over 10 years in the harsh environment West of the Shetlands, will act as a spring board for establishing Subsea 7 in other developed deepwater basins, such as West Africa and Brazil. Our investment in new vessels with deepwater capabilities, together with our growing experience in executing large EPIC contracts, positions Subsea 7 as the Partner of Choice for our clients.

In this strong market, we will build on our reputation for delivering value to our clients and, ultimately, to all our stakeholders. However we will be selective in targeting projects that play to our strengths and asset capability. We will partner with others where value can be created and continue to promote and develop collaborative business models with our clients in order to maximise resources and create increased value that can be shared.

We operate in an extremely complex and challenging environment. One of the major challenges that our Industry faces is to significantly improve margins to reflect the risks undertaken and capital investments required, by sharing more equitably in the value that we create for our clients at a time when our cyclical business is enjoying record heights.

I thank the people of Subsea 7 who have worked so diligently to create our success to date which has provided a solid spring board on which to build. I also wish to thank all our shareholders and our clients for their support, loyalty and belief in our Company.

KristianSiemChairman

30 March 2006

Subsea 7 Annual Report 2005 5

A company dedicated to global subsea oil and gas infrastructure.

Born out of the histories, track records and people of DSND, Halliburton Subsea, Subsea Offshore and Rockwater.

Listed on Oslo Stock Exchange (ticker SUB) since August 2005.

Earned revenues of $1.3 billion in 2005.

Employs 3,700 people* globally.

* includes contractors

6 Subsea Partner of Choice

The financial highlights compare the actual continued operations for 2005 versus the unaudited pro forma results for 2004.

Earnings before interest, tax, depreciation and amortisation “EBITDA”.

EBITDA has been calculated by using the Net operating profit/(loss) and adding back depreciation, amortisation and impairments. This financial term is provided as it is a key unit of measurement used by the Group in the management of its business.

Subsea 7 Annual Report 2005 7

8 Subsea Partner of Choice

Subsea 7 Annual Report 2005 9

10 Subsea Partner of Choice

Working towards Subsea 7’s vision entails relentless pursuit of value delivery to our customers by focusing on our People and Teamwork, Asset Management and Project Execution

Subsea 7 Annual Report 2005 11

TOWARDSTHEVISION

PeopleandTeamwork

Subsea 7’s vision is to become Partner of Choice for the global onshore and offshore subsea human resource talent that exists today and the talent that wishes to join our market sector for tomorrow’s challenges.

Our people and teamwork are central to our achievements in 2005. Subsea 7’s continued successful growth depends upon enhancing our employees’ skills and offering them the opportunity to develop to their full potential in each and every onshore and offshore role, regardless of their career stage.

In subsea asset creation, inspection and maintenance people and teams are at the heart of our engineering and project management excellence.

Subsea 7 employs in excess of 3,700 people from 37 different countries. Around 550 of these people are project managers or engineers.

Geographic and functional mobility provide numerous opportunities for individual growth, sharing of best practice and the dissemination and reinforcement of our culture and vision.

Several new initiatives were implemented in 2005 for our people and teams which build on existing campaigns. Our suite of human resource recruitment and development programmes are in the top tier of the subsea sector.

12 Subsea Partner of Choice

GraduateTrainingProgramme

New ideas and fresh thinking from bright, innovative people are essential to Subsea 7’s growth in our dynamic and exciting sector. Subsea 7’s Graduate Training Programme for engineering, survey and business graduates, developed to fulfill the requirements of the various professional institutes, has resulted in graduates from the programme filling several managerial roles in our Company today. In 2005, in excess of 100 trainees and graduates were employed by Subsea 7.

TestimonialsfromSubsea7Graduates

“When I completed my Masters Degree in Mechanical Engineering, I wanted to find an interesting and challenging job where my professional experience could be developed. I was attracted by the Subsea 7 Graduate Training Programme, which has an excellent reputation and is backed up by the Company’s close links to professional institutions such as the IMechE. The best thing about my job is the diversity; as well as office based work, I spend a lot of time visiting suppliers, various worksites and vessels which means that I never feel chained to the desk and am always meeting interesting new people. The Company’s friendly relaxed atmosphere provides a great environment for young engineers to develop their expertise.”

DavidSinclair,GraduateEngineer

“The Graduate Training Programme has the flexibility that I was looking for in a job. It gives me the opportunity to explore different areas of the Company’s business, building up a range of skills and experience. I have always liked a challenge and my managers picked up on that straight away. Since joining the Company, I’ve been involved in detailed engineering, which has tested me, and experienced the buzz of busy operational periods. I’ve learned a lot about how to work in a range of environments and it’s been great.”

HannahOram,GraduateEngineer

TOWARDSTHEVISION

PeopleandTeamwork

Subsea 7 Annual Report 2005 13

Our ‘best in class’ human resource programmes were recognised in March 2006. Subsea 7 was awarded the Scottish Offshore Achievement Award “Succeeding through People”, sponsored by Chevron.

Whilst this is a UK award, it is our approach to people and teams wherever we work globally. This is not only key to growing our business internationally, but is fundamental to making Subsea 7, The Subsea Partner of Choice for our people and teams.

“ This is not a low-risk business. Yet the buzz is unbelievable. If people are motivated, you can do anything and in the end, it comes down to exactly that... people”

Mel FitzgeraldCEO

ProjectManagementDevelopmentProgramme

Our successful global Project Management Development Programme, bespoke to the subsea sector, was accredited as a recognised training programme with the Association for Project Management (APM) in the UK and the International Project Management Association (IPMA).

EngineeringforGrowth

Engineering for Growth is a global project targeted to:

• Increase engineering effectiveness and efficiency.

• Improve engineering norms and standards.

• Develop and implement a system/method to improve knowledge/experience sharing.

• Standardise designs and processes where applicable.

Engineering for Growth therefore relieves some of the unnecessary pressures on our engineers and allows them to free up time for creative thinking.

LeadershipDevelopmentProgramme

Leadership and management of human resources is key for growth of the individual, team and Subsea 7. Our Leadership Development Programme, designed specifically for Subsea 7 following feedback from employees, is providing improved leadership performance onshore and offshore.

EngineeringConversionProgramme

To harness the talent and energy that exists in other engineering sectors outside the oil industry, Subsea 7 developed an Engineering Conversion Programme.This has been successful; in its first intake, attracting twelve experienced, professional engineers to our sector. The programme is designed to apply their core expertise to the engineering challenges within the subsea sector.

TOWARDSTHEVISION

AssetManagement

Subsea 7 actively manages its asset portfolio comprising its fleet of dynamically positioned (DP) vessels, construction equipment, onshore pipeline fabrication spoolbases and remotely operated vehicles (ROV).

Subsea 7’s goal is to be the Subsea Partner of Choice for its customers and asset owners by providing assets which align with the needs of the market in terms of value, capability and security of supply.

The fleet comprises fourteen vessels which are shown below. Nine vessels are owned, five are on long term charter and, at the close of 2005, five vessels were on short term charter.

14 Subsea Partner of Choice

Subsea 7 Annual Report 2005 15

*Artist Impression

Features

• 157 metres long, 28.4 metres wide.

• Vertical lay system (VLS) with top tension capability in excess of 400t; 400t deepwater crane.

• Flexible pipe storage capacity with two 1250t below deck carousels and a 3000t carousel or multiple reels on deck. Ability to install umbilicals.

• Lay system incorporates additional ability to J-lay rigid pipe.

• Integral twin ROV spread; survey system.

Features

• 157 metres long, 28.4 metres wide.

• 400t top tension; 400t deepwater crane.

• 3,500t of steel pipe payload on main reel.

• Integral twin ROV spread; survey system.

• Installation of steel pipe up to 3000m.

TOWARDSTHEVISION

AssetManagement

PIPELINEFABRICATIONINVESTMENT

In August 2005, Subsea 7 commenced operations from its latest pipeline fabrication spoolbase in Luanda, Angola. In achieving this milestone, Subsea 7 became the first subsea contractor to establish and operate a pipeline fabrication spoolbase in Angola.

Thisachievementincluded

• Land reclamation from the sea in Luanda port which commenced in December 2004 and completed June 2005.

• Creation of base facility and state of the art welding firing line with fully automatic welding machines.

• Training of Angolan welders, pipe handlers and supervisors.

• Fabrication of 120km of steel pipe for the Chevron Lobito Tomboco project, completed December 2005.

The location and welding capacity of this spoolbase and the high involvement of Angolan companies and people in its operation places Subsea 7 in a strongposition to serve the Angolan subsea market.

16 Subsea Partner of Choice

FURTHERFLEETINVESTMENT

To support contract awards from Petrobras for work offshore Brazil, upgrades were made to the MSV Skandi Navica and MSV Lochnagar in 2005.

In both cases, the upgrade involved increasing the dynamic product tension capacity of the pipelay systems.

Subsea 7 Annual Report 2005 17

TECHNOLOGYINVESTMENT

To be the Subsea Partner of Choice, asset management must increasingly address investment in technology to support construction and “through life” integrity of subsea infrastructure.

Subsea 7 has an active technology development programme targeted at core markets, which includes the development of new J-lay technology and extension of the Company’s towed pipeline capability to enable installation in water depths beyond 2000m for both pipelines and risers.

In addition, the development of state of the art pumping technology to provide seabed boosting, pipeline electrical heating systems to overcome flow assurance problems and new pipeline and riser installation systems are part of the current programme.

ROVINVESTMENT

In November 2005, Subsea 7 placed an order for the construction of five latest generation Hercules heavy construction workclass ROV systems. These systems, designed in-house and manufactured externally, are capable of operating at 3000m with a power rating of 125 HP. The first two systems were delivered in March 2006 and will commence their first project in April 2006.

As we work towards our vision, we actively manage our asset portfolio of vessels, equipment, spoolbases, ROV and technology to meet the future needs of our clients.

Health, Safety, Environment and Quality

At the cornerstone of all that we do in Subsea 7 are robust Health, Safety, Environment and Quality (HSEQ) management systems. We believe our systems are best in class within our sector of the oil and gas industry.

Year on year improvement in all our HSEQ performance metrics highlight a continuing focus on these management systems and HSEQ culture as key business and project execution deliverables.

Subsea 7’s Lost Time Incident (LTI) frequency rate of 0.076 / 200,000 manhours is at a record low against a back drop of increased global activity in 2005, where around 16 million manhours were worked by Subsea 7 people.

TOWARDSTHEVISION

ProjectExecution

The 2005 HSEQ Improvement Plan Focus Areas:-

• Comprehensive revision to key HSEQ processes resulting from a high potential vessel incident in January 2005.

• Senior manager sponsors appointed for every offshore and onshore worksite.

• Unique vessel assurance management scheme initiated to review and standardise operation of all vessels (marine and project).

• Overhaul of lifting procedures, standards and processes for entire Company.

• Emphasis on safety input and leadership visits and tours of worksites.

18 Subsea Partner of Choice

DSNDGroupLTIFR

HalliburtonSubseaLTIFR

Subsea7LTIFR

Subsea7CumulativeFR

Subsea 7 Annual Report 2005 19

FEATURE PROJECTS

NORTHSEA

Subsea 7 has project management and engineering offices in Aberdeen, Scotland and in Stavanger, Norway. Operational pipeline fabrication spoolbases are located in Leith, Scotland and Luster, Norway. In addition, in Wick, Scotland, there is a fabrication facility for towed production systems.

The Global Vessel Management Group (VMG) is located in Grimstad, Norway and has responsibility for the support and maintenance of our fleet.

Shell ISSC Contract

The Shell ISSC project is a long term framework contract for the provision of underwater inspection, repair, maintenance and pipeline inspection for all Shell’s infrastructure in the Northern, Central and Southern North Sea. The contract, performed on a reimbursable basis, has been running since March 2004 and will continue until March 2008. This contract required around 600 vessel days in 2005.

Partnership with Venture Production plc

In 2005, Venture Production plc and Subsea 7 signed a partnership contract unique to the subsea contracting industry.

The contract, which has no fixed term but will continue based upon performance and delivery, is for all of Venture’s subsea engineering, construction, inspection, repair and maintenance requirements and involves more than the traditional contractor’s scope. As such, it entails project concept development and costing, management and logistics, interface management with other key suppliers, management of the supply chain and lifecycle costing. The parties have developed a number of innovative commercial models to ensure alignment and value creation. Numerous individual projects were executed successfully by this partnership in 2005.

20 Subsea Partner of Choice

TOWARDSTHEVISION

ProjectExecution

Norsk Hydro Vestflanken Project, Norway

The Oseberg Vestflanken Field Development consists of one four-slot template, with tie-back to the Oseberg Field Centre via two 9” diameter carbon steel production pipelines and an Integrated Service and Control Umbilical (ISU) approximately 10km long, trenched, back-filled and rock dumped. Pipeline fabrication was carried out at Subsea 7’s Norwegian pipeline fabrication spoolbase.

At Vestflanken, the pipelines and ISU were connected to the Vestflanken template by means of a remote connection system.

Total Subsea Bypass Project (MCP01)

2005 saw the successful completion of Subsea 7’s activities on Total’s Subsea Bypass Project. This project involved the design, procurement, fabrication and installation of subsea bypasses required to allow future decommissioning of Total’s redundant MCP01 platform and the TP1 platform in the Frigg field. Subsea 7’s innovative technical solution involved installing two pipeline bundles, subsea structures and spoolpieces during 2004, along with a major hyperbaric welding programme. Two stand-alone underwater welding spreads were used, working from the DSV’s Pelican and Polaris. The pipeline bundles provided the necessary 32” pipeline bypasses and were fabricated at Subsea 7’s Wick yard.

2005 saw further hyperbaric welding work and the commissioning of the new pipeline systems. As the work involved shutdown of some of the largest gas export pipelines supplying the UK, the planning and execution of each phase was critical. Subsea 7 completed the work ahead of schedule and on budget which minimised gas supply interruption to the UK.

Subsea 7 Annual Report 2005 21

Addax Okwori

In March 2005, Subsea 7 installed 38 km of flexible flowlines, umbilicals and risers in the Okwori field, offshore Nigeria. The lines connect subsea wells with the Okwori FPSO. The project involved the design, procurement and installation of the subsea infrastructure. Subsea 7 outfitted a dedicated installation vessel that transported all 15 reels to Nigeria from Brazil and the UK. The tie-in of the lines and umbilicals was performed from Subsea 7’s DSV Rockwater 1. The ultimate result was that Addax achieved first oil on 21 March 2005, one week ahead of schedule.

WESTAFRICA

Subsea 7 has established offices in Lagos, Nigeria and Luanda, Angola as well as a pipeline fabrication spoolbase in Luanda, Angola.

Woodside Chinguetti

The Chinguetti field is located in 800 metres of water, offshore Mauritania. Subsea 7 was contracted in July 2004 for the design, supply and installation of flexible flowlines, risers and umbilicals. Almost 50km of 6” to 10” flowlines and risers had to be installed in 2005 as well as 24 km of umbilical. The lines connect subsea wells and manifolds to the FPSO. MSV Toisa Perseus was the main construction vessel for the project, supported by two heavy lift vessels and a trenching vessel.

22 Subsea Partner of Choice

BRAZIL

The regional project management and engineering organisation is based in Niteroi, Rio de Janeiro with an operational base in Macae. In Ubu, Subsea 7 has a pipeline fabrication spoolbase supporting rigid pipelay operations.

TOWARDSTHEVISION

ProjectExecution

Petrobras Golfinho

Subsea 7 were contracted by Petrobras for the EPIC of the gas export pipeline for the Golfinho Field, located at Espirito Santo basin, in water depths of up to 1200 metres.

The work scope included the engineering, procurement, fabrication, installation and pre-commissioning of a 12” gas export pipeline totaling 68km in length. The offshore programme spanned around two months and was carried out by the MSV Skandi Navica. Commissioning is scheduled in 2006

Floating Storage Offloading UnitMalaysia International Shipping Corporate (Berhad)

For the Malaysia International Shipping Corporation Berhad (MISC) Subsea 7 successfully installed a mooring system for the floating storage offloading unit (FSO) in 80 metres of water off the East coast of West Malaysia. The installation of the FSO, including tensioning of the mooring chains, installation of flexible pipe and fibre optic cables, was undertaken by the Rockwater 2 with anchor handling tugs providing support.

Memorandum of Understanding

On 13 September 2005, Subsea 7 and Technip signed a Memorandum of Understanding whereby they expressed their intention to form a jointly operated company for subsea offshore activities in the Asia Pacific region (excluding India and Middle East).

ASIAPACIFIC

The regional project management and engineering organisations are based in Singapore and Perth, Australia. Subsea 7 has a logistics support base in Loyang, Singapore.

Subsea 7 Annual Report 2005 23

bp Thunderhorse

In 2005, the key project for the Gulf of Mexico was bp Thunderhorse. Subsea 7’s work scope for umbilical installation consisted of 11 umbilicals, fabrication and installation of 30 jumpers, and installation of 69 flying leads. Subsea 7 worked with bp throughout the project to accommodate the changes in work programme, as much of Subsea 7’s schedule was driven by other contractors operating in the field and delivery of the Thunderhorse semi-sub platform. By providing the flexibility to switch work programmes throughout the campaign, Subsea 7 minimised unproductive time associated with interface issues. The flexibility was key to bp as it managed the aftermath of the 2005 hurricanes and their effect on this offshore development.

Two vessels worked for a total of 343 days on the project with an excellent safety record and no lost time incidents.

The completion of this workscope safely, efficiently, and with the highest level of quality, whilst providing flexibility to our client was key to achievingSubsea 7’s goal of becoming bp’s Subsea Partner Of Choice for the Thunderhorse workscope.

GULFOFMEXICO

The regional project management and engineering organisation is based in Houston, USA. In Belle Chasse, USA, Subsea 7 has a logistics base that supports all operations in the Gulf of Mexico.

TOWARDSTHEVISION

ProjectExecution

Precise Navigation & Positioning (PNP) - Veripos

Virtually every aspect of offshore activity requires PNP. Veripos (www.veripos.com) formed in 1989 and owned by Subsea 7, provides this service internally to Subsea 7’s fleet and to other offshore marine users, which is largely made up of vessels working in the oil and gas industry.

During 2005, in parallel with investment to globalise existing services and the introduction of a complete new range of high quality user products and services, Veripos was re-organised into a global business with its own management team, assets and strategy.

In the second half of 2005, the new products were successfully launched. In the last six months of 2005, Veripos produced around a 40% increase in revenue as compared with the first half of the year.

24 Subsea Partner of Choice

INTEGRATEDREMOTETECHNOLOGY(IRT)

Following a strategic review of its global IRT business in 2005, Subsea 7 concluded that segmentation of its global drill rig support business and Precise Navigation and Positioning business (Veripos) would maximise value for both divisions in their respective separate and distinct markets.

Global Drill Rig Support

The segmentation of this business with its own management team, assets and strategy has already paid dividends. The Drill Rig Support business of Subsea 7 has firmly established itself as global number two in terms of market share for this service. As a result of this strategy and an upturn in the offshore drilling rig market, utilisation of our drill support fleet increased to around 90% in 2005, with several key long-term contracts being awarded.

The remainder of IRT, being survey services and remote intervention engineering that supports the construction and inspection repair and maintenance (IRM) activities of Subsea 7, would be re-focussed, globalised and orientated to provide the essential services and remote technologies to meet the challenges of developing and maintaining subsea infrastructure in deepwater.

MANAGEMENT TEAM

IntroducingtheSeniorManagementTeam

Mel Fitzgerald (born 1950), CEO

Mel took over as the CEO of the Subsea 7 Joint Venture in July 2004 from the position as Regional Vice President for Western Europe in Halliburton’s Energy Services Group. He graduated from Galway University of Ireland with a degree in civil/structural engineering in 1974 and moved straight into postings in Indonesia, Malaysia, Singapore, Egypt, Bahrain and London for Brown & Root, before joining European Marine Contractors (EMC) in 1988. He had several management positions in EMC and also completed an MBA at the University of Kingston in 1992, before he joined Halliburton Subsea as a Vice President in 2000. Mel assumed the role as CEO of Subsea 7 from 15 July 2005.

Barry Mahon (born 1962), CFO

Barry was appointed CFO of the Subsea 7 Joint Venture in July 2004, coming from Halliburton’s Energy Services Group, where he was a Business Director. Barry graduated from University College Dublin with a Bachelor of Commerce in 1983 and joined KPMG where he qualified as a Chartered Accountant in 1987. In 1992, he joined Orbital Engine Corporation as the Group Financial Controller and later Company Secretary. In 1996, he joined Halliburton as Shared Services Manager, and became Shared Services Director for Halliburton Subsea in 2000. Barry assumed the role as CFO of Subsea 7 from 15 July 2005.

David Cassie (born 1956), SeniorVicePresidentGlobalBusinessAcquisition

Dave joined the Subsea 7Joint Venture in 2002, with responsibility for acquiring new business and the implementation of the Company’s growth strategy. Dave is a Chartered Quantity Surveyor and has, since 1979, held different technical and management positions in Construction John Brown, Press & Worley Offshore, Britoil, Coflexip Stena Offshore and latterly at Technip where his role was as Executive Vice President for North Sea, Canada and Caspian. Dave assumed the role as Senior Vice President Global Business Aquisition of Subsea 7 from 15 July 2005.

John Evans (born 1963)COO

John was appointed to the new position of Chief Operating Officer (COO) of Subsea 7 with effect from 1 July 2005. John has over nineteen years experience in the engineering and contracting sector as a Senior Manager and Chartered Engineer. During eighteen years with Kellogg Brown & Root and EMC, he gained a successful record in general management, commercial and operational roles in the offshore oil and gas industry. Between 2002 and mid 2005, John was Chief Operating Officer for KBR’s Government and Infrastructure business in Europe and Africa.

ManagementTeam

Subsea 7 Annual Report 2005 25

FinancialReport2005

26 Subsea Partner of Choice

28 Board of Directors’ Report

32 Board of Directors

33 Independent Auditors’ Report

34 Consolidated Income Statement

35 Consolidated Balance Sheet

36 Consolidated Statement of

changes in Shareholders’ Equity

37 Consolidated Cash Flow Statement

38 Accounting Policies

46 Notes to the Financial Statements

77 Pro Forma Information (Unaudited)

80 Share Capital Information

81 Financial Calendar

Subsea 7 Annual Report 2005 27

contents

28 Subsea Partner of Choice

BOARDOFDIRECTORS’REPORT

ChangeofnameThe Company changed its name from Siem Offshore Inc. to Subsea 7 Inc. on 15 July 2005.

MajorDevelopmentsAcquisitionsThe acquisition of Halliburton’s 50% share in Subsea 7 Holding Inc. (formerly Subsea 7 Inc.) was formally completed on 4 January 2005. All conditions precedent to completion as set out in the share purchase agreement of 3 December 2004 were fulfilled by 31 December 2004, therefore Subsea 7 Holding Inc. has been consolidated from 31 December 2004. Further details relating to the acquisition can be found in note 24.

Disposal of non-subsea activitiesDuring the year, the Board assessed that there were few synergies between the subsea and the non-subsea activities carried on by the Group. The Board concluded that it would be beneficial for the future development of both the subsea and the non-subsea activities, and the enhancement of shareholder value, that the two activities be separated and developed in separate companies under separate management. Such restructuring was approved at an Extraordinary General Meeting on 9 August 2005.

As a consequence of the disposal of the non-subsea activities previously undertaken by the Group, effective on 30 June 2005, the business of the Group is now focused wholly on subsea activities.

The separation and restructuring was effected by way of a distribution of all the shares of Siem Offshore Inc. (formerly Siem Supply Inc.), a wholly-owned subsidiary of Subsea 7 Inc. with ownership of all of the non-subsea activities, to the shareholders of Subsea 7 Inc. through a payment of dividend in specie in the form of a distribution from the share premium account.

The effective date of the transaction was 30 June 2005 and the restructuring has been treated as a disposal of a discontinued operation in the financial statements. Further details relating to the disposal can be found in note 25.

Until the time of disposal, the non-subsea activities comprised: a 50% share in Overseas Drilling Limited (ODL), which owns the scientific core drilling vessel Joides Resolution which is on a time charter contract for Texas A&M Research Foundation for the Integrated Ocean Drilling Program; a 41% interest in the well stimulation vessel Big Orange which is on a long-term contract for Schlumberger; ownership and operation of ten supply/crew vessels, fully employed on 1-4 year contracts with Petrobras in Brazil; two Combat Management System projects for the Brazilian navy (the Modfrag project and Corvette project); and six PSVs under construction.

Pro forma financial informationThe reorganisation of the Group during the year through the above-mentioned acquisition and disposal, together with the change to preparing financial statements in accordance with IFRS, has led to a restatement of the comparative information presented in the consolidated income statement.

In order to provide an overview of the underlying continuing operations of the Group, a pro forma income statement as if Subsea 7 Holding Inc. had been 100% owned from 1 January 2004, and excluding the non-subsea activities from 1 January 2004, has been presented after the notes to the accounts. Pro forma segment information has also been prepared on the same basis. The pro forma information is unaudited.

ResultsIn 2005, the Group recorded revenues of USD 1,287 million (pro forma USD 1,287 million) and a net profit of USD 41.2 million (pro forma USD 45.2 million), compared to revenue of nil (pro forma USD 812.8 million) and a loss of USD 13.7 million (pro forma loss of USD 31.1 million) in 2004.

Earnings per share for 2005 was USD 0.31 (diluted, USD 0.30) compared to a loss per share of USD 0.16 (diluted, loss of USD 0.16) in 2004.

Subsea 7 Annual Report 2005 29

Health,SafetyandEnvironmentSubsea 7 conducts its business in accordance with global core values and its own Code of Business Conduct which directs all personnel to work within all applicable laws and regulations and in an ethically responsible manner.

Protection of health, safety and the prevention of pollution to the environment are primary goals which Subsea 7 strives to develop and provide products and services that have no undue environmental impact and are safe for their intended use.

To support these goals, Subsea 7 has adopted an HSE strategy that is focused on creating a global organisation that has a mature culture in Health, Safety and Environmental management. The company is satisfied that it has robust management systems and that employees are competent and skilled in the tasks that they trained in and undertake in their daily work.

Subsea 7 continued its improvement on HSE performance, recording its lowest annual Lost Time Incident frequency rate of 0.076/200,000 manhours. Subsea 7 will maintain its focus on visible management leadership, accountability and behavioural based HSE programmes to achieve further improvements.

CorporateGovernanceAs a Company incorporated in the Cayman Islands, Subsea 7 Inc. is subject to Cayman Islands laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English Law. In addition, due to the Company’s listing on the Oslo Stock Exchange, certain aspects of Norwegian Securities law apply to the Company, including the requirement to adhere to the Norwegian Code of Practice for Corporate Governance (the “Code”).

The Company endeavours to comply with the Code and generally to maintain high standards of corporate governance and is committed to ensure that all shareholders of the Company are treated equally.

It is the opinion of the Board of Directors that the Company in all material respects complies with the Code, subject to the following:

1. As stated, Subsea 7 Inc. is subject to Cayman Islands laws and regulations which do not require the objects clause of the Company’s Memorandum and Articles of Association to be clearly defined. However, the Company has defined clear strategies and objectives for its business, namely:

• to be the subsea partner of choice in the challenging and exciting global oil and gas industry.

• to build its business around a motivated and valued workforce.

• to be the recognised leader in safety and quality, delivering exceptional performance with the appropriate technical solutions and creating sustainable value to all our stakeholders.

2. The Board’s mandate to increase the Company’s issued share capital is limited only to the extent of the authorised share capital of the Company in accordance with the Company’s Memorandum and Articles of Association. This is in accordance with Cayman Islands law. The authorised capital of the Company is currently USD 2,000,000 divided into 200,000,000 shares of USD 0.01 each of which 148,032,050 shares were in issue at 28 March 2006.

3. The appointment of a nomination committee is not a requirement under Cayman Islands law, and the Company has so far not seen sufficient reason to appoint such a committee. However, prior to proposing candidates to the general meeting for election to the Board, the Board seeks to consult with the Company’s major shareholders. The Board further endeavours to ensure that it is constituted by Directors with a varied background and with the necessary expertise and capacity. The Company does not have a corporate assembly.

4. By approval of the Board, as a result of his knowledge and experience of the business and the countries involved, a Director, Mr John Smith, was engaged by the Company in the capacity as a consultant to assist with the establishment of a joint venture in Asia Pacific. Details of the remuneration associated with this assignment are set out in note 31 to the financial statements.

5. The Articles of Association of the Company permit the Board to approve the granting of share options to employees. During the year 1,460,000 share options were granted to employees. Refer to note 22 to the financial statements for further details. The granting of such options will be presented to the next Annual General Meeting of the Company for approval.

30 Subsea Partner of Choice

ReportoftheauditcommitteeThe Directors who served on the committee during the year were as follows:

Kristian SiemMichael Delouche

The audit committee met twice during the year. The agenda for each meeting is pre-planned to ensure that each aspect of the committee’s responsibilities is discharged as part of an annual cycle.

The main responsibilities of the audit committee are to:

• Monitor the integrity and clarity of the financial information and of the major financial statements of the Company, and to review any significant financial reporting issues and judgements those statements contain.

• Approve the annual external audit plan and to review with the external auditors the nature, scope and results of their audit, and any control issues raised by them.

• Make recommendations as to the appointment, terms of engagement and remuneration of the external auditors and review any question of their resignation or removal, and to review the effectiveness of the external auditors and their independence.

• Review the consistency of and any changes to accounting policies, the application of appropriate accounting standards, and the methods used to account for significant or unusual transactions.

• Review the Company’s internal controls and systems and practices for the identification and management of risk.

• Monitor compliance with the Company’s policies to prevent illegal and questionable corporate conduct and to review arrangements for ‘whistle-blowing’.

The external auditors attend meetings of the committee, other than when their appointment or performance is being reviewed, and the chief financial officer and members of the finance function attend as appropriate. It is the intention of the committee to meet with the auditors in the absence of management at least twice a year.

The external auditors are appointed annually at the Annual General Meeting. The Board audit committee considers the reappointment of the auditors and reports its findings to the Board. The Board audit committee periodically considers the performance, cost and independence of the external auditors, including a comparison of audit fees with similar trading companies and reviews the level of service provided by the audit team throughout the Group.

ReportoftheremunerationcommitteeThe Directors who served on the committee during the year were as follows:

Kristian SiemArild Schultz

The remuneration committee met twice during the year.

The main responsibility of the committee is to determine and review from time to time the framework, broad policy and specific terms for the remuneration and terms and conditions of executive management.

During the year, the committee also reviewed the salaries and allowances, and made recommendations to the Board in respect of awards under the Share Option Plan and Short Term Incentive Plan.

Details of the remuneration of the executive management can be found in note 26.

FinancialitemsThese are the Group’s first financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations. The transition to reporting under IFRS has resulted in a number of changes to previously reported financial statement information and accounting policies and, in accordance with the requirements of IFRS, details of these changes are outlined in the accounting policies section which precedes the notes to the financial statements.

The Board of Directors confirms that the financial statements have been prepared on the assumption that the Company is a going concern.

Subsea 7 Annual Report 2005 31

Issuance of share optionsOn 5 January 2005, the Board approved a new option scheme for employees and awarded a total of 1,190,000 share options. A further 270,000 share options were awarded by the Board on 15 June 2005 under the option scheme for employees. During the year, 177,500 share options awarded through previous option schemes were exercised. Further details relating to share options can be found in note 22.

Convertible bondDuring the year, NOK 136,640,000 of the Group’s NOK 300,000,000 convertible bond was converted into 7,055,533 new shares. On 6 January 2006, a further NOK 158,010,000 of convertible bonds was converted into 8,277,095 new shares and the remaining balance of NOK 5,350,000, including the NOK 5,000,000 owned by the Group, was repaid. Further details relating to the convertible bond can be found in note 17.

New-build Rigid Pipelay VesselDuring the year, the Group announced that contracts have been signed for a new-build rigid pipelay and construction vessel. The overall cost is in the order of USD 200 million and is based on fixed prices from the shipyard and equipment supplier. The vessel will be delivered by the Merwede shipyard and the equipment supplier will be Huisman. Both companies have joint responsibility for delivering the vessel to the Group in the second quarter of 2007.

As of 31 December 2005, the Group had paid yard instalments for the vessel and the equipment of EUR 39.5 million, equivalent to USD 46.6 million. Future scheduled yard instalments are EUR 73.1 million in 2006 and EUR 21.3 million in 2007. The Group is financing the new vessel through a combination of debt, existing liquidity and cash flow from operations.

New-build Flexlay VesselOn 15 February 2006, the Group entered into contracts for the building of a new flexible pipelay and construction vessel. The overall project cost is in the order of USD 200 million and is based on fixed prices from the Merwede shipyard and equipment supplier Huisman. The completed ship is expected to be delivered in the second quarter of 2008.

MarketOutlookDriven by sustained economic growth around the World, particularly in the Far East, demand for energy continues to grow, whilst rates of depletion from existing oil and gas fields exceed replenishment. Accordingly, oil and gas prices are being maintained at high levels, with forecasters predicting a continuation through to the end of the decade.

The strong demand and high prices in turn are driving further exploration for hydrocarbon reserves onshore and, to a greater degree, offshore. In the offshore environment, the trending is very much towards major finds in deep waters exceeding 500 metres. The prime areas of success in these waters are in Brazil, Gulf of Mexico and West Africa, all areas of major focus for Subsea 7. Other territories such as Asia Pacific, Egypt and Mexico will add to the deepwater activity as we progress beyond 2007.

The high energy prices have also rekindled a high level of activity in Subsea 7’s more traditional area of the North Sea, with high levels of asset utilisation anticipated through 2009 of which a significant portion of the utilisation is generated through maintaining asset integrity. A similar pattern of utilisation growth is emerging in the rapidly expanding deepwater arenas as these developments enter their operational phase.

The strong market activity and lack of key resources has driven Operators and Contractors to enter into new business arrangements. Long term frame agreements and evergreen collaborative partnerships such as Subsea 7’s five year contract with bp for supporting the West of the Shetland Isles and Subsea 7’s partnership arrangement with Venture Production plc are positive outcomes from this strong market.

The global activity in the subsea sector is fuelling a very high level of demand for marine assets, creating a healthy climate for contractors. Subsea 7’s investments in its fleet and people uniquely position it to be a major subsea player in a market that is projected to remain strong into the foreseeable future.

Kristian Siem, Chairman, on behalf of the Board30 March 2006

32 Subsea Partner of Choice

BOARDOFDIRECTORS

Pursuant to the Company’s Articles of Association, the Board of Directors of Subsea 7 Inc. shall have from three to seven shareholder-elected members. Currently, the Board of Directors has five shareholder-elected members as set out below.

KristianSiem(born1949),ChairmanoftheBoardMr. Siem is the chairman of Subsea 7 Inc., and is also chairman of Siem Offshore Inc., Siem Industries Inc., Star Reefers Inc., Siem Industrikapital AB, and a director of Transocean Inc. and North Atlantic Smaller Companies Investment Trust PLC. Mr. Siem is a Norwegian citizen.

MichaelDelouche(born1957),BoardmemberMr. Delouche is the President and the Secretary of Siem Industries Inc. and is responsible for the financial and corporate management function. He is in charge of the Company’s operations at the head office in George Town, Cayman Islands. Mr. Delouche was previously an audit manager with KPMG Peat Marwick LLP. He is a US citizen.

ArildSchultz(born1944),Boardmember(independent)Mr. Schultz has been in several leading positions within shipping chartering and broking, and has since 1980 been conducting his own business within project financing and consulting. He is an educated business economist from the University of Utah, USA. Mr. Schultz is a Norwegian citizen.

JohnSmith(born1956),Boardmember(independent)Mr. Smith is the previous CEO of Subsea 7 and now has his own consultancy business in offshore oil and gas. He is a chartered mechanical engineer with a degree from Glasgow University and has 25 years of oil and gas contracting experience having held a number of senior positions in Norway, the UK and internationally. Mr. Smith currently serves on the boards of Consafe AB and Grenland Group. He is a past president of the International Marine Contractors Association and is a British citizen.

AllenL.Stevens(born1943),Boardmember(independent),appointed6December2005Mr. Stevens has gained extensive marine industry and maritime financing experience, holding senior executive and management positions with Great Lakes Transport Limited, McLean Industries Inc. and Sea-Land Service Inc.. A graduate of the University of Michigan and Harvard Law school, Mr. Stevens brings with him to the role many years experience in shipping, finance and management. Mr. Stevens is a US citizen.

RichardEngland(born1931),Boardmember(independent),resigned11July2005Mr. England is educated through the British Navy and has since then built up a wide experience from the offshore industry. He has been employed at Overseas Towage Salvage Co, International Offshore Services Ltd, Offshore Supply Association Limited, Common Brothers Ltd and Vickers Ltd.

Subsea 7 Annual Report 2005 33

INDEPENDENTAUDITORS’REPORTTOTHEMEMBERSOFSUBSEA7INC.

We have audited the group financial statements (the ‘‘financial statements’’) of Subsea 7 Inc. (the “group”) for the year ended 31 December 2005 which comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Shareholders’ Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein.

RespectiveresponsibilitiesofdirectorsandauditorsThe directors are responsible for preparing the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and in accordance with the regulations of the Oslo Stock Exchange.

Our responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing. This report, including the opinion, has been prepared for and only for the group’s members as a body and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statements give a true and fair view. We also report to you if the group has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the: Message from the Chairman; Financial Highlights and Board of Directors Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

BasisofauditopinionWe conducted our audit in accordance with International Standards on Auditing issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:

• the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2005 and of its profit and cash flows for the year then ended; and

• the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and in accordance with the regulations of the Oslo Stock Exchange.

PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsAberdeen, United Kingdom30 March 2006

Notes:(a) The maintenance and integrity of the Subsea 7 Inc website is the responsibility of the directors; the work carried out by the auditors does not involve

consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

34 Subsea Partner of Choice

CONSOLIDATEDINCOMESTATEMENTfortheyearended31December2005

(Amounts in USD 1,000) Note 2005 2004NGAAP

2004NGAAP

2003

Continuingoperations

Revenue 1,287,028 - 21,611 37,965

Project and vessel expenses (867,785) - (8,643) (26,216)

Employee benefits 26 (201,437) - (9,120) (7,509)

Other operating expenses (51,713) - (2,969) (2,386)

Depreciation, amortisation and impairments (63,600) - (7,590) (8,685)

Totaloperatingexpenses (1,184,535) - (28,322) (44,796)

Netoperatingprofit/(loss) 3 102,493 - (6,711) (6,831)

Change in fair value of derivative financial instruments

18 (4,178) - - -

Net currency loss (2,716) - - -

Finance income 2 2,239 - 455 3,883

Finance expense 2 (7,947) - (8,786) (10,686)

Share of post tax profits from Subsea 7 joint venture

11 - (4,606) (5,400) (13,240)

Share of post tax profits from other joint ventures 11 - - 7,823 2,811

Netfinancialitems (12,602) - (5,908) (17,232)

Profit/(Loss)beforetax 89,891 (4,606) (12,619) (24,063)

Taxation 5 (44,687) - - (1,189)

Profit/(Loss) for the year from continuing operations

45,204 (4,606) (12,619) (25,252)

Discontinuedoperations

Loss for the year from discontinued operations 6 (3,971) (9,132) - -

Profit/(Loss)attributabletoequityshareholders

41,233 (13,738) (12,619) (25,252)

Earnings per share expressed in USD per share - basic- diluted

7

0.31 0.30

(0.16) (0.16)

(0.15) (0.15)

(0.31) (0.31)

Earnings per share from continuing operations - basic- diluted

7 0.34 0.33

(0.05) (0.05)

(0.15) (0.15)

(0.31) (0.31)

Subsea 7 Annual Report 2005 35

CONSOLIDATEDBALANCESHEETasat31December2005

(Amounts in USD 1,000) Note 2005 2004NGAAP

2004

ASSETSNon-currentassetsGoodwill 8 73,665 74,465 -Intangible assets 9 5,199 4,285 -Property, plant and equipment 10 340,374 327,885 14,461Investment in joint ventures 11 - 6,173 101,934Other long-term receivables - 134 601

419,238 412,942 116,996CurrentassetsInventories 12 19,246 9,284 -Trade and other receivables 13 372,675 311,910 31,494Financial assets – derivative financial instruments 18 29 1,558 -Deferred tax assets 19 4,825 - -Available for sale assets 14 - 3,637 -Cash and short term deposits 15 64,917 90,685 183,885

461,692 417,074 215,379TOTALASSETS 880,930 830,016 332,375

EQUITYANDLIABILITIESShareholders’equityShare capital 20 1,398 1,301 1,301Share premium reserve 272,791 331,061 274,754Retained earnings 11,787 (29,998) (16,668)Other reserves 21 2,702 (15,910) -Totalshareholders’equity 288,678 286,454 259,387

Non-currentliabilitiesFinancial liabilities – borrowings 17 51,500 194,690 57,235Deferred tax liability 19 15,262 11,335 -Retirement benefit liability 27 - 527 483

66,762 206,552 57,718CurrentliabilitiesFinancial liabilities – borrowings 17 41,757 16,295 -Financial liabilities – derivative financial instruments 18 4,207 - -Trade and other payables 16 460,754 287,860 15,270Current tax liability 18,395 24,870 -Finance leases 18 377 7,985 -

525,490 337,010 15,270Totalliabilities 592,252 543,562 72,988TOTALSHAREHOLDERS’EQUITYANDLIABILITIES 880,930 830,016 332,375

36 Subsea Partner of Choice

CONSOLIDATEDSTATEMENTOFCHANGESINSHAREHOLDERS’EQUITY

fortheyearended31December2005

(Amounts in USD 1,000)Sharecapital

Sharepremium

Retainedearnings

Otherreserves

Total

At1January2005 1,301 331,061 (29,998) (15,910) 286,454Foreign currency translation - - - (10,132) (10,132)Net result for the year - - 41,233 - 41,233Share based payment – employee options - - 552 - 552Shares issued net of issue costs ($235k) 25 9,363 - - 9,388Shares issued – exercise of options 2 472 - - 474Shares issued – conversion of bond loan 71 21,113 - - 21,184Purchase of own shares (1) (1,066) - - (1,067)De-merger of non-subsea activities - (88,152) - 28,744 (59,408)At31December2005 1,398 272,791 11,787 2,702 288,678

At1January2004Aspreviouslystated 808 92,595 (24,419) 9,167 78,151Currency translation reserve set to zero - - 9,167 (9,167) -Share based payment – employee options - - (4) - (4)Deferral of previously expensed dry-docking - - 884 - 884

Deferral of previously expensed dry-docking in affiliated companies

- - 374 - 374

Retirement benefits - - (239) - (239)

Re-measurement of convertible bond loan liability

- - (2,127) - (2,127)

Re-measurement of convertible bond loan capitalised borrowing costs

- - 62 - 62

Reclassification at de-merger - 56,307 - (56,307) -Restated 808 148,902 (16,302) (56,307) 77,101

Foreign currency translation - - - 11,306 11,306Net result for the year - - (13,738) - (13,738)Share based payment – employee options - - 42 - 42Revaluation surplus - - - 29,091 29,091Shares issued net of issue costs ($5,185k) 493 182,159 - - 182,652At31December2004 1,301 331,061 (29,998) (15,910) 286,454

A reclassification correction was noted as being required between share premium and other reserves at the time of the restructuring and de-merger of the non-subsea activities. The reclassification has been effected as at the date of transition to IFRS.

Subsea 7 Annual Report 2005 37

CONSOLIDATEDCASHFLOWSTATEMENT

fortheyearended31December2005

(Amounts in USD 1,000) Note 2005 2004

CashflowsfromoperatingactivitiesCash generated from operations 23 248,282 (4,388)Interest received 2,335 455Interest paid (7,729) (7,810)Tax paid (51,656) -Net cash from operating activities 191,232 (11,743)

CashflowsfrominvestingactivitiesAcquisitions of subsidiaries (net of cash acquired) - (126,200)Net cash disposed on de-merger of non-subsea activities (31,588) -Proceeds from sale of property, plant and equipment 5,981 57Purchase of property, plant and equipment (109,717) (7,067)Dividends received from joint ventures 3,379 11,524Net cash used in investing activities (131,945) (121,686)

CashflowsfromfinancingactivitiesNet proceeds from issue of ordinary share capital 9,862 182,652Purchase of own shares (1,067) -Net proceeds from issue of new bank loan - 33,000Repayment of bank loans (83,500) -Repayment of other borrowings (1,236) (1,732)Finance lease principal payments (7,608) -Net cash used in financing activities (83,549) 213,920

Effects of exchange rate changes (1,506) 1,819Netdecrease/increaseincashandcashequivalents (25,768) 82,310Cash and cash equivalents at 1 January 90,685 8,375Cashandcashequivalentsat31December 15 64,917 90,685

38 Subsea Partner of Choice

ACCOUNTINGPOLICIES

Accountingpoliciesfortheyearended31December2005The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

BasisofpreparationThese financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations endorsed by the European Union, the regulations of the Oslo Stock Exchange, and the Norwegian Accounting Act and accounting standards, principles and practices generally accepted in Norway in respect of the NGAAP disclosures. The financial statements have been prepared under the historical cost convention as modified by the revaluation of available for sale investments, financial assets and liabilities held for trading. A summary of the more important group accounting policies is set out below, together with an explanation of where changes have been made to previous policies on the adoption of new accounting standards in the year.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Estimates and assumptions have been made by management concerning the selection of useful lives of property and equipment, provisions necessary for uncollectible receivables, provisions for slow-moving and obsolete inventory, the carrying value of long-lived assets, goodwill and other intangible assets, income tax provisions and other similar evaluations. Although these estimates are based on management’s best knowledge of the amount, events or actions, actual results ultimately may differ from those estimates.

Prior to the adoption of IFRS the financial statements were prepared in accordance with Norwegian Accounting standards (NGAAP). NGAAP differs in certain respects from IFRS and certain accounting and valuation methods have been amended, when preparing these financial statements, to comply with IFRS. The comparative figures in respect of 2004 have been restated to reflect these amendments. Reconciliations and a description of the effect of the transition from NGAAP to IFRS on the reported financial position, financial performance and cash flows of the group is set out in note 34.

ChangesinaccountingpoliciesThe accounting policies adopted are consistent with those of the previous financial year except that the Group has adopted those new/revised standards mandatory for financial years beginning on or after 1 January 2005. The significant changes made as a result of the adoption of IFRS are detailed below:

IFRS 2 ‘Share Based Payment’The revised accounting policy for share based payment transactions is detailed in the accounting policies presented below. The main impact of IFRS 2 on the Group is the recognition of an expense and a corresponding entry to equity for employee share options based on the fair value of the equity instruments granted at the grant date.

IFRS 3 ‘Business Combinations’, IAS 36 ‘Impairment of Assets’ and IAS 38 ‘Intangible Assets’IFRS 3 has been applied for business combinations for which the agreement date is on or after 31 March 2004. Adoption of IFRS 3 and IAS 36 (revised) has resulted in the Group being required, where goodwill is recognised on an acquisition, to test for impairment at the cash generating unit level annually (unless an event occurs during the year which requires goodwill to be tested more frequently) from 1 January 2005. These requirements have been applied to the acquisition of Subsea 7 Holding Inc. on 31 December 2004.

Additionally, under IFRS 3, the identification of assets and liabilities in a business combination will include intangible assets not previously recognised under NGAAP. The principal intangible assets that will be recognised separately from goodwill on an acquisition will be customer contracts and relationships. These intangible assets will be valued at the date of acquisition and amortised over their estimated economic lives. In accordance with IAS 38, the useful lives of intangible assets are now assessed at the individual asset level as having either a finite or indefinite life assessed on the basis of all the relevant factors. The revised accounting policy for intangible assets is detailed in the accounting policies presented below.

IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’The Group has adopted IAS 32 and IAS 39 from 1 January 2004 but has chosen not to apply hedge accounting under IAS 39. This has led to recognition of the fair values of financial instruments in the consolidated balance sheet and recognition of the movements in the fair values during the year in the income statement.

Subsea 7 Annual Report 2005 39

TransitionalarrangementsOn transition to IFRS, an entity is generally required to apply IFRS retrospectively, except where an exemption is available under IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’. The following is a summary of the key elections from IFRS 1 that were made by the Group:

• The Group has elected not to restate business combinations which occurred prior to the date of transition to IFRS.

• The Group has elected to apply IFRS 2 ‘Share Based Payment’ to all share option grants made after 7 November 2002, but which had not vested at 1 January 2005.

• The Group has elected to reset the currency translation reserve to zero at the date of transition to IFRS.

DisclosureofimpactoffutureaccountingstandardsThe Group has not yet adopted the following standards which are only effective for periods commencing on or after 1 January 2006 or 2007.

IFRS 7 ‘Financial Instruments: Disclosures’This standard consolidates IAS 30 and the disclosure requirements of IAS 32 relating to financial instruments. It is anticipated that this standard will not have a material impact on the Group’s financial statements.

IFRIC 4 ‘Determining whether an arrangement contains a lease’IFRIC 4 contains guidance on determining whether arrangements that do not take the legal form of a lease should nonetheless be accounted for in accordance with IAS 17 ‘Leases’. It is anticipated that this standard will not have a material impact on the Group’s financial statements.

PrinciplesofconsolidationIn preparing the consolidated financial statements, the Group is treated as one economic entity. Inter-company transactions and inter-company balances are eliminated.

The purchase of Halliburton’s 50% share in Subsea 7 Holding Inc. has been accounted for as an acquisition in accordance with IFRS 3 with an effective date of 31 December 2004.

The de-merger of the non-subsea assets has been accounted for as a disposal of a discontinued operation under the requirements of IFRS 5 with an effective date of 30 June 2005.

SubsidiariesSubsidiaries, consisting of those entities in which the Group has either an interest of more than one half of the voting rights or otherwise has the power to exercise control over the operations, are consolidated. The financial statements of subsidiaries are prepared for the same reporting year as the parent Company, using consistent accounting policies. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. Investments in subsidiaries are consolidated according to the purchase method. All inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. The purchase price is assigned to identifiable assets and debt in the subsidiary, and is included in the consolidated financial statements at fair value at the time of purchase. Any premium paid over and above the market value of the identifiable assets at the acquisition date is recognised as goodwill in the balance sheet. Identifiable assets consist of tangible assets and intangible assets other than goodwill. Other entities’ interests in subsidiaries not wholly owned by the Group are reflected as minority interests based on the book value of the subsidiaries’ net assets.

Joint venturesA joint venture is a commercial business governed by an agreement between two or more participants, giving them joint control over the business.

In the consolidated financial statements, joint ventures are consolidated according to the equity method. The share of earnings recorded in the consolidated financial statements are based on the after tax earnings of the joint ventures. In the income statement, the share of earnings from joint ventures is shown as a financing item.

Jointly controlled operationsA jointly controlled operation is an operation involving two or more participants where each participant uses its own resources and carries out its own part of the operations separately from the activities of the other participant(s). Each participant owns and controls its own resources that it uses in the joint operation and incurs its own expenses and raises its own financing. Rules are established governing how revenues and any common expenses are shared amongst the participants. Jointly controlled operations do not involve the establishment of a corporation, partnership, entity, or a financial structure that is separate from the investors themselves.

40 Subsea Partner of Choice

Jointly controlled operations are accounted for as if the operations were conducted independently. The Group accounts for its share of the assets, liabilities and cash flows arising from the operations in its own accounting records, with no further adjustments or consolidation procedures being necessary.

FunctionalcurrencyThe consolidated financial statements are presented in US dollars, which is the Group’s functional and presentation currency. All amounts in these financial statements are in USD 1,000 unless otherwise stated.

ForeigncurrencytranslationIncome statements of entities in the Group that prepare their results in a currency other than the US dollar are translated into US dollars at the weighted average exchange rates for each period and balance sheets are translated at the exchange rates ruling at year-end. The cumulative translation adjustment arising from the re-translation of the net investment in such entities, are included in shareholders’ equity.

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

The Groups exchange rates at year end, compared to the US dollar were as follows:Nok: 6.809Euro: 1.182

Property,plantandequipmentProperty, plant and equipment are stated at cost including any directly related costs of acquisition, less accumulated depreciation and accumulated impairment in value. The carrying value of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Depreciation is provided on all property, plant and equipment at annual rates calculated to write off the cost of each asset to its estimated residual value evenly over its expected useful life as follows:

Buildings – 25 years Plant and equipment – 3 to 10 years Vessels and marine equipment – 5 to 20 years

Assets under construction and land are not depreciated.

Expenditure incurred during inspections, major repairs or dry-docking is recognised in the carrying amount of property, plant and equipment as a replacement if the recognition criteria are satisfied. Dry-docking costs are considered a separate component of the vessels’ cost that have a different pattern of economic benefits and are therefore depreciated separately. Dry-docking expenses are amortised over the period until the next scheduled dry-docking, up to a maximum of 5 years.

Upon retirement or disposal of property, plant and equipment, the costs and related accumulated depreciation are derecognised and any gain or loss arising (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement.

BorrowingcostsInterest costs are recognised as an expense when incurred. Loan issue and arrangement expenses are capitalised and amortised over the term of the loan on a straight line basis.

GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

Subsea 7 Annual Report 2005 41

• Represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and

• Is not larger than a segment based on either the Group’s primary or secondary reporting format determined in accordance with IAS 14 ‘Segment Reporting’.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Recoverable amounts are determined based on value in use calculations using discounted cash flow projections based on financial budgets approved by senior management covering a three year period. The discount rate applied to the cash flow projections is the Group’s cost of capital based on the 1 year LIBOR rate at the impairment test date, adjusted for an appropriate margin. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

IntangibleassetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset.

A summary of the policies applied to intangible assets is as follows:

Customer contracts – Finite-lived – contract duration: up to 5 years

InventoriesInventories are stated at the lower of cost or net realisable value. Cost is computed using standard cost which approximates actual cost, on a first in, first out basis. The Group makes inventory provisions based on an assessment of excess and obsolete inventories.

TradeandotherreceivablesTrade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. Provision is made when there is objective evidence that the Group will not be able to collect the debts. Bad debts are written off when identified.

CashandcashequivalentsCash and cash equivalents are carried in the balance sheet at cost. For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments, less bank overdrafts. Deposits held with banks with interest rate maturities up to 12 months have been classified as cash equivalents where deposits could be repaid within 3 months without penalty.

42 Subsea Partner of Choice

RetirementbenefitsThe Group operates a number of defined contribution schemes. Company contributions to these schemes are recognised as an expense when incurred.

Share-basedpaymenttransactionsCertain employees of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by using a Black-Scholes model, further details of which are given in note 22.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

LeasesFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term.

RevenuerecognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

Sale of goodsProduct revenue is generally recognised when a signed contract or other persuasive evidence of an arrangement exists, the product has been shipped, the fee is fixed or determinable and collection of resulting receivables is reasonably assured.

Rendering of servicesService revenue consists primarily of revenue received from billings that provide for specific time for operators, material and equipment charges which accrue daily and are billed periodically, ranging from weekly to monthly billing for the

Subsea 7 Annual Report 2005 43

delivery of subsea services to customers over a contractual term. Service revenue is generally recognised when a signed contract or other persuasive evidence of an arrangement exists, the service has been provided, the fee is fixed or determinable and collection of resulting receivables is reasonably assured.

Construction contractsThe Group follows the generally accepted practice of accounting for long term construction, engineering and project management contracts on the percentage of completion basis as costs are incurred. Under this method, revenue and income is recognised as work progresses on the contract. If a contract can be split into subprojects, each subproject is treated separately.

For all contracts, no profit is recognised before the outcome of the contract can be measured reliably, and generally this will mean no profit is recognised until progress has reached at least 20% of completion. The estimated cost used to determine profit at completion reflects all facts or occurrences expected to affect the final cost of the contract therefore the entire amount of any estimated contract loss is recognised when it first becomes evident.

For contracts which satisfy certain criteria, profit is recognised in accordance with the risk profile of the contract as assessed by management instead of being recognised in accordance with the simple percentage of total costs principle. The pattern of revenue recognition for these contracts will depend on individual contract circumstances and terms, but generally the application of this policy may result in there being a requirement for a larger percentage of completion prior to any profit being recognised, the application of variable profit margins at separately identifiable stages of the contract, and the majority of profit being recognised in the later stages of the contract.

SegmentreportingSegment reporting follows the Group’s internal reporting structure, and accordingly its primary segment reporting is geographical with secondary segment information reported by business.

A geographical segment is engaged in providing products or a service within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and return that are different from those of other business segments.

The group is organised into main geographic regions which are the primary business segments: North Sea, West Africa, Brazil, Gulf of Mexico, Asia Pacific, and Global. The secondary reporting segments are the two core divisions in which the group operates.

For segment reporting, Corporation tax has been allocated to regions based on a pro rata of revenue.

TaxesCurrent taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Deferred taxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred tax liabilities are recognised for all taxable temporary differences, except:

• Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of taxable temporary differences associated with investments in subsidiaries and interests in

44 Subsea Partner of Choice

joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except:

• Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss; and

• In respect of deductible temporary differences associated with investments in subsidiaries and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Sales taxRevenues, expenses and assets are recognised net of the amount of sales tax except:

• Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

FinancialriskmanagementThe Group’s multinational operations and debt financing expose it to a variety of financial risks. The Group has in place risk management policies that seek to limit the adverse effects of these risks on the financial performance of the Group. The risk management policies are implemented by a central treasury department which receives regular reports from all the operating companies to enable prompt identification of financial risks so that appropriate action may be taken.

Foreign exchange riskTechniques in managing foreign exchange risk include, but are not limited to, foreign currency borrowing and investing and the use of currency derivative instruments. The Group selectively manages significant exposures to potential foreign exchange losses considering current market conditions, future operating activities and the associated cost in relation to the perceived risk of loss. The Group does not hold or issue derivative financial instruments for trading or speculative purposes.

The Group manages currency exposures through the use of currency derivative instruments related to the major currencies, which are generally the currencies of the countries of the majority of its international business. These contracts generally have an expiration date of two years or less. Forward exchange contracts, which are commitments to buy or sell a specified amount of a foreign currency at a specified price and time, are the primary derivative instruments used to manage identifiable foreign currency commitments and generally relate to long-term engineering and construction projects. While derivative instruments are subject to fluctuations in value, the fluctuations are generally offset by the value

Subsea 7 Annual Report 2005 45

of the underlying exposures being managed. The use of some contracts may limit the ability of the Group to benefit from favourable fluctuations in foreign exchange rates.

The Group has not elected to account for currency derivative instruments as hedges for accounting purposes as prescribed in IAS 39. Changes in the fair value of derivative instruments that do not qualify for or are not designated in hedging relationships are recognized immediately in the current period income statement when they occur.

Credit riskFinancial instruments that potentially subject the Group to a concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash and cash equivalents, primarily composed of deposits and investments in money market funds, are maintained with a number of major financial institutions in each of the regions that the Group operates. The Group performs ongoing credit evaluations of its customers and, generally, does not require collateral from its customers.

Liquidity riskThe Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure the Group has sufficient available funds for operations and planned expansions.

FairvalueoffinancialinstrumentsThe carrying value of certain of the Group’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and other accrued liabilities, approximate fair value because of their short maturities. The carrying amount of long-term debt approximated fair value is based on borrowing rates currently available with similar terms and average maturities.

46 Subsea Partner of Choice

NOTESTOTHEFINANCIALSTATEMENTS

All amounts in the notes to the financial statements are in USD 1,000 unless otherwise stated.

1Segmentreporting

Segment reporting follows the Group’s internal reporting structure and, accordingly, its primary segment reporting is geographical areas with secondary segment information reported by business.

Geographicsegments

Yearended31December2005 NorthSea

WestAfrica

Brazil

GulfofMexico

AsiaPacific

Global Group

ContinuingOperations

RevenueExternal customers 580,860 356,691 146,726 92,007 97,124 13,620 1,287,028

Results

Segment result 76,839 32,975 (2,847) 14,840 (3,056) (16,258) 102,493

Interest expense - - - - - (7,947) (7,947)

Interest income - - - - - 2,239 2,239

Net currency loss - - - - - (6,894) (6,894)

Profit/(Loss) before tax 76,839 32,975 (2,847) 14,840 (3,056) (28,860) 89,891

Income taxes (20,168) (12,385) (5,094) (3,195) (3,372) (473) (44,687)

Net profit/(loss) from continuing operations 56,671 20,590 (7,941) 11,645 (6,428) (29,333) 45,204

DiscontinuedOperations

Revenue - - 10,339 - - - 10,339

Segment result - - 835 - - - 835

Loss before tax - - (3,478) - - - (3,478)

Income taxes - - (493) - - - (493)

Net loss from discontinued operations - - (3,971)

- - - (3,971)

Netprofit/(loss)attributabletoequityshareholders 56,671 20,590 (11,912) 11,645 (6,428) (29,333) 41,233

Assetsandliabilities

Total segment assets 346,132 100,338 246,132 29,421 62,206 96,701 880,930

Total segment liabilities 237,616 118,676 64,401 19,637 37,228 114,694 592,252

Othersegmentitems

Capital expenditure 11,852 - 28,747 - - 69,118 109,717

Depreciation & impairment of PP&E 32,329 - 19,922 159 4,838 526 57,774

Amortisation of intangible assets 4,764 691 328 285 78 227 6,373

Impairment of intangible assets 414 - - - - 371 785

Included in other segment items are depreciation & impairment relating to discontinued operations of $1,332 and capital expenditure $7,089.

Subsea 7 Annual Report 2005 47

Geographicsegments(continued)

Yearended31December2004 NorthSea

WestAfrica

Brazil

GulfofMexico

AsiaPacific

Global

Group

ContinuingOperations

Revenue

External customers - - - - - - -

Results

Share of post tax results of JVs - - - - - (4,606) (4,606)

Loss before tax - - - - - (4,606) (4,606)

Income taxes - - - - - - -

Net loss from continuing operations - - - - - (4,606) (4,606)

DiscontinuedOperations

Revenue - - 21,554 - - - 21,554

Segment result - - (9,132) - - - (9,132)

Loss before tax - - (9,132) - - - (9,132)

Income taxes - - - - - - -

Net loss from discontinued operations - - (9,132) - - - (9,132)

Netlossattributabletoequityshareholders

- - (9,132) - - (4,606) (13,738)

Assetsandliabilities

Segment assets 394,633 85,749 256,183 19,228 56,005 12,045 823,843

Investment in equity accounted JVs - - 6,173 - - - 6,173

Total segment assets 394,633 85,749 262,356 19,228 56,005 12,045 830,016

Total segment liabilities 228,043 35,383 30,325 12,218 28,129 209,464 543,562

Othersegmentitems

Capital expenditure - - 7,067 - - - 7,067

Depreciation & impairment of PP&E - - 1,693 - - - 1,693

Impairment of goodwill - - 6,512 - - - 6,512

All of the other segment items are related to discontinued operations.

There are no material inter segment sales between geographical regions.

At 31 December 2005, the Group was organised into five geographic segments and a “Global” segment as follows:

North SeaThis covers all operations in the UK, Norway, Denmark, the Netherlands and any other works offshore continental Europe. There are regional project management and engineering organisations in Aberdeen, Scotland and Stavanger, Norway. There are spool bases in Leith, Scotland and Luster, Norway in addition to a bundle fabrication site at Wick, Scotland.

West AfricaThis covers operations in Equatorial Guinea, Mauritania, Ivory Coast, Nigeria, Angola and South Africa. There are offices established in Nigeria and Angola and there is a spool base in Angola.

BrazilThis covers all works in Brazilian waters. There is a project management and engineering organisation based in Rio de Janeiro, Brazil and there is a spool base at Ubu, Brazil.

48 Subsea Partner of Choice

Gulf of MexicoThis covers all works in the Gulf of Mexico and offshore Mexico. There is a project management and engineering organisation based in Houston, USA and there is a logistics base in New Orleans, USA supporting all operations.

Asia PacificThis covers operations in Malaysia, Indonesia, Philippines, China, Vietnam and Australia. There is a project management and engineering organisation based in Singapore and a project office in Perth, Australia.

GlobalThe Vessel Management group is based in Grimstad, Norway and is responsible for the management and maintenance of the vessels and equipment. There is a global team based in Aberdeen, Scotland which provides support. Treasury is a global function and is responsible for managing the Group’s credit facility. Global also includes fixed assets under construction at year end which are not revenue generating or appointed to a specific region.

Businesssegments

Revenue Segmentassets Capitalexpenditure2005 2004 2005 2004 2005 2004

ContinuingOperationsConstruction & IRM 1,120,831 - 748,791 593,362 92,365 - IRT 166,197 - 132,139 148,340 10,263 -

1,287,028 - 880,930 741,702 102,628 - DiscontinuedOperations Non-subsea activities 10,339 21,554 - 88,314 7,089 7,067

1,297,367 21,554 880,930 830,016 109,717 7,067

At 31 December 2005, the Group had two main business segments consisting of seven specialist activities as follows:

Construction and IRM • Construction and IRM (Inspection, Repair, Maintenance) relates to Subsea engineering, installation, construction,

inspection, repair and maintenance of all upstream oil and gas applications.• Deepwater Services and Technology provides a team of engineers which develops new technology to design

and install systems and facilities in the deeper water areas of the world.• Pipelay Services provides rigid and flexible pipeline and riser systems executed by dedicated reel-lay vessels.• Towed Production Services is the complete design, construction, tow-out and installation of pipeline bundles.

Technological development continues on in-house projects such as ‘open’ and ‘intelligent’ bundles, and installation of Steel Catenary’s Risers.

IRT (Integrated Remote Technology)• Survey and Positioning provides advanced technology and techniques from our fleet of specialist vessels and

those of our clients, offering highly sophisticated data acquisition, processing and data presentation.• ROV Services relates to a fleet of Remotely Operated Vehicles. Using the latest tooling intervention techniques,

our engineers provide a complete ROV service from concept to maintenance.• Remote Technology Group provides specialist engineering expertise and practical knowledge to support

construction, IRM and ROV activities.

The business segment of “Non Subsea activities” was discontinued during the year:

Non-subsea activitiesNon subsea activities include the six supply vessels, the supply vessels activities in Brazil, and the two part owned vessels Joides Resolution and Big Orange.

Subsea 7 Annual Report 2005 49

2Financecosts

2005 2004

Financeexpense: Interest payable on bank loans (4,456) -Interest payable on bank overdrafts (62) -Interest payable on finance leases (393) -Interest payable on convertible bond loan (3,010) -Other financial expenses (26) -Interest and similar charges payable (7,947) -

Financeincome:Interest receivable on bank deposits 2,239 -Total interest receivable 2,239 -Financecosts–net (5,708) -

3Netoperatingprofit

2005 2004

The following items have been included in arriving at operating profit.Employee benefits (note 26) 201,437 -Inventories - Cost of inventories recognised as an expense 24,979 - Depreciation of property, plant and equipment: - Owned assets 52,029 -- Under finance leases 1,912 -Impairment of property, plant and equipment 2,501Amortisation of intangibles 6,373 -Impairment of intangibles 785 -Profit on disposal of fixed assets (175) -Other operating lease rentals payable - Land and buildings 5,764- Plant and equipment 1,228 -- Vessels 74,667 -Repairs and maintenance expenditure on property, plant and equipment 53,037 -

50 Subsea Partner of Choice

4ServicesprovidedbytheGroup’sauditorandnetworkfirms

During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs as detailed below:

2005 2004

Statutory audit services 825 122Other services including tax compliance 304 186

1,129 308

5Taxation

2005 2004

Continuing operations - current tax 34,296 -- adjustment in respect of prior period 12,211 -

46,507 -- deferred tax (note 19) (1,820) -Total taxation continuing operations 44,687Discountinued operations- current tax 493 -Total taxation 45,180 -

Included in the tax charge is a provision for $9 million in respect of a dispute with the Norwegian tax authorities. A total of $15 million is being disputed and has been paid. The dispute centres around two main areas: projects undertaken in the Danish sector in 2002, 2003 and 2004 and vessel costs in the same years. The Company is of the opinion that these assessments are incorrect and is challenging the position taken by the Norwegian tax authorities in respect of these matters.

The tax for the period is higher (2004: higher) than the standard rate of corporation tax for the Group of 30.00%. The standard rate of corporation tax for the Group is approximated through reference to the rates prevailing in the respective jurisdictions in which the Group operates. The differences are explained below:

2005 2004

Profit/(loss) on ordinary activities before tax 89,891 (4,606)Profit/(loss) on ordinary activities multiplied by average rate of corporation tax for the group of 30.00% (2004: 30.25%)

26,967

(1,393)

Effects of:Adjustments to tax in respect of prior period 12,211 -Adjustments in respect of foreign tax rates 3,879 -Expenses not deductible for tax purposes 2,778 -Deferred tax asset not recognised 7,460 1,393Other including income not taxable (8,608) -Total taxation (continuing operations) 44,687 -

Subsea 7 Annual Report 2005 51

6Discontinuedoperations

2005 2004

Pre tax loss from discontinued operations (3,478) (9,132)Taxation (493) -Post tax loss from discontinued operations (3,971) (9,132)

Discontinued operations relate to the de-merger of the non-subsea activities of the Group. The separation and restructuring was effected on 30 June 2005 by way of a distribution of all the shares of Siem Offshore (formerly Siem Supply Inc.), a wholly-owned subsidiary of Subsea 7 with ownership of all of the non-subsea activities, to the shareholders of Subsea 7 Inc. through a payment of dividend in specie in the form of a repayment from the share premium account.

The de-merged operations contributed $10.3m (2004: $21.6m) to revenue and a loss of $3.5m (2004: loss of $9.1m) to pre-tax profit after expenses of $13.8m (2004: $30.7m). The taxation relating to the de-merged operations was $0.5m (2004: nil).

The de-merged operations all resided within the ‘Brazil’ geographic segment and the ‘Non-subsea activities’ business segment.

Further details relating to the de-merger can be found in note 25.

Cash flows from the de-merged operations were as follows:

2005 2004

Net cash flows from operating activities 2,284 (11,743)Net cash flows from investing activities (3,710) 4,514Net cash flows from financing activities (1,236) (1,732)

(2,662) (8,961)Effects of exchange rate changes (275) - (2,937) (8,961)

52 Subsea Partner of Choice

7Earningspershare

Basic earnings per share amounts are calculated by dividing the profit or loss attributable to equity shareholders of the Group by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing the profit or loss attributable to equity shareholders of the Group (after deducting interest on the convertible bond loan) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

Earnings

2005Weighted

averagenumber

ofshares1,000

PershareUSD

Earnings

2004 Weighted

average number

of shares 1,000

Per share USD

BasicEPSEarnings attributable to equity shareholders 41,233 134,327,076 0.31 (13,738) 84,400,066 (0.16)EffectofdilutivesecuritiesShare options - 31,890 - - - -Convertible bond loan 1,440 8,557,360 - - - -

1,440 8,589,250 (0.01) - - -DilutedEPSAdjusted earnings 42,673 142,916,326 0.30 (13,738) 84,400,066 (0.16)

ContinuingoperationsBasicEPS 41,233 134,327,076 0.31 (13,738) 84,400,066 (0.16)Pre-tax loss from discontinued operations 3,478 - 0.03 9,132 - 0.11Tax relating to discontinued operations 493 - 0.00 - - -BasicEPSfromcontinuingoperations 45,204 134,327,076 0.34 (4,606) 84,400,066 (0.05)DilutedEPS 42,673 142,916,326 0.30 (13,738) 84,400,066 (0.16)Pre-tax loss from discontinued operations 3,478 - 0.03 9,132 - 0.11Tax relating to discontinued operations 493 - 0.00 - - -DilutedEPSfromcontinuingoperations 46,644 142,916,326 0.33 (4,606) 84,400,066 (0.05)

DiscontinuedoperationsBasicEPS - 134,327,076 - - 84,400,066 -Pre-tax loss from discontinued operations (3,478) - (0.03) (9,132) - (0.11)Tax relating to discontinued operations (493) - (0.00) - - -BasicEPSfromdiscontinuedoperations (3,971) 134,327,076 (0.03) (9,132) 84,400,066 (0.11)DilutedEPS - 142,916,326 - - 84,400,066 -Pre-tax loss from discontinued operations (3,478) - (0.03) (9,132) - (0.11)Tax relating to discontinued operations (493) - (0.00) - - -

DilutedEPSfromdiscontinuedoperations (3,971) 142,916,326 (0.03) (9,132) 84,400,066 (0.11)

Subsea 7 Annual Report 2005 53

8Goodwill

2005 2004

CostAt 1 January 82,963 8,498Acquisitions - 699Acquisitions – through business combinations - 73,766Fair value adjustment (800) -De-merger of non-subsea activities (8,498) -At31December 73,665 82,963AggregateimpairmentAt 1 January 8,498 1,958Impairment for the year - 6,512De-merger of non-subsea activities (8,498) -Exchange adjustments - 28At31December - 8,498Netbookamountat31December 73,665 74,465

During the year, the acquired goodwill in respect of Subsea 7 Holding Inc. was tested for impairment in accordance with IAS 36. The impairment test based on the recoverable amounts of the cash-generating units to which the goodwill relates resulted in no impairment charge.

The carrying amounts of goodwill allocated to the cash-generating units are as follows:

North Sea 37,500West Africa 18,750Brazil 16,716Gulf of Mexico -Asia Pacific -Global 699

73,665

All of the recoverable amounts were determined based on value in use calculations using discounted cash flow projections based on financial budgets approved by senior management covering a three year period. The discount rate applied to the cash flow projections was 5.7875% based on the 1 year LIBOR rate at 23 December 2005 of 4.6875% plus 1.1% margin.

The cash flow projections are based on the assets’ current condition and project expenditure plus related inflows that will improve or enhance the assets’ performance. The cash flow does not include cash flows from financing activities.

The cash flows include:• Projections of cash inflows from continuing use of the assets or the activities of the region • Projections of cash outflows necessarily incurred to generate the cash inflows from continuing use of the asset

or region that are directly attributable • Projections of cash outflows indirectly attributable but that can be allocated on a reasonable and consistent

basis • Projections of cash outflows to maintain the operating capacity of existing assets, including repairs and

maintenance

The projections are based on past experience and management’s market expectations. Management believe that the projections are reasonably achievable.

54 Subsea Partner of Choice

9Intangibleassets

Customercontracts

CostAt 1 January 2005 4,285Fair value adjustment 8,300Exchange adjustments (84)At31December2005 12,501AggregateamortisationandimpairmentAt 1 January 2005 -Charge for the period 6,373Impairment losses 785Exchange adjustments 144At31December2005 7,302Netbookamountat31December2005 5,199

CostAt 1 January 2004 -Acquisitions – through business combinations 4,285At31December2004 4,285AggregateamortisationandimpairmentAt 1 January 2004 -At31December2004 -Netbookamountat31December2004 4,285

Customer contracts relates to projects attributed to the Subsea 7 joint venture from its date of commencement, and at the date of the purchase of Halliburton’s 50% share. Customer contracts are amortised over the duration of the contracts.

Subsea 7 Annual Report 2005 55

10Property,plantandequipment

Non-subsea

assets

Landandbuildings

Plantand

equipment

Vesselsandmarineequipment

Total

CostAt 1 January 2005 19,581 16,664 1,166 298,336 335,747Additions at cost 7,089 1,963 - 100,665 109,717Fair value adjustment - - - (7,500) (7,500)Disposals - - - (8,490) (8,490)De-merger of non-subsea activities (27,134) - - - (27,134)Exchange adjustments 464 (624) 398 (16,707) (16,469)At31December2005 - 18,003 1,564 366,304 385,871AccumulateddepreciationAt 1 January 2005 7,862 - - - 7,862Charge for the year 1,332 1,083 813 52,045 55,273Impairment - - - 2,501 2,501Disposals - - - (2,684) (2,684)De-merger of non-subsea activities (9,194) - - - (9,194)Exchange adjustments - (227) 90 (8,124) (8,261)At31December2005 - 856 903 43,738 45,497Netbookamountat31December2005 - 17,147 661 322,566 340,374

CostAt 1 January 2004 16,174 - - - 16,174Additions at cost 7,067 - - - 7,067Acquisitions – through business combinations - 16,664 1,166 298,336 316,166Disposals (4,973) - - - (4,973)Exchange adjustments 1,313 - - - 1,313At31December2004 19,581 16,664 1,166 298,336 335,747Accumulateddepreciation At 1 January 2004 10,496 - - - 10,496Charge for the year 1,693 - - - 1,693Disposals (4,973) - - - (4,973)Exchange adjustments 646 - - - 646At31December2004 7,862 - - - 7,862Netbookamountat31December2004 11,719 16,664 1,166 298,336 327,885

Included in the table above are assets under construction for which expenditure in the current year amounted to $69,366,000 (2004: $3,109,000).

Assets held under finance leases included above had the following net book amount:

2005 2004

Cost 20,126 20,126Aggregate depreciation (6,851) (4,939)Net book amount 13,275 15,187

In accordance with IFRS 1 and IAS 17, the Group has reviewed the classification of all leases at the opening balancesheet date of 1 January 2004. No change to the leases classification was found to be necessary.

56 Subsea Partner of Choice

11Investments

2005 2004

Interests in joint venturesNetassetsat1January 6,173 102,599Exchange adjustments (189) 8,846Share of profits retained - Subsea 7 joint venture - (4,606) Other joint ventures 2,734 7,966Dividends received (3,379) (11,524)De-merger of non-subsea activities (5,339) -Adjustment for the acquisition of Subsea 7 Holding Inc. - (97,108)Netassetsat31December - 6,173

The share of profits retained shown in the table above relate to other joint ventures included under the non-subsea activities business segment for the period up to the date of the de-merger. These results are included within the “loss for the year from discontinued operations” presented in the Consolidated Income Statement.

The dividends received shown in the table above relate to joint ventures included under the non-subsea activities business segment for the period up to the date of the de-merger.

The adjustment for the acquisition of Subsea 7 Holding Inc. shown in the table above relates to the change in accounting for Subsea 7 Holding Inc. as a subsidiary instead of a joint venture effective as of 31 December 2004.

In relation to the Group’s interests in joint ventures, the assets, liabilities, income and expenses are shown below:

2005 2004

Current assets - 4,137Long-term assets - 4,687Current liabilities - (2,651)Long-term liabilities - -

- 6,173

Income 7,310 428,287Expenses (4,576) (418,998)

2,734 9,289Tax - (5,929)Share of post tax results from other joint ventures 2,734 3,360

The joint venture results for the year ended 31 December 2004 shown above include income of $406.4 million, expenses of $405.1 million, tax of $5.9 million and a post tax loss of $4.6 million related to Subsea 7 Holding Inc..

The joint ventures have no significant contingent liabilities to which the Group is exposed nor has the Group any significant contingent liabilities in relation to its interest in the joint ventures.

The Group’s share of the capital commitments of the joint ventures is shown in note 29.

Subsea 7 Annual Report 2005 57

12Inventories

2005 2004

Finished goods 19,246 9,284

The Group’s inventories consist of consumable items held in support of workshops and project operations plus ROV and marine equipment spares.

All inventories are carried at cost less a provision for slow moving and obsolete items. The amount recognised as an expense in the current year as a provision for slow moving and obsolete items was $679,000 (2004: $607,000).

13Tradeandotherreceivables

2005 2004

Trade debtors 139,231 157,763Provision for impairment of receivables (1,187) (1,343)Trade debtors – net 138,044 156,420Other debtors 53,296 54,119Prepayments and accrued income 181,335 101,371

372,675 311,910

14Availableforsaleassets

2005 2004

Non-subsea assets - 3,637

The non-subsea assets available for sale were a specialist ROV and optic cable spreads and cable handling and splicing equipment. The assets had been marketed for sale and negotiation with an interested party had commenced.

The assets were located in Brazil and have been disclosed in the ‘Brazil’ geographic segment and the ‘Non-subsea activities’ business segment in the segment reporting note (note 1).

An impairment charge of $1,037,000 was recognised in 2005 to write down the assets to the fair value of the proceeds expected to be received on disposal of the assets.

These assets were included in the net assets of the non-subsea activities disposed of on 30 June 2005.

58 Subsea Partner of Choice

15Cashandshorttermdeposits

2005 2004

Cash at bank and in hand 4,907 28,131Short term bank deposits 60,010 62,554

64,917 90,685

Short term bank deposits have an average maturity of less than one week.

16Tradeandotherpayables

2005 2004

Trade payables 42,590 26,312Other tax and social security payable 13,740 14,185Other creditors and accruals 269,442 153,492Deferred income 134,982 93,871

460,754 287,860

17Financialliabilities–borrowings

2005 2004

CurrentBank loans 15,000 15,000Convertible bond loan 26,757 -Mortgage debt - 375Other interest bearing debt - 920

41,757 16,295Non-CurrentBank loans 51,500 135,000Convertible bond loan - 52,485Mortgage debt - 794Other interest bearing debt - 5,975Other long-term liabilities - 436

51,500 194,690

Bank loansBank loans are denominated in US dollars. The bank loans relate to a revolving credit facility with a banking syndicate which includes a first priority mortgage over the Group’s fleet of vessels and a first priority charge over the Group’s fleet of ROVs. The credit facility is being reduced by 10 semi-annual reductions of $7,500,000 the first of which was on 23 June 2005 and a final payment on 23 December 2009 of the remaining debt balance. The maximum revolving credit facility available at 31 December 2005 was $135,000,000. A disposal of any of the mortgaged assets would result in a proportionate repayment of the syndicated loan.

Subsea 7 Annual Report 2005 59

Convertible bond loanThe Group issued a NOK 300,000,000 convertible bond loan with the following characteristics:

Oslo Børs ticker: DSND01Interest per annum: 8.0% couponMaturity: 6 January 2006Term: 6 January 2003 – 6 January 2006Conversion price: NOK 20.00 per shareConversion date: The 6th of every month for the entire term of the loan

At 31 December 2004, none of the convertible bonds had been converted into new shares. On various conversion dates during 2005, NOK 136,640,000 bonds were converted into 7,055,533 new shares. NOK 42,850,000 bonds were converted at a price of NOK 20.00 per share and NOK 93,790,000 bonds were converted at a price of NOK 19.09 per share, the conversion price being determined in accordance with the Norwegian Trustee’s standard terms.

On 6 January 2006, a further NOK 158,010,000 of convertible bonds was converted into 8,277,095 new shares at a conversion price of NOK 19.09 and the remaining balance of NOK 5,350,000, including the NOK 5,000,000 owned by the Group, was repaid.

The Group has drawn down on the available bank loan facility amounts with different dates of maturity and interest rates, and as a result, the Group is exposed to interest rate changes as follows:

6monthsorless

6to12months

Total

At31December2005Bank Loans 47,500 19,000 66,500At31December2004Bank Loans 150,000 - 150,000

The weighted average effective interest rate at the balance sheet date was 5.4465% (2004: 3.8125%).

18Financialinstruments

Numerical financial instruments disclosures are set out below. Additional disclosures are set out in the accounting policies relating to financial risk management.

BookvaluesofderivativefinancialinstrumentsThe book values of derivative financial instruments were as follows:

Assets Liabilities

At31December2005Currency swaps - (46)Forward foreign currency contracts 29 (4,161)

At31December2004Forward foreign currency contracts 1,558 -

The Group has not elected to account for currency derivative financial instruments as hedges for accounting purposes as prescribed in IAS 39. Changes in the fair value of derivative instruments that do not qualify for or are not designated in hedging relationships are recognized immediately in the current period income statement when they occur as shown below:

2005 2004Loss in income statement (4,178) -

60 Subsea Partner of Choice

NetfairvaluesofderivativefinancialinstrumentsThe net fair values of derivative financial instruments at the balance sheet date were:

2005 2004Contractswithpositivefairvalues:Forward foreign currency contracts 29 1,558Contractswithnegativefairvalues:Currency swaps (46) -Forward foreign currency contracts (4,161) -

Market values have been used to determine the fair value of forward foreign exchange contracts based on estimated amounts the Group would receive or have to pay to terminate the agreements, taking into account the current foreign currency forward rates.

Fairvaluesofnon-derivativefinancialassetsandfinancialliabilitiesThe fair value of financial instruments at 31 December consisted of the following:

2005 2004 Bookvalue FairValue Book value Fair valueFair value of non-current borrowings:Long-term borrowings (note 17) 51,500 51,500 135,000 135,000Fair value of other financial assets and financial liabilities held or issued to finance the group’s operations:

Short-term borrowings (note 17) 15,000 15,000 15,000 15,000Trade and other payable (note 16) 460,754 460,754 287,860 287,860Trade and other receivables (note 13) 372,675 372,675 311,910 311,910Available for sale assets (note 14) - - 3,637 3,637Cash and short term deposits (note 15) 64,917 64,917 90,685 90,685

The following methods and assumptions were used by the Group in estimating its fair value disclosure for financial assets and liabilities.

Long-term debtThe estimated fair values of the Group’s long-term debt are based on amounts the Group would have to pay to settle each instrument in cash at 31 December 2005, and 2004, respectively. Prepayment penalties are not included in the fair values because the Group does not intend to settle the instruments before maturity.

Cash and short term depositsFor cash and short term deposits, the fair value approximates the carrying value due to the short maturity periods of these financial instruments.

Other current financial assets and liabilitiesThe fair values of other current financial assets and liabilities approximate carrying value due to the short period of time to maturity.

Subsea 7 Annual Report 2005 61

MaturityoffinancialliabilitiesThe maturity profile of the carrying amount of the Group’s non-current financial liabilities was as follows:

Bankloan

Convertiblebondloan

Mortgagedebt

Otherinterestbearing

debt

Non-interestbearing

debt

Total

At31December2005In more than one year but not more than two years 15,000 - - - - 15,000

In more than two years but not more than five years 36,500 - - - - 36,500

In more than five years - - - - - -51,500 - - - - 51,500

At31December2004In more than one year but not more than two years 15,000 52,485 372 920 436 69,213

In more than two years but not more than five years 120,000 - 422 2,757 - 123,179

In more than five years - - - 2,298 - 2,298135,000 52,485 794 5,975 436 194,690

The minimum lease payments due by the Group under finance leases fall due as follows:

2005 2004

No later than one year 377 8,185Later than one year but not more than five years - -More than five years - -

377 8,185Future finance charges on finance leases - (200)Presentvalueoffinanceleaseliabilities 377 7,985

19Deferredtax

Deferred tax is calculated in full on temporary differences under the liability method using an average tax rate of 30% (2004: 30%). The movement on the deferred tax account is as shown below:

2005 2004

At 1 January 11,335 -Acquisitions – through business combinations - 11,335Profit and loss charge/(credit) (1,820) -Dry-docking costs adjustment 922 -At31December 10,437 11,335

62 Subsea Partner of Choice

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12), during the period are shown below.

Deferredtaxliabilities

Acceleratedtaxdepreciation Other

Total

At 1 January 2005 15,841 40 15,881Charged/(credited) to profit and loss account (579) (40) (619)At31December2005 15,262 0 15,262

DeferredtaxassetsShortTermTiming

Differences Taxlosses

Other

Total

At 1 January 2005 (3,743) (562) (241) (4,546)Charged/(credited) to profit and loss account 3,026 (2,340) (965) (279)

At31December2005 (717) (2,902) (1,206) (4,825)

Deferred tax assets are recognised for tax loss carry forwards to the extent that it is probable that a tax benefit will be realised in the future. The Group has gross unrecognised tax losses of $45,152,000 to carry forward against future taxable income of which $45,152,000 do not expire.

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.

At 31 December 2005, no rights of offset existed therefore the deferred tax assets and deferred tax liabilities are shown separately in the consolidated balance sheet.

At 31 December 2004, all of the deferred tax assets were available for offset against the deferred tax liabilities and hence the net deferred tax provision was $11,335,000.

20Calledupsharecapital

Authorised 2005 2004200,000,000 (2004: 200,000,000) ordinary shares of USD 0.01 each 2,000 2,000

2005 2004Issued and fully paid shares $’000 shares $’000OrdinarysharesofUSD0.01eachat1January 130,102,798 1,301 80,802,798 808Allotted to strengthen working capital - - 8,000,000 80Allotted to finance acquisition (note 24) - - 41,300,000 413Allotted on subsequent offering - rights issue 2,458,549 25 - -Allotted on conversion of convertible bond loan (note 17) 7,055,533 71 - -Allotted under share option schemes (note 22) 177,500 2 - -Purchase of own shares (107,800) (1) - -At31December 139,686,580 1,398 130,102,798 1,301

Offering of shares – rights issueAn offering of shares was conducted in January 2005 in order to give those of the Company’s shareholders as of 17 November 2004 who were not invited to participate in the Private Placement of the opportunity to maintain their relative shareholding in the Company. Such shareholders received 0.5 subscription rights for each share owned as of 17 November 2004. One subscription right gave the right to subscribe for one new share at a subscription price of NOK 24.00 per share. The Company received subscriptions for a total of 2,458,549 new shares which were issued on 19 January 2005 and provided proceeds of NOK 59 million or $9,388,000 including a premium of $9,363,000.

In October 2005, the Company repurchased 107,800 shares in the Company at an average price of NOK 63.98 per share. These shares have been treated as cancelled and form part of the authorised but un-issued share capital of the Company.

Subsea 7 Annual Report 2005 63

21Otherreserves

Otherreserve

Revaluationreserve

Cumulativetranslation

reserveTotal

At 1 January 2005 (56,307) 29,091 11,306 (15,910)Currency translation difference for the year - - (10,132) (10,132)De-merger of non-subsea activities 28,744 - - 28,744At31December2005 (27,563) 29,091 1,174 2,702

At 1 January 2004 (restated) (56,307) - - (56,307)Currency translation difference for the year - - 11,306 11,306Revaluation surplus - 29,091 - 29,091At31December2004 (56,307) 29,091 11,306 (15,910)

22Sharebasedpayments

Senior management of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (‘equity-settled transactions’). The options vest each quarter with five percent of the total number of options granted over a five year period. The options are only exercisable within seven days after the announcement of quarterly results. The options awarded are subject to employment status and a change of control event.

The Company has issued 1,537,500 options to employees as at 31 December 2005. The details and terms of the options issued were as follows:

Award date 19 Jan 2001 17 Dec 2002 20 Dec 2004 5 Jan 2005 15 June 2005

Share options awarded

310,000

205,000

150,000

1,190,000

270,000

Shareoptionsoutstanding

Total

CEO - - - 370,000 - 370,000

Other senior management - - - 220,000 120,000 340,000

Other employees

- 27,500 50,000 600,000 150,000 827,500

- 27,500 50,000 1,190,000 270,000 1,537,500

Exercise dates (pro-rata basis)

After quarterly presentations

After quarterly presentations

After quarterly presentations

After quarterly presentations

After quarterly presentations

Last exercise date

After Q4 2004 presentation

After Q4 2006 presentation

After Q4 2014 presentation

After Q4 2014 presentation

After Q4 2014 presentation

Exercise price (NOK per share)

36.00 16.70 25.77 29.49 44.85

Award dated 19 January 2001The options lapsed in February 2005. None of the options were exercised.

Award dated 17 December 2002Options vest each quarter with 6.25% of the total number of options granted. 177,500 share options were exercised during 2005.

64 Subsea Partner of Choice

Awards dated 20 December 2004, 5 January 2005 and 15 June 2005Options vest each quarter with 5.00% of the total number of options granted. Options vested can not be exercised the first year after the award date. All options must be exercised within seven days after the announcement of the results for the fourth quarter of 2014, after which date all options not exercised will lapse without further notice. For options not exercised after announcement of the results for the fourth quarter 2009, the exercise price shall be subject to a quarterly increase equal to 3 months NIBOR +1% margin per annum.

Following Magne Kristiansen’s decision to step down from his role as CEO with effect from 15 July 2005, the 120,000 options awarded to him on 17 December 2002 became vested and the 100,000 options awarded to him on 20 December 2004 lapsed.

The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the year:

2005 2004

Number

Weightedaverageexercise

price(NOK)

Number

Weightedaverageexercise

price(NOK)

Outstanding at 1 January 665,000 28.27 515,000 28.64

Granted 1,460,000 32.33 150,000 27.00

Forfeited (410,000) 33.50 - -

Exercised (177,500) 17.28 - -

Outstanding at 31 December 1,537,500 31.84 665,000 28.27

Exercisable at 31 December - - - -

The weighted average share price for options exercised over the year was NOK 59.63.

The fair value of equity-settled share options granted is estimated as at the date of grant using a Black-Scholes model, taking account of the terms and conditions upon which the options were granted. The following table lists the inputs to the model used for the options granted during 2005 and the fair values of the options at the respective grant dates.

Grant date 5Jan2005 15Jun2005

Share price at grant date 30.90 47.00

Exercise price at grant date 30.90 47.00

Exercise price after de-merger of non-subsea activities 29.49 44.85

Number of employees 15 4

Vesting period (years) 5 5

Expected volatility 35% 35%

Option life (years) 10 10

Expected life (years) 5 5

Risk free rate 3.22% 3.15%

Expected dividends expressed as a dividend yield - -

Fair value per option at grant date (NOK) 11.35 16.42

The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk free rate of return is the yield on Norwegian State bonds of a term consistent with the assumed option life.

The total charge for the year relating to employee share based payment plans was $552,335 (2004: $42,234), all of which related to equity-settled share based payment transactions.

Subsea 7 Annual Report 2005 65

23Cashflowfromoperatingactivities

Reconciliation of operating profit to net cash inflow from operating activities:

Cashgeneratedfromoperations

2005 2004

ContinuingoperationsNet profit/(loss) 45,204 (4,606)Adjustments for:Tax charge 44,687 -Depreciation and amortisation 60,314 -Impairment of fixed and intangible assets 3,286 -Profit on disposal of property, plant and equipment (175) -Share based payment charge 552 -Interest income (2,239) -Interest expense 7,947 -Share of results of joint ventures before taxation - 4,606Changes in working capital (excluding effects of acquisitions and disposal of subsidiaries)

(Increase)/decrease in inventories (9,962) -(Increase)/decrease in trade and other receivables (90,731) -Increase/(decrease) in payables 187,234 -Increase/(decrease) in deferred tax liability (898) -Cashgeneratedfromcontinuingoperations 245,219 -

DiscontinuedoperationsNet loss (3,971) (9,132)Adjustments for:Tax charge 493 -Depreciation and amortisation 1,332 1,693Impairment of available for sale assets 1,037 -Impairment of goodwill - 6,512Profit on disposal of property, plant and equipment - (57)Share based payment charge - 42Interest income (96) (455)Interest expense 382 7,909Share of results of joint ventures before taxation (2,734) (7,966)(Increase)/decrease in trade and other receivables 10,917 126Increase/(decrease) in payables (4,258) (2,992)Increase/(decrease) in pensions (39) (68)Cashflowfordiscontinuedoperations 3,063 (4,388)Cashgeneratedfromoperations 248,282 (4,388)

66 Subsea Partner of Choice

24Acquisitions

AcquisitionofHalliburton’s50%shareinSubsea7HoldingInc.

The acquisition of Halliburton’s 50% share in Subsea 7 Holding Inc. (formerly Subsea 7 Inc.) was formally completed on 4 January 2005. All conditions precedent to completion as set out in the share purchase agreement of 3 December 2004 were fulfilled by 31 December 2004, therefore Subsea 7 Holding Inc. has been consolidated from 31 December 2004.

All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired was recognised as goodwill.

The provisional analysis of the fair values of the net assets acquired at 31 December 2004 was as follows:

Carryingvaluepre-acquisition

Fair

value

Goodwill 699 699Intangible assets 4,285 4,285Property, plant and equipment 261,064 319,201Inventories 9,284 9,284Receivables 281,975 281,975Payables (272,584) (272,584)Finance leases (7,985) (7,985)Taxation- current (24,870) (24,870)- deferred (11,335) (11,335)Cash and cash equivalents 76,800 76,800Financial liabilities - borrowings (117,000) (117,000)Net assets 100% 200,333 258,470Netassetsacquired(50%) 129,235Goodwill 73,766Consideration 203,000Considerationsatisfiedby:Cash 203,000

Goodwill represents the value of synergies and assembled work force.

The PP&E fair value shown above is different from PP&E additions in note 10 due to an elimination of an inter-company gain.

The intangible assets acquired as part of the acquisition all related to customer contracts. Further details of these intangible assets are given in note 9.

The outflow of cash and cash equivalents on the acquisition was calculated as follows:

Cash consideration paid 203,000Cash and cash equivalents balances acquired (76,800)

126,200

During 2005, the Group completed its investigation into the fair values of the net assets acquired. This resulted in the identification of an intangible asset in respect of contract backlog at the date of acquisition and a reassesment of the ROVs acquired based on expected use. The following adjustments to fair values were made:

Increase in Intangible assets – Customer contracts 8,300Decrease in Property, plant and equipment – ROVs (7,500)Adjustment to Goodwill (800)

Subsea 7 Annual Report 2005 67

25Disposals

De-mergerofnon-subseaactivities

During the year, the Board assessed that there were few synergies between the subsea and the non-subsea activities carried on by the Group. The Board concluded that it would be beneficial for the future development of both the subsea and the non-subsea activities, and the enhancement of shareholder value, that the two activities be separated and developed in separate companies under separate management.

The effective date of the de-merger was 30 June 2005. The analysis of the assets and liabilities transferred in the de-merger were as follows:

2005

Property, plant and equipment 17,940Interests in joint ventures 5,339Receivables 23,312Cash and cash equivalents 31,588Financial liabilities - borrowings (7,264)Payables (11,019)Retirement benefit liability (488)Netassets 59,408

The separation and restructuring was effected by way of a distribution of all the shares of Siem Offshore Inc. (formerly Siem Supply Inc.), a wholly-owned subsidiary of Subsea 7 Inc. with ownership of all of the non-subsea activities, to the shareholders of Subsea 7 Inc. through a payment of dividend in specie in the form of a distribution from the share premium account.

The difference between the $88,152,000 distributed from the share premium account as shown in the Consolidated Statement of Changes in Shareholders’ Equity on account of the de-merger of the non-subsea activities, and the $59,408,000 net assets de-merged shown in the analysis above, shown in the Consolidated Statement of Changes in Shareholders’ Equity as a credit to other reserves of $28,744,000, represents the surplus value of the non-subsea assets de-merged witth refence to the book value shown above and the fair market value calculated from the average share price of Siem Offshore Inc. quoted on the Oslo Stock Exchange in the one week period subsequent to the de-merger.

Further details relating to the disposal can be found in note 6.

26Employeebenefits

EmployeecostsfortheGroupduringtheyear

2005 2004

Wages and salaries 175,487 8,524

Social security costs 18,588 495

Pension costs (note 27) 7,362 81

201,437 9,100

The total number of employees at the end of the year was 2,507 (2004: 434).

The employee benefits and employee numbers for the year ended 31 December 2004 relate wholly to the non-subsea activities which have been discontinued during the year. The employee benefits and employee numbers for the year ended 31 December 2005 relate wholly to the Group’s continuing operations. Employee numbers include only those personnel with a contract of service and do not include contractors.

68 Subsea Partner of Choice

Keymanagementcompensation

Salariesandshort-termemployeebenefits

Post

employmentbenefits

Sharebased

payments(note22)

Total

Yearended31December2005Chief Executive Officer:Mel Fitzgerald (from 15 July 2005) 394 - 128 522Magne Kristiansen (to 15 July 2005) 352 31 51 434

746 31 179 956Other senior management 1,047 49 131 1,227

1,793 80 310 2,183

Yearended31December2004Chief Executive Officer 299 29 24 352Other senior management 175 15 14 204

474 44 38 556

Directors’fees

Total fees paid to the Board of Directors in 2005 were $120,182 (2004: $112,765). Details of other remuneration paid to Directors during the year are included in the related party transactions disclosures shown in note 31.

On 23 February 2006, it was resolved by the Board that Siem Industries Inc should receive fees totalling $800,000 for services rendered during 2005. This total fee includes NOK 480,000 in respect of Directors’ fees for Mr. Siem and Mr. Delouche.

None of the Directors had any entitlement to share options.

27Pensioncosts

The Group has a number of defined contribution schemes around the world which cover a significant number of its employees. The costs for the Group’s defined contribution schemes were as follows:

2005 2004

Defined contribution schemes 7,362 -

Prior to the de-merger of the non-subsea activities, the Group operated a defined benefit scheme. As of 30 June 2005, on the de-merger of the non-subsea activities, the Group ceased to participate in this defined benefit scheme and ceased to have any obligations in relation to this scheme. No IAS 19 ‘Employee Benefits’ disclosures for this scheme have been presented.

Subsea 7 Annual Report 2005 69

28Operatingleasecommitments–minimumleasepayments

2005 2004

Commitments under non-cancellable operating leases expiring:Within one year 83,290 62,042Later than one year and less than five years 170,957 54,722After five years 9,791 2,784

264,038 119,548

The Group has entered into a number of vessel charters and also has various plant and equipment including ROVs and motor vehicles under non-cancellable operating lease agreements. The Group also leases offices, warehouses and other work sites. The leases have various terms, escalation clauses and renewal rights.

29Capitalandotherfinancialcommitments

2005 2004

Contracts placed for future capital expenditure not provided in the financial statements 129,518 4,633

The Group had no such capital or other financial commitments in respect of its interests in joint ventures in either year.

30Contingentliabilities

There were no contingent liabilities at 31 December 2005 of which the Directors were aware (2004: nil).

70 Subsea Partner of Choice

31Relatedpartytransactions

The following tables provide the total value of transactions which have been entered into with related parties for the relevant financial year as well as the outstanding balances at each financial year end.

2005 Related party

Salestorelatedparties

Purchasesfrom

relatedparties

Amountsowedbyrelatedparties

Amountsowedtorelatedparties

Directors’InterestsSiem Capital UK Ltd - 46 - -SmithHoldings - 135 - - 2004 Related party

Salestorelatedparties

Purchasesfrom

relatedparties

Amountsowedbyrelatedparties

Amountsowedtorelatedparties

JointventuresinwhichtheGroupwasaventurerPR Tracer Offshore ANS 32 - - -Subsea 7 Holding Inc. (formerly Subsea 7 Inc.) - 36 - 36Directors’InterestsSiem Capital UK Ltd - 29 - -

Ultimate parent and ultimate controlling partyThe Company did not have an ultimate parent or ultimate controlling party at 31 December 2005 or 31 December 2004.

Joint ventures in which the Group is a venturerThere were no sales to or purchases from joint ventures in which the Group is a venturer during the year. Sales in relation to management fees totalling $32,000 and purchases in relation to the services of personnel totalling $36,000 were made during the prior year.

Board of Directors InterestsSiem Capital UK Ltd is controlled by Siem Industries Inc. which is controlled through trusts where certain members of Kristian Siem’s family are potential beneficiaries. Kristian Siem is chairman of the Board. Purchases from Siem Capital UK Ltd in relation to legal fees totalling $46,000 were made during the year (2004: $29,000).

John Smith, a Board member, owns SmithHoldings. Purchases from SmithHoldings in relation to consultancy services totalling $135,000 were made during the year (2004: nil).

Key management compensation is disclosed in note 26.

Subsea 7 Annual Report 2005 71

32Principalsubsidiariesandjointventures

SubsidiaryundertakingsThe subsidiaries of the Group at 31 December 2005, all of which are consolidated in these financial statements, were as follows:

Companyname

Ownership%

Countryofregistration

Principalactivity

Subsea 7 Holding Inc. 100 Cayman Islands Holding company

DSND Coreco Inc. 100 Cayman Islands Holding company

Subsea 7 (Cayman Vessel Company) Limited 100 Cayman Islands Vessel charterer

Subsea 7 do Brasil Servicos Ltda 100 Brazil Supply of contracting services to the offshore oil and gas industry

Subsea 7 (Vessel Company) BV 100 The Netherlands Vessel charterer

Subsea 7 (US) LLC 100 USA Supply of contracting services to the offshore oil and gas industry

Subsea 7 (Vessel Company) Limited 100 England Vessel charterer

Subsea 7 Limited 100 England Supply of contracting services to the offshore oil and gas industry

Subsea 7 BV 100 The Netherlands Supply of contracting services to the offshore oil and gas industry

Subsea 7 AS 100 Norway Vessel charterer

Subsea 7 (UK Service Company) Limited 100 Scotland Employer/Service provider

Subsea 7 Marine LLC 100 USA Supply of contracting services to the offshore oil and gas industry

Subsea 7 (Singapore) Pte Limited 100 Singapore Employer/Service provider

Subsea 7 Australia Pty Limited 100 Australia Supply of contracting services to the offshore oil and gas industry

Subsea 7 Nigeria Limited 100 Nigeria Supply of contracting services to the offshore oil and gas industry

Subsea 7 (Luxembourg) Sarl 100 Luxembourg Financing

Subsea 7 (UK) Limited 100 Scotland Supply of contracting services to the offshore oil and gas industry

Subsea 7 International Limited 100 Cayman Islands Supply of contracting services to the offshore oil and gas industry

Sevenseas Angola Limited 100 Cayman Islands Supply of contracting services to the offshore oil and gas industry

Subsea 7 Contractors Limited 100 Cayman Islands Supply of contracting services to the offshore oil and gas industry

Subsea 7 Ireland Finance Ltd 100 Ireland Financing

Subsea 7 Luxembourg Finance Sarl 100 Luxembourg Financing

72 Subsea Partner of Choice

JointventuresThe Group had no active joint ventures at 31 December 2005. At 31 December 2004, the active joint ventures of the Group, all of which were equity accounted in these financial statements, were as follows:

Jointventurename

Ownership%

Countryofregistration

Overseas Drilling Limited 50.00 LiberiaPR Tracer Offshore ANS 41.33 NorwayKS Big Orange XVIII 41.33 Norway

33Postbalancesheetevents

Convertible bond loan conversionOn 6 January 2006, the maturity date of the bond, of the NOK 163,360,000 bonds outstanding at 31 December 2005, NOK 158,010,000 was converted into 8,277,095 new shares at a conversion price of NOK 19.09 and the remaining balance of NOK 5,350,000, including the NOK 5,000,000 owned by the Company, was repaid.

Commitment to build a new Flexlay VesselOn 15 February 2006, the Group entered into contracts for the building of a new flexible pipelay and construction vessel. The overall project cost is in the order of $200 million and is based on fixed prices from the Merwede shipyard and equipment supplier Huisman. The completed ship is expected to be delivered in the second quarter of 2008.

Related Party TransactionOn 23 February 2006, it was resolved by the Board that Siem Industries Inc. should receive fees totalling $800,000 for services rendered during 2005. This total fee includes NOK 480,000 in respect of Directors’ fees for Mr. Siem and Mr. Delouche.

Subsea 7 Annual Report 2005 73

34ReconciliationofnetassetsandprofitunderNGAAPtoIFRS

Subsea 7 Inc. reported under NGAAP in its previously published consolidated financial statements for the year ended 31 December 2004. The analysis below shows a reconciliation of net assets and profit as reported under NGAAP as at 31 December 2004 to the revised net assets and profit under IFRS as reported in these financial statements. In addition, there is a reconciliation of net assets under NGAAP to IFRS at the transition date for this Company, being 1 January 2004.

Note PreviousGAAP

Effectoftransitionto

IFRS IFRSRevenue 21,611 - 21,611Project and vessel expenses (a) (8,643) 555 (8,088)Employee benefits (c), (d) (9,120) 153 (8,967)Other operating expenses (2,969) - (2,969)Depreciation, amortisation and impairments (a) (7,590) (615) (8,205)Totaloperatingexpenses (28,322) 93 (28,229)Netoperatingloss (6,711) 93 (6,618)Finance income 455 - 455Finance expense (e) (8,786) (2,149) (10,935)Share of post tax profits from Subsea 7 joint venture

(a) (5,400) 794 (4,606)

Share of post tax profits from other joint ventures (a) 7,823 143 7,966Netfinancingitems (5,908) (1,212) (7,120)Lossbeforetax (12,619) (1,119) (13,738)Taxation - - -Lossattributabletoequityshareholders (12,619) (1,119) (13,738)

The reconciliation of profit above is shown prior to the restatement of the non-subsea activities as discontinued operations.

74 Subsea Partner of Choice

Reconciliationofequityat1January2004(DateoftransitiontoIFRS)

NotePrevious

GAAP

EffectoftransitiontoIFRS IFRS

Goodwill 6,540 - 6,540Property, plant and equipment (a), (b) 8,432 (2,753) 5,679Investments in affiliated companies (a) 102,225 374 102,599Other long-term receivables (e) 1,053 (938) 115Totalnon-currentassets 118,250 (3,317) 114,933Trade and other receivables 31,638 - 31,638Available for sale assets (b) - 3,637 3,637Cash and short term deposits 8,375 - 8,375Totalcurrentassets 40,013 3,637 43,650Totalassets 158,263 320 158,583

Share capital 808 - 808Share premium reserve 92,595 - 92,595Share based payment (d) - 41 41Retained earnings (a), (c), (d), (e), (g) (24,419) 8,076 (16,343)Other reserves (g) 9,167 (9,167) -Totalshareholders’equity 78,151 (1,050) 77,101Loans and other interest-bearing debt (e), (f) - 53,379 53,379Other long-term liabilities (e), (f) 54,413 (53,534) 879Retirement benefit liability (c) 356 239 595Totalnon-currentliabilities 54,769 84 54,853Trade payables 11,593 - 11,593Other short-term liabilities (d), (e) 13,750 (4) 13,746Loan and other interest-bearing debt (f) - 1,290 1,290Totalcurrentliabilities 25,343 1,286 26,629Totalliabilities 80,112 1,370 81,482Totalshareholders’equityandliabilities 158,263 320 158,583

Subsea 7 Annual Report 2005 75

Reconciliationofequityat31December2004

Note

Previous

GAAP

Effectof

transitiontoIFRS

EffectofacquisitionofSubsea7Holding

IFRS

Goodwill - - 74,465 74,465Intangible assets - - 4,285 4,285Property, plant and equipment (a), (b) 14,461 (2,742) 316,166 327,885Investments in affiliated companies

(a) 101,934 1,348 (97,109) 6,173

Other long-term receivables (e) 601 (467) - 134Totalnon-currentassets 116,996 (1,861) 297,807 412,942Inventories - - 9,284 9,284Trade and other receivables 31,494 - 280,416 311,910Financial assets - - 1,558 1,558Available for sale assets (b) - 3,637 - 3,637Cash and short term deposits 183,885 - (93,200) 90,685Totalcurrentassets 215,379 3,637 198,058 417,074Totalassets 332,375 1,776 495,865 830,016

Share capital 1,301 - - 1,301Share premium reserve (h) 274,754 56,307 - 331,061Share based payment (d) - 42 - 42Result for the period (a), (c), (d), (e) (12,619) (1,119) - (13,738)Retained earnings (a), (c), (d), (e) (15,251) (1,051) - (16,302)Other reserves (a), (c), (d), (h) 11,202 (56,203) 29,091 (15,910)Totalshareholders’equity 259,387 (2,024) 29,091 286,454Loans and other interest-bearing debt

(e), (f) - 59,254 135,000 194,254

Other long-term liabilities (e), (f) 57,235 (56,799) - 436Deferred tax liability - - 11,335 11,335Retirement benefit liability (c) 483 44 - 527Totalnon-currentliabilities 57,718 2,499 146,335 206,552Trade payables 4,436 - 272,584 277,020Current tax liability - - 24,870 24,870Other short-term liabilities (d), (e) 10,834 6 - 10,840Finance leases - - 7,985 7,985Loans and other interest-bearing debt

(f) - 1,295 15,000 16,295

Totalcurrentliabilities 15,270 1,301 320,439 337,010Totalliabilities 72,988 3,800 466,774 543,562Totalshareholders’equityandliabilities 332,375 1,776 495,865 830,016

76 Subsea Partner of Choice

(a) Under NGAAP, the Group expensed all major repairs and dry-docking costs when they were incurred. Under IAS 16, expenditure incurred during inspections, major repairs or dry-docking which meets the criteria for recognition as an asset is recognised in the carrying amount of property, plant and equipment. This has resulted in recognition of assets and associated depreciation charges.

(b) In accordance with IFRS 5, non-current assets identified as held for sale have been reclassified from “non-current assets” to “available for sale assets”.

(c) Accounting for pensions in accordance with IAS 19 is different from NGAAP. The IFRS requirement to use a discount rate determined by reference to market yields of high quality corporate bonds, or alternatively, government bonds, to discount plan liabilities, as opposed to using a long-term risk-free interest rate as permitted under NGAAP, has resulted in changes to the accounting and disclosure of the Group’s defined benefit scheme. The components of the cost recognised in the income statement and the liability carried in the balance sheet related to the defined benefit scheme have been adjusted accordingly. The defined benefit obligation was transferred as part of the de-merger.

(d) Under IFRS 2 a charge is required for all share-based payments including share options. The charge in the income statement is based on the fair value of the options at grant date. An adjustment was also required to account for National Insurance liabilities in relation to those share options granted to Norwegian employees. The recognition of a charge in the income statement at grant date was not required under NGAAP.

(e) Under NGAAP, borrowing costs associated with the convertible bond loan were capitalised and amortised based on a nominal interest accrual. The borrowing cost has been re-measured in line with the actual interest cost and has been aggregated with the convertible bond loan liability. An adjustment was also required to account for the cost of the conversion option embedded in the convertible bonds and this has resulted in increased interest charges and a corresponding increase in the convertible bond loan liability.

(f) The various liabilities included in “long-term liabilities” under NGAAP have been analysed into individual components and appropriate amounts reclassified to “loans and other interest-bearing debt”. These liabilities have also been split between “current” and “non-current” elements.

(g) As permitted by IFRS 1, the currency translation difference reserve has been set to zero at the date of transition.

(h) A reclassification correction has been made between other reserves and the share premium account. This reclassification has been reflected in the Company’s stock exchange quarterly results announcements from the second quarter of 2005.

Explanationofmaterialadjustmentstothecashflowstatementfor2004

Cash flows related to the acquisition of Subsea 7 Holding Inc., being the cash inflow from the issue of a new loan of $33 million and the cash outflow (less cash and cash equivalents acquired) of $126 million used to effect the acquisition, were not included in the cash flow statement previously presented under NGAAP. There are no other material differences between the cash flow statement presented under IFRS and the cash flow statement presented under NGAAP.

Subsea 7 Annual Report 2005 77

PROFORMAINFORMATION(UNAUDITED)

The reorganisation of the Group during the year through the acquisition of Halliburton’s 50% share in Subsea 7 Holding Inc. and the disposal of the Group’s non-subsea activities, together with the change to preparing financial statements in accordance with IFRS, has led to a restatement of the comparative information presented in the consolidated income statement.

In order to provide an overview of the underlying continuing operations of the Group, a pro forma consolidated income statement as if Subsea 7 Holding Inc. had been 100% owned from 1 January 2004, and excluding the non-subsea activities from 1 January 2004, is presented below.

Pro forma segment reporting disclosure has been prepared on the same basis as that outlined above and is presented below, following the pro forma consolidated income statement.

ProformaConsolidatedIncomeStatement

2005 2004

Revenue 1,287,028 812,808Project and vessel expenses (867,785) (521,999)Employee costs (201,437) (177,632)Other operating expenses (51,713) (49,800)Depreciation, amortisation and impairments (63,600) (72,342)

Totaloperatingexpenses (1,184,535) (821,773)

Netoperatingprofit/(loss) 102,493 (8,965)

Net currency gain/(loss) (6,894) 2,331Financial income 2,239 1,352Financial expense (7,947) (13,911)

Netfinancialitems (12,602) (10,228)

Profit/(Loss)beforetax 89,891 (19,193)

Taxation (44,687) (11,858)

Profit/(Loss)attributabletoequityshareholders 45,204 (31,051)

78 Subsea Partner of Choice

PROFORMAINFORMATION(UNAUDITED)

ProformaSegmentInformation

Geographicsegments

Yearended31December2005 NorthSea

WestAfrica

BrazilGulfofMexico

AsiaPacific

Global Group

RevenueExternal customers 580,860 356,691 146,726 92,007 97,124 13,620 1,287,028

Results

Segment result 76,839 32,975 (2,847) 14,840 (3,056) (16,258) 102,493

Interest expense - - - - - (7,947) (7,947)

Interest income - - - - - 2,239 2,239

Net currency loss - - - - - (6,894) (6,894)

Profit/(Loss) before tax 76,839 32,975 (2,847) 14,840 (3,056) (28,860) 89,891

Income taxes (20,168) (12,385) (5,094) (3,195) (3,372) (473) (44,687)

Netprofit/(loss)attributabletoequityshareholders 56,671 20,590 (7,941) 11,645 (6,428) (29,333) 45,204

Assetsandliabilities

Segment assets 346,132 100,338 246,132 29,421 62,206 96,701 880,930

Segment liabilities 237,616 118,676 64,401 19,637 37,228 114,694 592,252

Othersegmentitems

Capital expenditure 11,852 - 21,658 - - 69,118 102,628

Depreciation & impairment of PP&E 32,329 - 18,590 159 4,838 526 56,442

Amortisation of intangible assets 4,764 691 328 285 78 227 6,373

Impairment of intangible assets 414 - - - - 371 785

Other non-cash expenses 4,969 (1,558) 914 376 (1,073) (10,347) (6,719)

Subsea 7 Annual Report 2005 79

PROFORMAINFORMATION(UNAUDITED)

Geographicsegments(continued)

Year ended 31 December 2004 North Sea

West Africa

BrazilGulf of

MexicoAsia

PacificGlobal Group

Revenue

External customers 523,534 81,825 94,458 54,014 58,977 - 812,808

Results

Segment result 29,276 932 4,790 2,255 (6,528) (39,690) (8,965)

Interest expense - - - - - (13,911) (13,911)

Interest income - - - - - 1,352 1,352

Currency gain - - - - - 2,331 2,331

Profit/(Loss) before tax 29,276 932 4,790 2,255 (6,528) (49,918) (19,193)

Income taxes - - - - - (11,858) (11,858)

Netprofit/(loss)attributabletoequityshareholders 29,276 932 4,790 2,255 (6,528) (61,776) (31,051)

Assetsandliabilities

Segment assets 394,633 85,749 174,042 19,228 56,005 12,045 741,702

Segment liabilities 228,043 35,383 12,103 12,218 28,129 209,464 525,340

Othersegmentitems

Capital expenditure 3,653 - 2,562 191 4 - 6,410

Depreciation & impairment of PP&E 35,753 - 21,413 423 5,939 83 63,611

Amortisation of intangible assets 622 - 32 - 31 564 1,249

Impairment of goodwill 7,482 - - - - - 7,482

Other non-cash expenses (526) 295 (1,188) (317) 63 4,844 3,171

Businesssegments

Revenue Segmentassets Capitalexpenditure

2005 2004 2005 2004 2005 2004

Construction 1,120,831 668,831 748,791 593,362 92,365 6,410IRT 166,197 143,977 132,139 148,340 10,263 -

1,287,028 812,808 880,930 741,702 102,628 6,410

80 Subsea Partner of Choice

SHARECAPITALINFORMATION

GeneralSubsea 7 Inc. is a Company limited by shares organised under the laws of Cayman Islands.

AuthorisedandissuedsharecapitalThe Company’s authorised share capital is USD 2,000,000.00 divided into 200,000,000 ordinary shares of a nominal or par value of USD 0.01 each. The issued share capital per 30 March 2006 was USD 1,480,320.50 divided into 148,032,050 shares, each with a nominal value of USD 0.01.

According to the Articles of Association, the Board has the authority to issue new shares in Subsea 7 Inc. within the limits of the Company’s authorised share capital. The authority is not limited in time.

Shareholderrights,transferabilityandlock-upThe Company has used one class of shares. All issued shares carry the same rights, and each share carries one vote. Shareholders can be represented by proxy at shareholders’ meetings.

The shares of the Company are listed at the Oslo Stock Exchange with ticker code SUB. The shares are freely tradable.

DividendpolicyThe Company’s shares carry equal rights to dividend payments.

Subsea 7’s goal is to give its shareholders a satisfactory return on invested capital. The return is in the form of growth in the Company’s share price and in dividend payments. Dividends are determined in accordance with the Company’s earnings, future investment plans and the equity ratio.

InvestorrelationsThe Company is managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders.

The Company will provide shareholders, Oslo Stock Exchange and the market as a whole with timely and accurate information at all times. Such information will take the form of annual reports, quarterly interim reports, press releases, stock exchange notifications and investor presentations, as applicable.

The Company will also endeavour to ensure that its progress is monitored by securities analysts.

Subsea 7 Annual Report 2005 81

Listing of the 20 largest shareholders as per 28 March 2006:

Shareholder Numberofshares

Ownerinterest

Siem Industries Inc. 65,224,145 44.06Morgan Stanley 11,026,514 7.45

Fidelity Funds 6,477,500 4.38

Third Avenue 4,138,100 2.80

Goldman Sachs 3,711,512 2.51

Morgan Stanley 3,037,959 2.05

Nordea Bank Denmark 2,725,440 1.84

Storebrand Livsforsikring AS 2,194,395 1.48

MP Pension 2,112,500 1.43

State Street Bank 1,952,901 1.32

Vital Forsikring ASA 1,871,706 1.26

State Street Bank 1,425,900 0.96

Deutsche Bank AG 1,312,800 0.89

JP Morgan Chase Bank 1,229,031 0.83

JP Morgan Chase Bank 1,210,800 0.82

Bank of New York 1,110,000 0.75

PFMT 1,101,000 0.74

DNB Nor Norge 1,073,547 0.73

Ojada AS 1,050,000 0.71BNP Parisbas 1,006,600 0.68

Total20largestshareholders 114,992,350 77.68Other shareholders 33,039,700 22.32

Totalnumberofshares 148,032,050 100.00

FINANCIALCALENDAR

QuarterlyresultsThe Company will release its financial figures on the following dates in 2006:

Tuesday 25 April 2006 First quarter 2006 resultTuesday 25 July 2006 Second quarter 2006 resultTuesday 24 October 2006 Third quarter 2006 resultFebruary 2007 Fourth quarter 2006 and preliminary full year result

TheAnnualGeneralMeetingThe Annual General Meeting of the shareholders of Subsea 7 Inc. will be held at 11.00am local time, 12 July 2006, at the offices of the Company located at Harbour Place, 5th Floor, 103 South Church Street, George Town, Grand Cayman Island, British West Indies.

www.subsea7.com

Appendix 3: Subsea 7 Inc. Annual Report 2004

Siem Offshore Inc

Annual Report 2004

2

3

CONTENTS

Key Figures 4

Board of Directors’ Report 5

Board of Directors 10 This is Siem Offshore 11 Consolidated Profit and Loss Account 18 Consolidated Balance Sheet 19 Consolidated Cash Flow Statement 21 Accounting Principles 22 Notes to the Accounts 25 Auditor’s Report 36 Share Capital Information 37 Financial Calendar 38

4

KEY FIGURES Key Figures(Amounts in USD 1 000)

Income Statement 2004 2003 2002

Operating revenue 21,611 37,965 135,244 Operating expenses -20,732 -36,111 -119,464 EBITDA 879 1,854 15,780 Depreciation, amortisation and impairments -7,590 -8,685 -20,694 Net operating result -6,711 -6,831 -4,914 Net financial items -5,908 -17,232 -8,199 Result before taxes -12,619 -24,063 -13,113 Taxes - -1,189 -734 Result for the financial year -12,619 -25,252 -13,847

Balance Sheet 2004 2003 2002

Fixed assets 116,995 118,250 134,615Current assets 215,379 40,013 51,339Total assets 332,374 158,263 185,954Shareholders' equity 259,386 78,151 94,236Provisions for liabilities 483 356 1,913Long-term liabilities 57,235 54,413 16,439Short-term liabilities 15,270 25,343 73,366Total liabilities and shareholders' equity 332,374 158,263 185,954

Key Ratios Note 2004 2003 2002

Average number of shares (1,000) 84,400 80,800 62,850Earnings per share in USD (EPS) 1 -0.15 -0.31 -0.22Operating margin (EBITDA-margin) 2 4.1% 4.9% 11.7%Stock Exchange Price per 31 December (in NOK) 31.00 19.50 15.00Book equity per share in USD 3 3.07 0.97 1.50Book equity ratio 4 78% 49% 51%Price/earnings per share (P/E) 5 N/A N/A N/ALiquidity ratio 6 14.1 1.6 0.7

Notes(1) Earnings per share (EPS) = Result for the financial year/Average number of shares outstanding(2) Operating margin (EBITDA-margin): Operating profit before depreciation, amortisation and impairments as % of operating revenue(3) Book equity per share = Book equity / Average number of shares outstanding(4) Book equity ratio = Book equity / Total assets(5) Price/Earnings per share (P/E) = Stock Exchange price at 31 December / Net earnings per share(6) Liquidity ratio = Current assets / Short-term liabilities

5

BOARD OF DIRECTORS’ REPORT DESCRIPTION OF THE BUSINESS The main activity of Siem Offshore Inc is the ownership of Subsea 7 Inc. Subsea 7 was 50% owned by Siem Offshore until 4 January 2005 when the ownership increased to 100% following the acquisition of Halliburton’s 50% share. Subsea 7 is one of the world's leading subsea contractors in the oil and gas industry. The company performs total subsea field developments and provides design, engineering, construction, installation and maintenance of facilities for the subsea production of oil and gas. Subsea 7 has offices and activities in UK, Norway, USA, Brazil, Nigeria, Angola, Singapore and Australia. The company has approximately 3,000 employees, of which approximately 650 are within engineering and project management, with expertise in the development and maintenance of subsea fields. Subsea 7 operates 14 multi-purpose, highly specialised dynamically-positioned (DP) vessels capable of deepwater pipelaying, deepwater subsea construction, diving and subsea surveys. Nine of the vessels are owned and five are chartered. Subsea 7 also owns the world’s second largest fleet of remotely operated vehicles (ROVs). The ROV fleet totals 107 specialised vehicles. In addition, the company operates four spool bases for welding of pipelines. In addition to the ownership in Subsea 7, Siem Offshore has other activities within the offshore oil and gas service industry, primarily in Brazil, and holds an investment in a scientific core drilling vessel. 2004 RESULTS The net loss for 2004 was USD 12.6 million or USD (0.15) per share, compared to a net loss of USD 25.3 million for 2003, or USD (0.31) per share. The net loss in 2004 includes a net loss of USD 5.4 million (2003:USD 13.2 million) recorded with respect to the 50% share in Subsea 7, as well as impairment of all goodwill related to the non-Subsea 7 activities in Brazil in the amount of USD 6.2 million per year-end 2004. In accordance with the Norwegian Accounting Act, the Board of Directors confirms that the annual accounts are prepared based on the assumption that the enterprise is a going concern. The Board proposes that the net loss of USD 12.6 million be recorded against other equity. SUBSEA 7 Results In 2004, Subsea 7 recorded revenues of USD 812.8 million and a net loss of USD 12.7 million, compared to revenue and a net loss in 2003 of USD 724.4 million and USD 27.5 million, respectively. EBITDA in 2004 was USD 61.6 million compared to USD 34.8 million in 2003. Depreciation and amortisation amounted to USD 48.5 million in 2004 compared to USD 49.8 million in 2003. In addition, the 2004 accounts include impairments of fixed assets of USD 14.9 million. In 2003, impairments of USD 3.1 million were recorded. Net financial items came to a positive of USD 1.0 million, including a currency gain of USD 5.9 million. The profit and loss account and year end balance sheet of Subsea 7 are shown as a part of note 5 to the Siem Offshore accounts. During the first half year of 2004, Subsea 7 suffered from several low margin jobs and reduced utilisation of vessels and equipment. In addition, the result for the first half year was affected by costs charged relating to the terminations of two chartered-in vessels. During the second half year of 2004, the company experienced higher project margins, increased vessel utilisation and the benefit of a reduced cost base. Awarded contracts in 2004 and backlog During 2004, Subsea 7 was awarded new contracts of an aggregate amount of USD 1.65 billion, including several significant contracts in West Africa, Brazil and the North Sea. The worldwide order book of Subsea 7 per year end

6

was USD million1.24 billion, compared to USD 404 million at the beginning of the year. Approximately USD 782 million of the order book per year end 2004 is for execution in 2005. OTHER ACTIVITIES WITHIN THE SIEM OFFSHORE INC The scientific core drilling vessel Joides Resolution is owned 50% by Siem Offshore through the company, Overseas Drilling Ltd (ODL). The vessel is currently on contract for the Integrated Ocean Drilling Program until 1 October 2005. The well stimulation vessel Big Orange XVIII, owned 41% by Siem Offshore, is on a time charter contract with Schlumberger for work in the North Sea Basin until August 2010. The supply/crew vessels in Brazil are employed on 1-4 year contracts with Petrobras. The ongoing development and installation of combat management system for six frigates for the Brazilian Navy, the Modfrag project, is scheduled to be completed by the end of 2005. In 14 October 2004, Siem Offshore entered into a contract with Aker Langsten AS, a subsidiary of Aker Yards ASA, for the building of two platform supply vessels (PSVs) of Vik Sandvik design VS 470 mkII. The combined contract value for the two vessels is approximately NOK 250 million. Delivery is scheduled for fourth quarter 2005. In addition, the Company has options for a further six vessels. The options can be declared at defined periods during 2005 and 2006 with expected delivery twelve months after the respective options have been declared. SAFETY AND ENVIRONMENT Siem Offshore provides offshore services for the oil and gas industry. The core values of Siem Offshore include the strict observance of laws, best practices and acting responsibly towards the environment. The Company is in compliance with environmental regulations imposed by relevant national authorities and international conventions. There is always a risk that bunkers and oils onboard our vessels may cause pollution to the environment and that collision and serious breakdowns of the vessels may occur. However, regarding the operational activities and vessels fully owned by Siem Offshore, the company has devised systems with the aim to prevent such incidents and to mitigate the damages should they occur. Siem Offshore did not experience material spills of fuel during 2004 and caused no environmental harm. Our core values state that the Company shall not compromise on safeguarding the individual life, health or safety. There have been no serious accidents involving employees in 2004 regarding the operational activities and vessels fully owned by Siem Offshore. MANAGEMENT AND ORGANISATION As of 31 December 2004, the total number of employees in the Siem Offshore, excluding Subsea 7, ODL and Big Orange XVIII, was 434 of which 429 were employed in Brazil (Siem Consub SA) and four in Norway (Siem Offshore AS). CORPORATE GOVERNANCE General As a company incorporated in the Cayman Islands, Siem Offshore is subject to Cayman Islands laws and regulations with respect to corporate governance. Cayman Islands corporate law is to a great extent based on English law. In addition, certain aspects of Norwegian Securities law apply to the Company due to the Company’s listing on the Oslo Stock Exchange. The Company endeavours to maintain high standards of corporate governance and is committed to ensure that all shareholders of the Company are treated equally. The Board monitors the performance of management through regular meetings and reporting. The CEO of the company is not a member of the Board. Siem Offshore has established an audit committee in order to support the chief financial officer in monitoring the corporate governance and control systems in the organisations. The members of the audit committee are elected among the board members.

7

Relationship with the Siem Industries Group Siem Industries Inc is the largest shareholder of the Company with 58,349,653 shares, equivalent to approximately 44% of the Shares. In addition, Siem Industries holds convertible bonds with rights to convert into 11,256,500 new shares at a strike price of NOK 20.00 per share. Siem Offshore seeks to benefit from the skills and expertise and financial abilities of the rest of the Siem Industries Group whilst at the same time operating autonomously as an independent company. Siem Industries is represented on the Board through its chairman, Kristian Siem, and its president, Michael Delouche. The remaining three Directors of the Board of Siem Offshore are independent of Siem Industries Inc. Siem Offshore purchases certain services from other Siem Industries Group companies within the financial and legal areas and has from May 2003 shared joint office facilities with other companies in the Siem Industries Group in George Town, Cayman Islands. The management and financing of Siem Offshore are otherwise fully stand-alone from the rest of the Siem Industries Group. Reorganisation and change of name Following the acquisition of the remaining 50% of Subsea 7 Inc. in January 2005 and Siem Offshore Inc. becoming the 100% owner of Subsea 7, the Board of Siem Offshore has decided to merge the organizations of Siem Offshore and Subsea 7. Mel Fitzgerald, the CEO of Subsea 7 will assume the same role also for Siem Offshore. It will be proposed to the Annual General Meeting (AGM) of Siem Offshore that Magne Kristiansen be appointed to the Board as a non executive director. He will step down from his executive role in the Company at the AGM to be held on 15 July 2005. FINANCIAL ISSUES The consolidated financial statements of Siem Offshore are, as previously, prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted accounting principles in Norway. With effect from 1 January 2005, the company will prepare its consolidated financial statements in accordance with International Financial Reporting Standards. Strengthening of working capital On 2 November 2004, Siem Offshore placed 8,000,000 shares with Norwegian and international institutional investors at NOK 21.75 per share. The private placement was made in order for the Company to take advantage of opportunities in a rising market and to strengthen working capital. Acquisition and financing of Halliburton’s 50% share in Subsea 7 On 15 November 2004, the Company announced that it has entered into a Heads of Agreement with Halliburton Company to acquire the Halliburton Group’s 50% share of Subsea 7 at a price of USD 200 million in cash. The share purchase agreement was signed on 3 December 2004 and it was agreed to increase the purchase price by USD 3 million as compensation for certain pension obligations pertaining to former Halliburton employees now employed by Subsea 7. The acquisition was financed by new equity, in way of a private placement, and with the balance funded by incremental debt and working capital. The private placement was carried out as a book-building process and the company raised NOK 991 million, equivalent to USD 160 million, through the issuance of 41,300,000 new shares at a subscription price of NOK 24.00 per share. Subsea 7 entered into an agreement with DnB NOR Bank for a new loan of USD 150 million and a bonding/guarantee facility of USD 80 million. The proceeds from the USD 150 million loan were used to repay Subsea 7’s USD 200 million syndicated loan of which USD 117 million was outstanding and provided USD 33 million as part financing for the acquisition of Halliburton’s 50% share in Subsea 7. The acquisition of Halliburton’s 50% share in Subsea 7 was formally completed on 4 January 2005. Subsequent offering A subsequent offering of shares was conducted in order to give those of the Company’s shareholders as of 17 November 2004 who were not invited to participate in the Private Placement the opportunity to maintain their

8

relative shareholding in the Company. Such shareholders received 0.5 subscription rights for each share owned per 17 November 2004. One subscription right gave the right to subscribe for one new share at a subscription price of NOK 24.00 per share. Following the subscription period for the subsequent offering which ended on 7 January 2005, the Company received subscriptions for a total of 2,458,549 new shares which were issued on 19 January 2005 and provided gross proceeds of NOK 59 million. Issuance of options On 20 December 2004, the Board of Directors of Siem Offshore approved a new option scheme and a total of 150,000 options were awarded. The strike price for the awarded options is NOK 27.00 per share. On 6 January 2005, the Board of Directors of Siem Offshore approved a new option scheme for employees of Subsea 7, and a total of 1,190,000 options were awarded. The strike price for these awarded options is NOK 30.90 per share. All the awarded options will be vested over five years, on a quarterly basis. The options will be exercisable over 10 years, but with a one-year lock-up period. The strike price will remain unchanged during the first five years and will thereafter be subject to quarterly increases based on the prevailing interest rate. Financial risk Credit risk Suppliers in project-oriented operations that involve large sums that stretch out over time have significant economic exposure against its customers. Siem Offshore will be negatively affected if a customer becomes insolvent or goes bankrupt. Foreign exchange risk For Siem Offshore and Subsea 7, US dollars are the functional and reporting currency. For both companies, purchases from sub-contractors and deliveries to the customer are to some extent performed in currencies other than US dollars. Siem Offshore is exposed to foreign exchange risk through Subsea 7 and through its other subsidiaries. MARKET OUTLOOK FOR SUBSEA 7 North Sea The activity level in the North Sea is expected to increase short term, especially in Norway (e.g. Ormen Lange). The level of pipe-lay work is expected to be higher in 2005 than in 2004, and pipe laying vessel schedules are continuing to fill up. In addition there are several planned developments of marginal fields. The trend of increased oil recovery also means more subsea tie-backs in the North Sea. West-Africa This region is expected to be the prime growth area the next few years due to the large deepwater multi-well developments. Subsea investments (excluding drilling) estimated to increase from USD 0.5 billion in 2004 to USD 1.3 billion in 2005, and to USD 2.2 billion in 2007. Brazil Petrobras is still the dominant player in this market despite the Brazilian market having been opened to international operators. Several projects on the near-to-medium-term horizon are awaiting award and the general activity level is expected to increase somewhat. Gulf of Mexico In this region, most projects have short lead-time making visibility low. In 2005, the market is expected to remain flat. However, the US deepwater resource base is significant and the major oil companies have showed renewed interest during the past months. Therefore, the market is expected to increase from 2006 onwards. Asia Pacific The overall activity level is fairly constant. However, the focus on deepwater exploration is rising in India, Malaysia and Indonesia and the market is expected to increase from 2006 onwards.

9

General The Board is positive with regard to the outlook for the subsea sector. The total subsea market is expected to remain at a high activity level in the period through 2007, mainly due to rising activity in the regions West-Africa, and Brazil, but also because the number of drilled wells is expected to continue to increase in the North Sea region. The increase in future subsea activity level is to a large extent expected to be triggered by growth in the number of deepwater discoveries.

8 April 2005

Kristian Siem Arild Schultz Richard England Michael Delouche John Smith Chairman (sign.) (sign.) (sign.) (sign.) (sign.)

Magne Kristiansen CEO of Siem Offshore AS (sign.)

10

BOARD OF DIRECTORS Pursuant to the Company’s Articles of Association, the Board of Directors of Siem Offshore Inc shall have from three to seven shareholder-elected members. Currently, the Board of Directors has five shareholder-elected members. Kristian Siem (born 1949), Chairman of the Board Mr. Siem is the chairman of Siem Offshore Inc, and is also chairman of Siem Industries Inc, Subsea 7 Inc, Star Reefers Inc, Siem Industrikapital AB, and a director of Transocean Inc and North Atlantic Smaller Companies Investment Trust PLC. He is educated business economist from Bedriftsøkonomisk Institutt (BI), Norway. Mr. Siem is a Norwegian citizen and resident of London, United Kingdom. Arild Schultz (born 1944), Board member Mr. Schultz has been in several leading positions within shipping chartering and broking, and has since 1980 been conducting his own business within project financing and consulting. He is educated business economist from University of Utah, USA. Mr. Schultz is a Norwegian citizen and resident in Oslo, Norway. Richard England (born 1931), Board member Mr. England is educated though the British Navy and has since then built up a wide experience from the offshore industry. He has been employed at Overseas Towage Salvage Co, International Offshore Services Ltd, Offshore Supply Association Limited, Common Brothers Ltd and Vickers Ltd. He is today engaged in consultancy business. Mr. England is a resident of France. Michael Delouche (born 1957), Board member Mr. Delouche is the President and the Secretary of Siem Industries Inc and is responsible for the financial and corporate management function. He is in charge of the Company's operations at the head office in George Town, Cayman Islands. Mr. Delouche was previously an audit manager with KPMG Peat Marwick LLP. He is a US citizen. John Smith (born 1956), Board member Mr. Smith is the previous CEO of Subsea 7 and has now his own consultancy business in offshore oil and gas. He is a chartered mechanical engineer with a degree from Glasgow University and has 25 years of oil and gas contracting experience having held a number of senior positions in Norway, the UK and internationally. Mr. Smith is a past president of the International Marine Contractors Association and is a British citizen living in Stavanger, Norway.

11

THIS IS SIEM OFFSHORE INTRODUCTION Siem Offshore Inc is one of the world's leading subsea engineering and construction contractors through its 100% ownership of Subsea 7 Inc. Subsea 7 Inc represents the continuation of the offshore activities of DSND Subsea and Halliburton in the areas of subsea construction, inspection and survey. Subsea 7 Inc has offices and activities in UK, Norway, USA, Brazil, Nigeria, Angola, Singapore and Australia. The company has approximately 3,000 employees, of which approximately 650 are within engineering and project management, with specialist expertise in the development and maintenance of subsea fields. Subsea 7 Inc operates 14 multi-purpose, highly specialised dynamically positioned (DP) vessels capable of deep water pipe laying, deep water subsea construction, diving and subsea surveys. Nine of the vessels are owned and the remaining five are chartered. Subsea 7 Inc also owns the world’s second largest fleet of remotely operated vehicles (ROVs). The ROV fleet totals 107 units. In addition, the company operates four spool bases for welding of pipelines. Subsea 7’s regional presence UK The regional project management and engineering organisation is based in Aberdeen. In addition, a global team is based in Aberdeen, which provides support to the regional offices as required. In Leith there is a spool base, and in Wick there is a major facility for the fabrication of the Towed Production Systems. Norway The regional project organisation is based in Stavanger with a spool base in Luster. The global Vessel Management Group is located in Grimstad, which has the overall responsibility for management and maintenance of the 14 multi-purpose vessels as well as equipment. Brazil The regional project management and engineering organisation is based in Rio de Janeiro. In Ubu, Subsea 7 has a spool base supporting rigid pipe lay operations in Brazilian waters. West Africa Subsea 7 has established offices in Nigeria and Angola and is in the process of building a spool base in Angola. Asia Pacific The regional project management and engineering organisation is based in Singapore. In addition, Subsea 7 has a project office in Perth, Australia. Gulf of Mexico The regional project management and engineering organisation is based in Houston. In New Orleans, Subsea 7 has a logistics base facility which supports all operations in the Gulf of Mexico. Historically any pipe laying operations have been supported by using a third party spool base in the Gulf of Mexico. SUBSEA 7 PRODUCTS AND SERVICES Subsea 7’s business consists of seven business segments, which are interrelated and to a large degree will be overlapping on specific projects, as described below: Deepwater Systems and Technology This business segment includes the design, procurement, manufacturing, assembly and installation of oil- and gas production structures at the seabed at deep waters, typically in excess of 400 meters. The products include riser systems, including towers, Steel Catenary Risers (SCR) and flexible risers, mooring systems, subsea production and control systems, umbilicals, towed bundle and conventional flow line systems.

12

Subsea 7's deepwater experience includes the following projects, ranging from depths of 400 meters to more than 2,500 meters:

Popeye

Troll

Angus

King

Macaroni Aspen

Malampaya

Conger

SerranoOregano

Barracuda Caratinga

Mensa

Thunder Horse

West of Shetland

Dalia

400m

2400m

Kerr McGee – LeadonBP Schiehallion DevelopmentNorsk Hydro - Troll B & CShell MalampayaBijupira-SalemaPetrobras - Barracuda / CaratingaThunder Horse Development Gulf of MexicoAtlantis Field Development Gulf of MexicoShell Nakika (GoM)

NaKika

Atlantis

0m

Illustration: Long-term project trend - increasing water depths

Towed Production Systems By means of Controlled Depth Tow Method (CDTM), the company is able to offer the customers onshore construction of multiple flow lines within a single outer carrier pipe terminated at each end by structures designed to accommodate the bundle. Once launched from the onshore site, the bundle is towed by tugs to its offshore location at a controlled water depth. On entry to the field, the bundle is lowered to the seabed and manoeuvred into location. Subsea 7's bundle yard is located in Wick, Scotland with a length of 7,800 meters and an annual production capacity of 28,000 tonnes.

Illustration: Controlled Depth Tow Method Subsea Construction & IRM Subsea 7 delivers subsea engineering, installation, construction and IRM (Inspection, Repair and Maintenance) for all upstream oil and gas applications. The deliveries and services are supported by more than 2,500 qualified construction, IRM, and project management personnel, based around the world, with expertise in EPIC contract and design issues. The services include:

• Design, fabrication and installation of subsea manifolds • Tie-in and testing of pipelines systems • Installation of Subsea Control Systems • Diving and survey services

13

• Hyperbaric welding capability • Online inspection and certification reporting • Well abandonment

Pipe lay Services Vessels With a fleet of four dedicated dynamically-positioned reel-lay vessels and four on-shore spool yards, Subsea 7 has the capability of installing rigid pipelines of up to 16 inches and installation of umbilicals and flexible pipelines products of up to 20 inches. Other special products delivered are subsea tie-in jumpers, fluid transfer lines, surface wellhead jumpers and dynamic risers. Subsea 7's most modern pipe lay vessel, Skandi Navica, has successfully installed the world's first reeled steel catenary risers in water depths of 1,300 meters and has installed rigid pipelines, mid-line tees and pipeline end terminations in a world record breaking water depth of 1,870 meters.

Skandi Navica Lochnagar Spool bases The spool fabrication bases are shown in the table below: Location Country Size

(length)Comments

Leith Scotland 750m Luster Norway 650m Ubu Brazil 1,000m Luanda Angola 550m Operational from 2005 Survey & Positioning services Subsea 7 provides specialist positioning and data acquisition expertise complemented by the combined use of innovative technology and techniques to support Subsea 7’s own construction and IRM activities as well as the activities of a variety of external clients. The services include:

• Positioning services – surface and sub-surface solutions • Marine construction support to pipelines, structures and field development • Seabed mapping route and site surveys • Precision underwater meteorology, high accuracy spool piece measurements • Pipeline inspection by ROV • Structural inspection by ROV and divers

ROV Services Subsea 7 has more than 25 years of experience in providing ROV services and its predecessor company was the first contractor to design, build and operate its own vehicles in the 1980´s.

14

The fleet of ROVs consists of: • 72 standard work class ROVs, mostly designed and built in-house, capable of operating in water depths

down to 5,000 meters • 32 observation class ROVs • Three acoustic vehicles, including the Geosub Autonomous Underwater Vehicle (AUV) for special

applications down to 3,000 meters and the two Remotely Operated Towed Vehicles (ROTV) able to provide a stable controllable platform for acoustic survey at high speed.

Remote Technology Subsea 7 is one of the market leaders in advanced subsea technology and has been a pioneer within the design and operation of innovative underwater intervention systems, tooling packages and interfaces. The company’s capabilities in this area include concept development, detailed design, building supervision, acceptance testing, offshore mobilisation and operation of equipment. The focus is delivering measurable benefits to customers in terms of minimising costs, increased safety, environmental awareness and greater efficiency. New systems currently being developed include an electric work-class ROV, single mode fibre-optic multiplexers and a laser leak detection sensor. SUBSEA 7 VESSEL OVERVIEW

Ship Owner Build year

Length/ grt

DP Typical region Main activities

Skandi Navica District Offshore 1999 109/9,560 Yes Global Rigid PipelayKommandor 3000 Subsea 7 1984 118/3,100 Yes Brazil Flexible Pipelay

Toisa Perseus Sealion 1998 114/6,948 Yes North Sea Flexible PipelayLochnagar Subsea 7 1998 105/6,409 Yes Brazil Flexible Pipelay

Subsea Viking Eidesvik 1999 103/6,775 Yes North Sea /GoM Construction supportPelican Subsea 7 1990 94/2,000 Yes North Sea Diving Support

Rockwater 1 Subsea 7 1983 98/2,200 Yes North Sea Diving SupportRockwater 2 Subsea 7 1983 11/93,113 Yes Asia Pacific Diving SupportToisa Polaris Sealion 1999 114/5,500 Yes North Sea Diving Support

KSS 2000 Subsea 7 1996 78/1,100 Yes Brazil/North Sea ROV/SurveyKommandor Subsea Subsea 7 1986 69/940 Yes North Sea ROV/Survey

Surveyor Subsea 7 1986 65/1,716 Yes Asia Pacific ROV/SurveySalgueiro Subsea 7 1980 55/955 Yes Brazil ROV/Survey

Seisranger Ellen Forfang 1993 85/5,457 Yes North Sea ROV/Survey SUBSEA 7 - MARKET Overview of the subsea market According to the energy analysts Infield Systems, the global subsea expenditure1), exclusive drilling and completions, was approximately USD 3,000 million in 2004 as indicated in the figure below:

15

Global Subsea Capex 1999 - 2008 by Region (Excl Drilling & Completions)

0

1000

2000

3000

4000

5000

6000

7000

8000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

US$

Mill

ions

North America

Middle East

Latin America

Rest of Europe

NorwayUK

Australasia

Asia

Africa

Source: Infield Systems 1) Subsea expenditure: Capex associated with subsea hardware (templates, manifolds and trees), pipeline fabrication and installation and control umbilicals. Trunk lines are excluded from the numbers. The figure shows that the total market fell in 2000, mainly due to the low oil price experienced in 1998-99. After a rebound in 2001, the market has been fairly stable in the period from 2002 to 2004. According to various energy analysts, a fairly significant growth is expected in the overall subsea market from 2005 and onwards. The growth is expected to materialize in West-Africa and Latin America in particular, but also in the North Sea region. The forecasted increase in subsea capex is related to the number of drilled wells, which is expected to increase as shown in, the below figure (Source: Douglas Westwood and Infield Systems 2004): Figure: Number of current and future wells The future activity level is expected to rise to a large extent due to growth in the number of deepwater discoveries. According to Infield Systems there are globally 187 deepwater fields scheduled for development in the period 2004-08, representing a total of 37 billion barrels of oil equivalents, compared to the 81 deepwater fields in the period 1999-2003. According to Infield Systems 40 billion barrels of reserves will be developed over the next five years with a forecast capital expenditure of USD 57 billion.

Locations Spoolbases

Subsea wells

1999- 2003

2004-2008

595607

205364

171580

215283

55276

595607595607

205364205364

171580171580

215283215283

5527655276

16

The future relative importance of the different regions has been estimated as follows:

Global subsea total expenditures 2004-2008(including associated pipelines and control lines)

Europe31 %

Australasia5 %

Asia6 %Africa

27 %

North America17 %

Middle East0 %

Latin America14 %

Source: www.infield.com Market trends The most significant subsea industry trends can be summarised as follows:

• Migration to deeper waters due to successful exploration activity and technology allowing construction at increasingly deeper waters

• Increasing usage of FPSO-vessels and subsea production units • Strong growth in new regions (i.e. West-Africa)

Expenditure drivers The most significant subsea expenditure drivers are:

• Increasing number of deepwater discoveries • Improving technology and skills among contractors to handle subsea contracting at deeper water depths • Increasing cost advantage for subsea solutions versus traditional platforms • More subsea tie-backs to existing installations due to the focus on increased oil recovery • Increased maintenance activity on ageing offshore oil and gas fields • New field development solutions with subsea wells tied back to onshore production facilities (i.e. Ormen

Lange) • Polar field developments (i.e. Barents Sea/Snøhvit) • Roll-out of additional natural gas projects • The oil companies' capital expenditure budgets, which will be affected by the development in the future oil

price Effect of oil price on demand for offshore services The downturn of the oil price in 1997-99 caused a substantial reduction in offshore exploration and construction budgets, which was in line with a general reduction in the oil companies’ estimates of the long-term development in the oil price. The negative consequences for subsea expenditures in 1999 and 2000 were significant, as illustrated in previous section. The increase in oil prices since the second half of 1999 has not increased the offshore expenditures as much as normally would be expected at oil price levels around USD 25-30 per barrel. This is believed mainly to be due to the oil companies becoming more cautious in their long-term oil price expectations. For several years, the industry's price expectation was below USD 18 per barrel. Another important factor is thought to be that many oil companies have been focused on increasing their reserves through acquisitions rather than through exploration, which is evidenced by the consolidation that took place within the oil industry during this period. As a consequence, the

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4relatively high oil price since 2000 has only to a certain degree increased the level of offshore expenditure and investment in subsea projects. Nevertheless, independent energy analysis and discussions with clients indicate that a continuation of oil prices at a level above USD 30 per barrel will trigger a higher demand for subsea solutions. Furthermore, the vulnerability to a sharp reduction in oil prices is thought probably to be limited as a result of the under-investments in the subsea sector among oil companies in recent years. SIEM OFFSHORE – OTHER ACTIVITIES In addition to Subsea 7, Siem Offshore has the following other activities:

• 50% of the shares in Overseas Drilling Limited (ODL), that owns the scientific core drilling vessel Joides Resolution which is on a time charter contract for Texas A&M Research Foundation for the Integrated Ocean Drilling Program

• New-building contracts on two PSVs with delivery in fourth quarter 2005 with options for six further vessels

• 41% interest in the well stimulation vessel Big Orange which is on a long-term contract for Schlumberger • Ownership and operation of ten supply/crew vessels, fully employed on 1-4 year contracts with Petrobras

in Brazil • Two Combat Management System projects for the Brazilian navy (the Modfrag project and Corvette

project)

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CONSOLIDATED PROFIT & LOSS ACCOUNT

(Amounts in USD 1 000) Note 2004 2003 2002

Operating revenue 1 21,611 37,965 135,244

Project- and vessel expenses -8,643 -26,216 -75,917Personnel expenses 6, 16 -9,120 -7,509 -29,251Other operating expenses -2,968 -2,386 -14,296Depreciation, amortisation and impairments 2, 3 -7,590 -8,685 -20,694Total operating expenses -28,321 -44,796 -140,158

Net operating result -6,711 -6,831 -4,914

Financial income and expenses

Result from Subsea 7 (50% share) 5 -5,400 -13,240 382Result from other affiliated companies 5 7,823 2,811 3,664Financial income 17 455 3,883 13,282Financial expenses 17 -8,786 -10,686 -25,527Net financial items -5,908 -17,232 -8,199

Result before taxes -12,619 -24,063 -13,113

Taxes

This year's tax expense 11 0 -1,189 -734Result for the financial year -12,619 -25,252 -13,847

Earnings per share 18 -0.15 -0.31 -0.22Diluted earnings per share 18 -0.15 -0.31 -0.22

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CONSOLIDATED BALANCE SHEET – ASSETS

(Amounts in USD 1 000) Note 2004 2003 2002

Fixed assets

Intangible fixed assetsGoodwill 2 0 6,540 6,271Total intangible fixed assets 0 6,540 6,271

Tangible fixed assetsVessels and equipment 3 7,998 6,190 16,107Other tangible fixed assets 3 107 53 83Capitalised project costs 3 6,356 2,188 2,255Total tangible fixed assets 14,461 8,431 18,445

Financial fixed assetsInvestment in Subsea 7 Inc (50% share) 5 96,135 92,906 103,918Investment in other affiliated companies 5 5,799 9,319 5,183Other long-term receivables 601 1,054 798Total financial fixed assets 102,534 103,279 109,899

Total fixed assets 116,995 118,250 134,615

Current assets

Accounts receivable 27,189 26,270 30,755Other short-term receivables 7 4,306 5,368 4,525Bank deposits 8 183,884 8,375 16,059Total current assets 215,379 40,013 51,339

Total assets 332,374 158,263 185,954

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CONSOLIDATED BALANCE SHEET – EQUITY & LIABILITIES

(Amounts in USD 1 000) Note 2004 2003 2002

Shareholder's equity

Paid-in capitalShare capital 9, 10 1,301 808 808Share premium reserve 10 274,753 92,595 92,595Total paid-in capital 276,054 93,403 93,403

Retained resultOther equity 10 -16,669 -15,252 833Total retained result -16,669 -15,252 833

Total shareholders' equity 259,386 78,151 94,236

Liabilities

Provisions for liabilitiesPension liabilities 6 483 356 324Deferred taxes 11 0 0 0Other provisions for liabilities 0 0 1,589Total provisions for liabilities 483 356 1,913

Other long-term liabilitiesMortgage debt 13 1,169 1,540 1,899Convertible bond loan 12, 13 48,736 44,182 0Other interest-bearing debt 13 6,894 8,579 14,540Other non-interest-bearing debt 13 436 112 0Total other long-term liabilities 57,235 54,413 16,439

Short-term liabilitiesAccounts payable 4,436 11,593 18,495Other short-term liabilities 14 10,834 13,750 54,871Total short-term liabilities 15,270 25,343 73,366

Total liabilities 72,988 80,112 91,718

Total shareholders' equity and liabilities 332,374 158,263 185,954

Secured debt 12 1,169 1,540 1,899Guarantees 15 0 0 0

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CONSOLIDATED CASH FLOW STATEMENT

(Amounts in USD 1 000) 2004 2003 2002

Cash flow from operationsProfit before taxes -12,619 -24,063 -13,113Paid taxes in the period 0 -1,476 -46Result from affiliated companies -2,423 10,429 -4,046Dividend from affiliated companies 11,524 3,384 4,916Depreciation and amortisation 1,436 4,178 16,194Impairment of fixed assets 6,154 4,507 4,500Gain on sale of fixed assets -57 -5,190 -384Other changes 587 -2,209 -23,122Changes in short-term receivables and payables -9,929 -44,381 33,192Net cash flow from operations -5,328 -54,821 18,091

Cash flow from investment activitiesSale of fixed assets 57 10,729 300,988Investment in fixed assets and capitalized project costs -6,446 -1,968 -884Investment in shares and interests in other enterprises 0 0 -103,654Net cash flow from investment activities -6,389 8,761 196,450

Cash flow from financing activitiesReceived from raising of new equity 182,651 0 49,884Received from raising of new long-term debt 0 43,446 0Repayment of long-term debt -1,732 -6,956 -235,713Net cash-flow from financing activities 180,919 36,490 -185,829

Effect of exchange rate differences 6,307 1,901 -25,794

Net change in cash and cash equivalents 175,509 -7,668 2,918

Cash and cash equivalents as of 01.01 8,375 16,043 13,125

Cash and cash equivalents as of 31.12 183,884 8,375 16,043

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ACCOUNTING PRINCIPLES General Basis of preparation The consolidated financial statements of Siem Offshore Inc are prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted accounting principles in Norway. Siem Offshore Inc is registered at the Cayman Islands and the functional currency for the Company's business is USD. Accordingly, the accounts of Siem Offshore Inc is prepared in USD and presented in English. All figures are in USD thousand unless otherwise stated. As from 1 January 2005, the Company will prepare its financial statements in accordance with International Financial Reporting Standards (IFRS). Reclassification Comparable figures for previous years are changed in accordance with any reclassifications made. Subsequent events The Profit and Loss Statement and the Balance Sheet reflect any new information received until the date of the financial reports. Material events arising after year-end are disclosed in notes in the annual reports. Principles of consolidation In preparing the consolidated financial statement, the group is treated as one economic entity. Inter-company transactions and inter-company balances are eliminated. Foreign currency translation Income statements of entities that prepare their results in a currency other than the US dollar are translated into US dollars at the weighted average exchange rates for each period and balance sheets are translated at the exchange rates ruling at year-end. The cumulative translation adjustment arising from the re-translation of the net investment in such entities, are included in stockholders' equity. Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Subsidiaries Subsidiaries, consisting of those entities in which the company has either an interest of more than one half of the voting rights or otherwise has the power to exercise control over the operations, are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the company and are no longer consolidated from the date that control ceases. Investments in subsidiaries are consolidated according to the purchase method. All inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. The purchase price is assigned to identifiable assets and debt in the subsidiary, and is included in the consolidated financial statements at fair value at the time of purchase. Any premium paid over and above the market value on the identifiable assets at the acquisition date is recognised as goodwill in the balance sheet. Identifiable assets consist of tangible assets and intangible assets other than goodwill. Other entities' interests in subsidiaries not wholly owned by the company are reflected as minority interests based on the book value of the subsidiaries’ net assets. Joint ventures (JV) and Affiliated companies A joint venture is a commercial business governed by an agreement between two or more participants, giving them joint control over the business. An affiliated company is a company over which the group can exercise significant influence, but which is not a subsidiary or a joint venture. Long-term investments in companies where the group owns more than 20% of the voting rights are treated as affiliated companies in the consolidated financial statements.

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In the consolidated financial statements, joint ventures and affiliated companies are consolidated according to the equity method. The share of earnings recorded in the consolidated financial statements are based on the after tax earnings in the joint ventures and affiliated companies, minus internal gains and possibly amortisation of the fair value of acquired assets and liabilities caused by the cost of the shares being higher than the acquired share of recorded equity in the balance sheet. Positive differences between the year-end balance and historic cost are provided for in the reserve for valuation variances. In the income statement, the share of earnings from joint ventures and affiliated companies are shown as financial items. Use of estimates The preparation of the financial statements in conformity with accounting principles generally accepted in Norway requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue during the reporting period. Actual results could differ from those estimates. Balance sheet items Fixed assets Fixed assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of discounted future cash flows resulting from the use of the asset on its eventual disposition. Measurement of any impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Fixed asset leases Leasing agreements, in which the group has taken over the material risk and the economic advantage of the assets, are recorded as financial leases. The assets are then recognised as fixed assets in the balance sheet, the opposite entry being long-term debt. All other rental or leasing agreements are treated as operational leasing, in which the lease is expensed as it is incurred. Vessels and related equipment Vessels and related equipment are stated at historical cost including any directly related costs of acquisition, less accumulated depreciation. Depreciation is provided on all tangible assets at annual rates calculated to write off the cost of each asset to the estimated residual value, evenly over its expected useful life as follows: Vessels – up to 30 years Equipment - 3 to 10 years Upon retirement or disposal of vessels and related equipment, the costs and related accumulated depreciation are removed from the respective accounts and any gains or losses are included in the income statement. Inventories Inventories are valued at the lower of cost and net realisable value. Cost of inventories is determined under the first in, first out (FIFO) method. Receivables Accounts receivable and other receivables are entered in the balance sheet at face value after provisions for expected losses. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and other short-term highly liquid investments, less bank overdrafts. Profit and loss items Principles of revenue and cost recognition

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Revenue and costs are recorded in the period in which the transaction is incurred, unless otherwise specified below. Revenue is recognised only when it is probable that the economic benefits affiliated with a transaction will flow to the company and the amount of revenue can be measured reliably. Project revenue The company follows the generally accepted practice of reporting for long term construction, engineering and project management contracts on the percentage of completion basis as costs are incurred. Under this method, revenue and income is recognised as work progresses on the contract. No profit is recognised before the progress has reached 20% of completion. If a project can be split into subprojects, each subproject is treated separately. The estimated cost used to determine profit at completion reflects all facts or occurrences expected to affect the final cost of the contract. The entire amount of any estimated contract loss is recognised when it first becomes evident. Maintenance and dry-docking costs The company’s policy is to expense all major repair costs and dry-docking costs as and when they are incurred. This includes costs incurred to maintain certification of assets and/or comply with current legislation. Pension costs The net pension cost for the period consists of the sum of pension liabilities accrued in the period, the interest charge on the estimated liability and the expected return on the pension funds. Prepaid pension is the difference between the estimated value of the pension funds and the present value of estimated pension liabilities, and is booked as a long-term asset in the balance sheet. Correspondingly a long-term liability arises in the accounts when the pension liability is greater than the pension funds. A distinction is made between insured and uninsured schemes. The uninsured scheme will always be entered as a liability since it does not have a pension fund. The effects of changes in assumptions, deviations between calculated and estimated pension liabilities and the difference between the expected and actual return achieved on pension funds are charged to profit and loss over the remaining period for pension accrual or the expected remaining life once the cumulative effect exceeds 10% of the higher of either the pension liability or pension funds at the start of the year (the ‘corridor approach’). Financing costs Financing fees relating to new loans are deferred and amortised over the loan term. Costs of share issue Costs of share issues are posted directly to additional paid-in capital. Income taxes The company accounts for income taxes under the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The principal temporary differences arise from depreciation on property, plant and equipment, and tax losses carried forward; and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. Tax rates enacted, or substantively enacted, by the balance sheet date are used to determine deferred income tax. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be realised.

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NOTES TO THE ACCOUNTS (Amounts in USD 1 000) Note 1 - Segment reporting of operating revenue

Revenue by region 2004 2003 2002

(from 23 May)

Brazil 21,611 30,481 17,423Other 0 7,484 14,364Total 21,611 37,965 31,787

Revenue by business area 2004 2003 2002

(from 23 May)

Supply/crew fleet 15,031 12,660 6,441Combat Management Systems 5,432 8,474 4,964Other 1,149 16,831 20,382Total 21,611 37,965 31,787 Note 2 - Goodwill

2004 2003 2002

Purchase cost per 01.01 8,498 7,538 13,984Effect of exchange rate differences 0 960 -6,446 Purchase cost per 31.12 8,498 8,498 7,538

Accumulated depreciation and impairment per 01.01 -1,958 -1,267 -1,819 The year's ordinary depreciation -358 -590 -590 The year's impairment -6,154 0 0Effect of exchange rate differences -28 -101 1,142Accumulated depreciation and impairment per 31.12 -8,498 -1,958 -1,267

Net book value per 31.12 0 6,540 6,271

Of which:Purchase of Siem Consub SA 0 6,540 6,271Other items 0 0 0Book value of goodwill per 31.12 0 6,540 6,271

Siem Offshore Inc has assessed the goodwill related to the non-Subsea 7 activities in Brazil and decided to write this goodwill down from USD 6,154 per end of third quarter to zero per year-end.

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Note 3 - Fixed assets and leasesOther tangible Ships and Total

fixed assets equipmentPurchase cost per 01.01 468 25,343 25,811 Capital expenditure in the year 58 2,099 2,157 The year's disposal at cost (331) (4,642) (4,973)Effect of exchange rate differences 18 819 837 Purchase cost per 31.12 213 23,619 23,832

Accumulated depreciation per 01.01 (415) (19,153) (19,568)The year's ordinary depreciation (14) (473) (487)The year's impairment of assets 0 0 0 The year's disposal of acc. Depreciation 331 4,642 4,973 Effect of exchange rate differences (9) (637) (646)Acc. depreciation per 31.12 (106) (15,621) (15,727)

Net book value per 31.12 107 7,998 8,105

Economic life 3-50 years 3-30 years

The Company has entered into contracts with Aker Langsten AS (Aker Yards) for the building of two Platform Supply Vessels.The vessels will be delivered in October 2005 and November 2005. Further details regarding the contracts are as follows:

Combined contract value per 31.12.2004 41,672 Instalments paid in 2004 2,001 Unpaid instalments (to be paid in 2005) 39,671

Options for further equipment at an agreed price of USD 1,786 were declared in January 2005.

Project related capital expenditures of USD 4,289 have been capitalised in 2004. Such capital expenditures relates to specificcontracts for the Brazilian crew/supply fleet. The costs are amortised over the term of the specific charter contracts. Total charter amortisation in 2004 was USD 591. The balance of capitalised project costs was USD 6,356 per 31 December 2004.

Annual lease payment on operational leases 107

Lease of tangible fixed assets

As of 31 December 2004 the group had some minor commitments relating to lease agreements entered into.

Operatinglease

2005 892006 282007 and thereafter 0Total 117

Net present value of future commitments relating to lease agreements are calculated at a value of USD 112.The discount rate in the calculation of net present value is 4%.

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Note 4 - Investment in subsidiaries

Company Registered office Share Voting rights Cost price Book valueDSND Coreco Inc George Town, Cayman Islands 100% 100% 104,432 104,432Siem Supply Inc George Town, Cayman Islands 100% 100% - 50Siem Offshore AS Kristiansand, Norway 100% 100% - 10 666DSND Consub SA Rio de Janeiro, Brazil 100% 100% 120,398 1DSND Subsea Ltd London, England 100% 100% 58,607 15,161Arcade Offshore BV Amsterdam, The Netherlands 100% 100% 13,421 1Total value recorded in the balance sheet 130 311

In addition to companies directly owned by the parent company, the following subsidiaries form part of the group:

Company Registered office Share and voting rightsNorsul Offshore Inc Panama City, Panama 100%Consub Delaware LLC Delaware, USA 100%Aracaju Serviços Auxiliares Ltda Aracaju, Brazil 100%DSND Lay Vessel Ltd London, England 100%DSND Offshore Vessel Ltd London, England 100%Seateam Shipping Ltd London, England 100%

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Note 5 - Other investments/sharesFigures for affiliated companies and joint ventures included in the consolidated accounts based on the equity method.

Company name Subsea 7 Inc Overseas PR Tracer KS Big Luster Mek.Drilling Ltd. Offshore ANS Orange XVIII Ind. AS Total

6.711492Profit and loss accountOperating revenues 812,807 35,102 4,988 2,453 3,676 859,026 Operating expenses -751,178 -15,392 -5,562 -22 -3,478 -775,632 EBITDA 61,630 19,710 -574 2,431 197 83,394 Depreciation and Amortisation -48,535 -130 - -543 -106 -49,313 Impairment -14,916 - - - - -14,916 Operating result (EBIT) -1,822 19,580 -574 1,888 92 19,165 Net financial items 996 50 -92 4 -57 901 Taxes -11,858 - - - 1 -11,857 The year's result -12,684 19,630 -665 1,892 36 8,209

Siem Offshore´s share of net result -6,342 9,815 -275 782 12 3,992 Adjustments consolidated accounts 942 -2,199 -141 - -171 -1,569 This year`s share of net result -5,400 7,616 -416 782 -159 2,423

Balance sheetIntangible fixed assets 4,984 - - - - 4,984 Tangible fixed assets 261,812 1,195 - 3,490 784 267,280 Financial fixed assets - 146 - 146 Current assets 367,383 6,310 1,014 1,361 1,373 377,442 Total assets 634,179 7,651 1,014 4,851 2,157 649,852

Equity 198,340 3,292 -74 4,750 84 206,392 Provisions 13,298 - 50 - 30 13,378 Other long-term debt 102,000 - - - 330 102,330 Short-term debt 320,541 4,359 1,039 101 1,713 327,752 Total liabilities 435,839 4,359 1,088 101 2,073 443,460 Total equity and liabilities 634,179 7,651 1,014 4,851 2,157 649,852

Siem Offshore's share of booked equity 99,170 1,646 -30 1,963 29 102,778

Added/reduced in the period 20 -29 -9 Fair value in excess of book valuefor vessel and goodwill as of 31.12 -3,035 2,199 - - - -836 Net book value in Siem Offshore as of 31.12 96,135 3,845 -10 1,963 - 101,933 Ownership interest 50.00% 50.00% 41.33% 41.33% 34.20%

SPECIFICATION OF CHANGES NET BOOK VALUE IN SIEM OFFSHORE'S ACCOUNTSNet book value as of 01.01 92,906 6,829 409 1,922 160 102,226 This year's share of net result -6,342 9,815 -275 782 12 3,992 Adjustments consolidated accounts 942 -2,199 -141 -171 -1,569 Dividends - -10,600 -924 -11,524 Effect of exchange rate differences 8,629 -3 183 -1 8,808 Net book value as of 31.12 96,135 3,845 -10 1,963 - 101,933 Of which:Fair value in excess of book valuefor vessel and goodwill as of 01.01 -4,395 11,760 - - 7,365 Amortization of fair value in excess of - book value for vessels and goodwill 1,360 -9,561 - - - -8,201 Effect of exchange rate differences - - - Fair value in excess of book valuefor vessels and goodwill as of 31.12 -3,035 2,199 - - - -836

Company name Registered Consolidated Owner Voting Paid in Issued, notoffice as interest rights capital paid in capital

Subsea 7 Inc George Town, Cayman Islands Equity method 50.00% 50.00% 103,654 0Overseas Drilling Ltd. Monrovia, Liberia Equity method 50.00% 50.00% 3 0PR Tracer Offshore ANS Lysaker, Norway Equity method 41.33% 41.33% 173 0KS Big Orange XVIII Lysaker, Norway Equity method 41.33% 41.33% 3,087 1,826Luster mekaniske Industri AS Gaupne, Norway Equity method 34.20% 34.20% 93 0Kenny Seateam Ltd. London, England Cost method 50.00% 50.00% 80 0Total 107,090 1,826

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Note 6 - Pensions 2004 2003 2002

Present value of the year's pension earnings 74 86 95Interest charges in pension obligation 84 77 60Gross pension cost 159 163 155Expected return on pension fund -70 -60 -52Administration fee 12 11 10Net pension cost 101 114 113

Gross pension obligation 1,801 1,588 1,197Pension funds -1,245 -1,102 -873Uncovered pension obligation 556 486 324Unrecorded changes in estimates -73 -130 0Net pension obligation 483 356 324

Of which unsecured obligation entered in the balance sheet -483 -356 -324Of which secured obligation entered in the balance sheet 0 0 0Total balance sheet obligation -483 -356 -324

Financial assumptions:Discount rate 5.50% 5.50% 6.00%Expected wage adjustment 3.30% 3.30% 3.30%Expected pension increase 2.50% 2.50% 2.50%Adjustm. of the basic National Insur. amount 2.50% 2.50% 2.50%Expected return on funds 6.50% 6.00% 7.00% Note 7 - Accounts receivable and other short-term receivables

Other short-term receivables 2004 2003 2002Prepaid expenses 272 1 375 263Outstanding insurance claims 198 885 1 047Inventories 221 36 308Accrued financial income 176 0 0Prepaid income taxes and other taxes 2,525 1 501 1 122Other short-term receivables 914 1 571 1 785Total other short-term receivables 4,306 5 368 4 525

Accounts receivable 2004 2003 2002Accrued income retated to construction contracts 18,683 16,864 15,441Other accounts receivable 8,506 9,406 15,314Total accounts receivable 27,189 26 270 30 755 Note 8 - Restricted funds

USD 39 of the cash balance was restricted funds for tax withholdings.

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Note 9 - Information about shares and shareholders

Listing of the 20 largest shareholders as of 31 December 2004

Shareholder Number of shares Owner interestSiem Drilling Ltd 57,179,653 43.95%JP Morgan Chase Bank 6,341,156 4.87%Deutche Bank 5,189,852 3.99%Fidelity Funds 5,109,500 3.93%Morgan Stanley 4,233,910 3.25%Third Avenue 4,138,100 3.18%Nordea Bank Denmark 3,078,685 2.37%Goldman Sachs International 3,001,000 2.31%MP Pensjon 1,937,500 1.49%Ojada AS 1,697,000 1.30%Merrill Lynch 1,600,000 1.23%UBS AG 1,448,400 1.11%Citibank 1,253,000 0.96%Barclays Capital 1,137,500 0.87%Bank of New York 1,117,500 0.86%JP Morgan Chase Bank 948,654 0.73%Storebrand Liv 857,000 0.66%JP Morgan Chase Bank 793,353 0.61%Bank of New York 788,290 0.61%State Street Bank 771,900 0.59%Total 20 largest shareholders 102,621,953 78.88%Other shareholders 27,480,845 21.12%Total number of shares 130,102,798 100.00%

The total number of shares issued at year end were 130,102,798. As per 8 April 2005, the total number of shares issued were 132,720,347.

Shares and options owned and controlled by members of the Board, the CEO, the CFO and the managing director in the subsidiary in Brazil:

As of 31.12.2004Potential shares from

Name Shares Options convertible bonds TotalKristian Siem 1) 0 0 0 0Arild Schultz 726,000 0 97,500 823,500Richard England 0 0 0 0Michael Delouche 0 0 0 0John Smith 0 0 0 0Magne Kristiansen, CEO 20,000 220,000 12,500 252,500Terje Sørensen, CFO 0 120,000 0 120,000Rachid Felix, managing director DSND Consub 0 15,000 0 15,000

1) Siem Industries Inc and subsidiaries held 58,349,653 shares in the Company on 31 December 2004 and owned convertible bonds that can be converted into 11,256,500 new shares. Siem Industries Inc is the main shareholder of Siem Offshore Inc and is controlled by trusts where certain members of Kristian Siem's family are potential beneficiaries. Kristian Siem who is Chairman of the Company is also the Chairman of Siem Industries Inc.

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Note 10 - Shareholders' equity

Share Share prem. Other Totalcapital reserves equity equity

Equity as of 01.01.04 808 92,595 -15,252 78,151

Received from raising of new equity 493 182,158 0 182,651The year's result 0 0 -12,619 -12,619Effect of exchange rate differences 0 0 11,202 11,202Equity as of 31.12.04 1,301 274,753 -16,669 259,386 Note 11 - Taxes

Deferred taxTemporary differences Time frame 2004 2003 2002

Projects in progress Short 28,137 18,098 0Shares Short 0 -3,651 0Participation in limited liability companies Long -3,422 -6,474 -11,287Operating fixed assets Long -5,214 -8,220 -8,709Special tax account Long -837 0 142,429Pension funds/obligations Long -483 -356 0Other short-term differences Short -94 -86 16,088Other long-term differences Long -1,058 1,395 749Net temporary differences as of 31.12 17,029 706 139,270

Tax loss carried forward -31,602 -24,716 -146,541Basis for deferred tax (tax asset) -14,573 -24,010 -7,271

Deferred tax (tax asset) (28%) -3,154 -4,954 -2,036Deferred tax (tax asset) other countries (34%) -1,125 -2,147 0Deferred tax (tax asset) -4,279 -7,101 -2,036Deferred tax asset not recognised in balance sheet 4,279 7,101 2,036Deferred tax (tax asset) as of 31.12 0 0 0

Tax payables (USD) 2004 2003 2002

Taxes payable 0 -430 -999Change in deferred tax/deferred tax asset 0 0 0Over/under provisions in previous year 0 -759 265Total tax cost for the year 0 -1,189 -734

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Note 12 - Convertible bond loan Siem Offshore Inc has issued a convertible bond loan of NOK 300 million of which the Company owns NOK 5 million. Interest: p.a: 8.0% coupon Maturity: 06 January 2006 Term: 06 January 2003 - 06 January 2006 Conversion price: NOK 20.00 per share Conversion date: The 6th of every month for the entire term of the loan Listed at Oslo Stock Exchange with ticker DSND01 The conversion price for the bonds is subject to adjustments in accordance with the Norwegian Trustee’s standard terms. Notice for conversion: 15 banking days prior to each conversion date. As per 31 December 2004, the share price was NOK 31.00. As per 31 December 2004 none of the convertible bonds were converted into new shares. As per 8 April 2005, bonds totalling NOK 3,180,000 were converted into 159,000 new shares. Siem Industries Inc is the major bondholder and owns NOK 225,130,000 of the convertible bond loan. Note 13 - Other long-term debt

Instalments falling due over the next 5 years

Mortgage Convertible Other interest Non-interestdebt bond loan bearing debt bearing debt Total

2005 372 0 919 8 1,300 2006 372 48,736 919 429 50,456 2007 334 0 919 0 1,253 2008 90 0 919 0 1,009 2009 and thereafter 0 0 3,217 0 3,217 Total 1,169 48,736 6,894 437 57,235

The mortage debt, which was related to the supply/crew fleet in Brazil, was repaid in February 2005. Note 14 - Other short-term liabilities

2004 2003 2002Provisions for accrued project cost 742 848 101Provisions for other accrued cost 4,189 7 031 5 573Interest-bearing short-term liabilities 0 0 38 887Social security etc. 624 460 1,328Other short-term liabilities 5,279 5 411 8 983Total other short-term liabilities 10,834 13 750 54 871 Note 15 - Guarantees

2004 2003 2002

Guarantees for current liabilities 0 0 0Total guarantees 0 0 0

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Note 16 - Salaries and wages etc.

2004 2003 2002Personnel expenses Wages 6,429 5,281 22,248Payroll tax 2,095 1,164 4,578Pension costs 101 114 113Other benefit 495 951 2,313Total personnel expenses 9,120 7,509 29,251

The Board's and CEO's remuneration Total remuneration to the Board in 2004 was NOK 780. Total benefits registered to the CEO in 2004 are NOK 1,660. Option programme The Company had issued 665,000 options to certain employees per 31 December 2004, of which 310,000 options were issued to employees that transferred to Subsea 7 in 2002. The terms for options issued per 31 December 2004 are as follows: Award I Award II Award III Total Share options CEO 0 120,000 100,000 220,000 Share options other management 0 85,000 50,000 185,000 Share options other employees 310,000 0 0 310,000 Total share options 310,000 205,000 150,000 665,000 Award Date 19 Jan. 2001 17 Dec. 2002 20 Dec. 2004 Exercise dates (pro-rata basis) After quarterly

presentationsAfter quarterly

presentationsAfter quarterly

presentations

Last exercise date After Q4 2004 presentation

After Q4 2006 presentation

After Q4 2014 presentation

Exercise price (NOK per share) 36.00 17.50 27.00 The options can be exercised each quarter within seven days after the announcement of quarterly results. Exercisable options not exercised within the seven days after the announcement of quarterly results may be accumulated and exercised at a later date. Award I The options lapsed in February 2005. None of the options were exercised. Award II Options vest each quarter with 6.25 % of the total number of options granted. All options must be exercised within seven days after the announcement of the results for the fourth quarter of 2006, after which date all options not exercised will lapse without further notice. No share options were exercised per 31 December 2004. Award III Options vest each quarter with 5.00 % of the total number of options granted. Options vested can not be exercised the first year after the Award Date. All options according to this Agreement must be exercised within seven days after the announcement of the results for the fourth quarter of 2014, after which date all options not exercised will lapse without further notice. For options not exercised after announcement of the results for the fourth quarter 2009, the exercise price shall be subject to a quarterly increase equal to 3 months NIBOR+ 1% margin p.a. Subsequent events in 2005 On 5 January 2005 1,190,000 options were awarded to certain employees of Subsea 7 Inc on terms equal to Award III, but with an exercise price of NOK 30.90 per share. Following Magne Kristiansen’s decision to step down from his role as CEO with effect from 15 July 2005, the 120,000 options awarded on 17 December 2002 became vested and the 100,000 options awarded 20 December 2004 lapsed.

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Auditor’s remuneration The Group booked in 2004 costs related to auditor's remuneration of USD 308. This includes USD 122 in audit fees, and USD 186 in fees for other services. Note 17 - Financial items

2004 2003 2002Financial incomeInterest income 455 551 417Currency gain 0 0 3,831Total financial income 455 551 4,248

Financial expensesInterest expenses -5,707 -5,982 -16,493Currency loss -3,079 -1,372 0Total financial expenses -8,786 -7,354 -16,493

Net financial items -8,331 -6,803 -12,245 Note 18 - Earnings per share

2004 2003 2002EARNINGS PER SHAREAverage number of shares outstanding 84,400 80,803 62,852 Result for the year -12,619 -25,253 -13,847 Earnings per share -0.15 -0.31 -0.22

DILUTED EARNINGS PER SHAREAverage number of shares outstanding, diluted 84,400 80,803 62,852 Result for the year -12,619 -25,253 -13,847 Diluted earnings per share -0.15 -0.31 -0.22

The average number of shares outstanding is calculated as a weighted average of outstanding shares during the year.

Diluted earnings per share remains equal to Earnings per share as the result for the year(s) is(are) negative. Note 19 - Transactions with related parties Upon request from the previous Subsea 7 bank syndicate, Siem Offshore Inc provided Subsea 7 with a USD 25 million shareholder support working capital facility. Siem Industries Inc provided a USD 25 million guarantee to the Subsea 7 bank syndicate as a support for Siem Offshore Inc's obligation. In relation to the shareholder support working capital facility, Siem Industries Inc provided a USD 15 million overdraft facility to Siem Offshore Inc. Following Subsea 7's refinancing of its syndicated loan in December 2004, the USD 25 million guarantee and the USD 15 million overdraft facility was terminated. The 2004 accounts include interest costs and fees of approx USD 722 paid to Siem Industries Inc and subsidiaries relating to these financial arrangements. As part of the refinancing of Subsea 7 in December 2004, Siem Industries Inc issued a USD 10 million Letter of Comfort to DnBNOR, with a duration of 1 year, on behalf of Siem Offshore Inc. Siem Offshore Inc and Siem Industries has agreed a fee of USD 25 in relation to the Letter of Comfort.

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Siem Industries Inc, and subsidiaries, is the main shareholder of the company and is controlled by trusts where certain members of Kristian Siem's family are potential beneficiaries. Siem Industries Inc is the largest holder of the company’s convertible bonds. Note 20 - Contingent liabilities and disputes

Siem Offshore is involved in certain legal disputes. As of year-end 2004 it was accrued approx USD 37 to cover for these disputes.

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AUDITOR’S REPORT

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SHARE CAPITAL INFORMATION General Siem Offshore is a company limited by shares organised under the laws of Cayman Islands. Authorised and issued share capital The Company's authorised share capital is USD 2,000,000.00 divided into 200,000,000 Ordinary Shares of a nominal or par value of USD 0.01 each. The issued share capital per 8 April 2005 is USD 1,327,203.47 divided into 132,720,347 Shares, each with a nominal value of USD 0.01. According to the Articles of Association, the Board has the authority to issue new Shares in Siem Offshore within the limits of the Company’s authorised share capital. The authority is not limited in time. Shareholder rights, transferability and lock-up The Company has issued one class of shares. All issued Shares carry the same rights, and each Share carries one vote. Shareholders can be represented by proxy at shareholders’ meetings. The Shares of the Company are listed at the Oslo Stock Exchange with ticker code SIEM. The Shares are freely tradable. Dividend policy The Company’s Shares carry equal rights to dividend payments. Siem Offshore’s goal is to give its shareholders a satisfactory return on invested capital. The return is in the form of growth in the Company's Share price and in dividend payments. Dividends are determined in accordance with the Company's earnings, future investment plans and the equity ratio. Investor relations The Company is managed based on principles that seek to ensure openness, integrity and equal treatment of shareholders. The Company will provide shareholders, Oslo Stock Exchange and the market as a whole with timely and accurate information at all times. Such information will take the form of annual reports, quarterly interim reports, press releases, stock exchange notifications and investor presentations, as applicable. The Company will also endeavour to ensure that its progress is monitored by securities analysts.

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Listing of the 20 largest shareholders as per 8 April 2005: Shareholder Number of shares Owner interestSiem Industries Inc 57,179,653 43.08%JP Morgan Chase Bank 6,085,330 4.59%Fidelity Funds 5,109,500 3.85%Morgan Stanley 4,150,779 3.13%Third Avenue 4,138,100 3.12%Goldman Sachs 3,500,000 2.64%Barclays Capital Securities Ltd 3,467,993 2.61%Nordea Bank Denmark 3,093,539 2.33%Deutche Bank AG 2,523,631 1.90%MP Pension 1,937,500 1.46%UBS AG 1,855,312 1.40%Ojada AS 1,697,000 1.28%JP Morgan Chase Bank 1,412,296 1.06%The Northern Trust 1,110,000 0.84%Bank of New York 996,190 0.75%Storebrand Livsforsikring AS 916,100 0.69%State Street Bank 899,600 0.68%Credit Suisse First Boston 875,000 0.66%State Street Bank 860,900 0.65%Waterman Holding Inc 750,000 0.57%Total 20 largest shareholders 102,558,423 77.27%Other shareholders 30,161,924 22.73%Total number of shares 132,720,347 100.00%

FINANCIAL CALENDAR Quarterly results The company will release its financial figures on the following dates in 2005: Tuesday 26 April 2005 First quarter 2005 result Tuesday 2 August 2005 Second quarter 2005 result Tuesday 25 October 2005 Third quarter 2005 result February 2006 Fourth quarter 2005 and preliminary full year result The Annual General Meeting The Annual General Meeting of the shareholders of Siem Offshore Inc will be held at 10:00 am local time, 15 July 2005, at the offices of the Company located at Harbour Place, 5th floor, 103 South Church Street, George Town, Grand Cayman, Cayman Island, British West Indies. A separate notice of the meeting will be issued to the shareholders.

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siemoffshore@siemoffshore.com