Exhibit 99.1
SPECIAL PURPOSE FINANCIAL STATEMENTS
OF
PIRANEMA PRODUCTION GROUP
INDEX TO SPECIAL PURPOSE FINANCIAL STATEMENTS OF PIRANEMA PRODUCTION GROUP
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Special Purpose Financial Statements | ||||
Independent Auditor’s Report on special purpose consolidated financial statements | 1 | |||
Consolidated Balance Sheet as at November 30, 2011 | 2 | |||
Consolidated Income Statement for the eleven months ended November 30, 2011 | 3 | |||
Consolidated Statement of Comprehensive Income for the eleven months ended November 30, 2011 | 4 | |||
Consolidated Statement of Changes in Equity for the eleven months ended November 30, 2011 | 5 | |||
Consolidated Cash Flow Statement for the eleven months ended November 30, 2011 | 6 | |||
Notes to Special Purpose Financial Statements | 7 |
To the General Meeting of Shareholders of
Piranema Production AS
Independent auditor’s report on special purpose consolidated financial statements
We have audited the accompanying special purpose consolidated financial statements of Piranema Production AS, which comprise the consolidated balance sheet as at 30 November 2011 and the related special purpose statements of income, changes in equity and cash flows for the eleven months then ended, and a summary of significant accounting policies and other explanatory information. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2.1, the accompanying special purpose financial statements do not include comparative figures for the prior period as required by IAS 1 “Presentation of Financial Statements”. In our opinion, inclusion of comparative figures is necessary to obtain a proper understanding of the current period’s financial statements.
In our opinion, except for the exclusion of comparative information as discussed in the preceding paragraph the special purpose consolidated financial statements referred to above present fairly, in all material respects, the financial position of Piranema Production AS and its subsidiaries at 30 November 2011, and the results of their operations and their cash flows for the eleven months ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/ PricewaterhouseCoopers AS
Stavanger, Norway
March 30, 2012
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Piranema Production Group—Special Purpose Financial Statement
Consolidated Balance Sheet
Figures in USD 1,000 | Note | November 30, 2011 | ||||
ASSETS | ||||||
Non-current assets | ||||||
Other fixed assets | 5 | 607 | ||||
Intangible assets | 6 | 51 | ||||
Other non-current assets | 25 | 35 | ||||
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Total non-current assets | 693 | |||||
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Current assets | ||||||
Trade and other receivables | 7,8,9 | 5,302 | ||||
Cash and cash equivalents | 10 | 2,439 | ||||
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Total current assets | 7,741 | |||||
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Asset classified as held for sale | 5 | 165,000 | ||||
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Total assets | 173,434 | |||||
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EQUITY | ||||||
Capital and reserves attributable to equity holders of the Company | ||||||
Share capital | 11 | 6,725 | ||||
Other equity | -6,777 | |||||
Minority interest | 0 | |||||
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Total shareholders’ equity | -52 | |||||
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LIABILITIES | ||||||
Current liabilities | ||||||
Interest-bearing debt | 7,12,13 | 167,760 | ||||
Trade payables | 7,12 | 3,131 | ||||
Other current liabilities | 7,12 | 2,595 | ||||
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Total current liabilities | 173,486 | |||||
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Total equity and liabilities | 173,434 | |||||
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Piranema Production Group (formerly Sevan Production Group)
The notes are an integral part of these consolidated financial statements.
The financial statements were authorized for issue by the board of directors on 30 March 2012 and were signed on its behalf.
/s/ Peter Lytzen Peter Lytzen | /s/ Nils B. Johannessen Nils B. Johannessen | |
Chairman of the board | Board member | |
/s/ Tor Olav Bye-Andersen Tor Olav Bye-Andersen | ||
Board member and managing director |
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Piranema Production Group - Special Purpose Financial Statement
Consolidated Income Statement
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Figures in USD 1,000 | Note | 11 months ended 11.30.11 | ||||||
Operating revenue | 35,047 | |||||||
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Operating expense | -10,617 | |||||||
Depreciation and amortization | 5,6 | -13,746 | ||||||
Impairment | 5,25 | -152,225 | ||||||
Employee benefit expense | 15,16 | -8,682 | ||||||
Other operating expense | 22,24 | -2,602 | ||||||
Foreign exchange gain/(loss) related to operation | -261 | |||||||
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Total operating expense | -188,133 | |||||||
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Operating profit/(loss) | -153,086 | |||||||
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Financial income | 17 | 1,714 | ||||||
Financial expense | 17 | -16,108 | ||||||
Foreign exchange gain/(loss) related to financing | 23 | -25 | ||||||
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Net financial items | -14,419 | |||||||
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Profit/(loss) before tax | -167,505 | |||||||
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Tax income/(expense) | 18 | -51,471 | ||||||
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Net profit/(loss) | -218,976 | |||||||
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Attributable to: | ||||||||
Equity holders of the Company | -218,954 | |||||||
Minority interest | -22 |
Piranema Production Group (formerly Sevan Production Group)
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Piranema Production Group - Special Purpose Financial Statement
Consolidated Statement of Comprehensive Income
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Figures in USD 1,000 | 11 months ended 11.30.11 | |||
Net profit/(loss) | -218,976 | |||
Foreign currency translation | 219 | |||
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Comprehensive income | -218,757 | |||
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Piranema Production Group (formerly Sevan Production Group)
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Piranema Production Group—Special Purpose Financial Statement
Consolidated Statement of Changes in Equity
Figures in USD 1,000 | Attributable to equity holders of the Company | |||||||||||||||||||||||||||
Other equity | ||||||||||||||||||||||||||||
Note | Share capital | Share premium | CTA | Retained earnings | Minority interest | Total equity | ||||||||||||||||||||||
January 1, 2011 | 11 | 3,310 | 173,943 | -1,586 | -154,503 | 2 | 21,166 | |||||||||||||||||||||
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Capital increase | 11 | 3,415 | 194,104 | 20 | 197,539 | |||||||||||||||||||||||
Comprehensive income for the period | 219 | -218,954 | -22 | 218,757 | ||||||||||||||||||||||||
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November 30, 2011 | 11 | 6,725 | 368,047 | -1,367 | -373,457 | 0 | -52 | |||||||||||||||||||||
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On November 25 the equity in Piranema Production AS was increased by conversion of debt of USD 197.5 million.
Piranema Production Group (formerly Sevan Production Group)
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Piranema Production Group—Special Purpose Financial Statement
Consolidated Cash Flow Statement
Figures in USD 1,000 | Note | 11 months ended 11.30.11 | ||||
Cash flows from operating activities | ||||||
Cash from operations | 20 | 21,320 | ||||
Interest paid | -14,775 | |||||
Taxes paid | -1,731 | |||||
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Net cash generated from operating activities | 4,814 | |||||
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Cash flows from investment activities | ||||||
Purchase of property, plant and equipment (PPE) | 5 | -4,398 | ||||
Purchases of intangible assets | 6 | -22 | ||||
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Net cash flow from investment activities | -4,420 | |||||
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Cash flows from financing activities | ||||||
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Net cash flow from financing activities | 0 | |||||
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Net cash flow for the period | 394 | |||||
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Cash balance at the beginning of the period | 2,045 | |||||
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Cash balance at the end of the period | 10 | 2,439 |
Piranema Production Group (formerly Sevan Production Group)
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Note 1 Corporate Information
Piranema Production AS (the “Company”) and its subsidiary (together with the Company the “Group”) are engaged in ownership and operation of floating production storage and offloading (FPSO) units.
The Company (org. nr. 985 973 245) changed its name from Sevan Production AS to Piranema Production AS February 7, 2011.
The Company is a limited liability company incorporated and domiciled in Norway. The address of its registered office is Beddingen 16, 7014 Trondheim.
These consolidated financial statements were approved by the Board of Directors on March 30, 2012.
Overview of Group structure as of November 30, 2011:
Subsidiaries | Registered office | Interest held | Equity | Profit/(loss) 11.30.11 | ||||||||||||
Piranema Servicios De Petroleo Ltda | Brazil | 99.99 | % | -3,611 | -4,760 |
(Amounts in the tables above are prepared in local GAAP and presented in USD 1,000)
Note 2 Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of this special purpose consolidated financial statements are set out below. The presentation currency of the Group is USD which corresponds to the functional currency of the Company in the Group. All numbers are in USD 1,000 unless otherwise stated.
2.1 Basis of Preparation
These special purpose consolidated financial statements consist of a balance sheet at November 30, 2011, a comprehensive income statement, a cash flow statement and a statement of equity for the 11 months then ended and corresponding notes. Comparative information for previous periods is not presented.
The special purpose consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC), as issued by International Accounting Standards Board (IASB), and valid as of November 30, 2011, with certain modifications as described.
The special purpose consolidated financial statement of Piranema Production Group has been prepared on the same basis as the consolidated financial statement of the former holding company Sevan Marine ASA Group. Piranema Production AS, when presenting its first consolidated financial statement in accordance with IFRS use the same accounting policies and measuring bases as in the former ultimate Group Sevan Marine. The accounts are therefore prepared on a continuity basis. However, one change has been made to comply with Teekay policies as described in 2.1.1. It is emphasized that the lack of comparatives is a deviation from IFRS in general.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
2.1.1 Changes in Accounting Policy and Disclosures
Changes in Accounting Policy
As a consequence that the Group changed owner in 2011, the Group determined that it would change its accounting policy with regard to spare parts for the FPSO Piranema Spirit, in accordance with the policies of the new parent company, Teekay Offshore Partners L.P. (Teekay). The Group previously treated spare parts as inventory at the lower of cost and net realizable value. Now, the initial investment in spare parts is capitalized with the FPSO and later purchases are expensed.
The change in accounting policy regarding spare parts results in an increase in book value of the rig at January 1, 2011 with USD 6,820 thousand and a corresponding decrease in inventory.
2.1.2 Going concern
The Group has negative equity and working capital. The board of directors will review the need for further strengthening the capital base of the Group. Teekay Offshore Partners L.P (the ultimate parent) has issued an unconditional letter of support and will provide financial support of the Group if required. The letter is valid to April 1st 2013.
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2.2 Consolidation
Subsidiaries
Subsidiaries comprise all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and are de-consolidated from the date that control ceases.
The Group uses the acquisition method to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred assumed at the date of exchange. Acquisition-related costs are expenses as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized in the income statement immediately.
Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies adopted by the Group.
Transactions and non-controlling interests
The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate.
2.3 Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to Senior Management and Board of Directors, responsible for making strategic decisions. Senior Management is responsible for allocating resources and assessing performance of the operating segments.
Operating segments
The Group has only one business area, “Floating Production”.
The activities within the Floating Production segment relate to the operation of the FPSO.
Geographic perspective
The Group’s operating segment operates in the global offshore market. The FPSO currently operates in Brazil.
2.4 Foreign Currency Translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which each entity operates (the “functional currency”). The consolidated financial statements are presented in USD, which is the Group’s presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from settlement of such transactions (realized items) and from translation at exchange rates prevailing at balance sheet date of monetary assets and liabilities denominated in foreign currencies (unrealized items) are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges.
Foreign exchange gains and losses relating to interest-bearing debt and cash and cash equivalents are presented (net) as a separate line item in the income statement within financial items. Foreign exchange gains and losses relating to operation are presented (net) as a separate line item in the income statement within operating expenses.
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Group companies
The results and financial position of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency, are translated into the presentation currency as follows:
Assets and liabilities are translated at exchange rates prevailing at balance sheet date.
Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at exchange rates prevailing at the dates of the transactions).
All resulting exchange differences are recognized as a separate component of equity.
Upon consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to other comprehensive income. When a foreign operation is sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
2.5 Property, Plant and Equipment
Fixed assets are stated at historic cost less accumulated depreciation. The Group has not used, and has no plans of utilizing the revaluation option in IAS 16. Depreciation is calculated using the straight-line method. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of an asset to estimated discounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its recoverable amount, an impairment charge is recognized.
Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent cost are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement as incurred.
Borrowing cost is capitalized when the cost is directly attributable to the construction of a qualifying asset.
Initial investments in spare parts are capitalized together with the FPSO. Subsequent purchases of spare parts are expensed as operating costs.
Each major component of Piranema Spirit is depreciated separately when the units are available for intended use. A major component is defined as a part with a cost that is significant in relation to the total cost of the asset. An estimation of useful lives indicates an average depreciation period of 20-30 years.
Other fixed assets consist of furniture, fixtures and equipment that are depreciated using the straight-line method over their estimated useful lives ranging from three to fifteen years.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement.
2.6 Intangible Assets
Computer software
Acquired computer software is capitalized on the basis of the cost incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives, ranging from three to five years. Cost associated with developing or maintaining computer software programs are recognized in the income statement as incurred.
2.7 Non-current assets held for sale
Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less cost to sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather the through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition.
Property, plant and equipment once classified as held for sale is not depreciated or amortised.
2.8 Impairment of Non-Financial Assets
Assets that have an indefinite useful life are not subject to amortization but are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less cost to sell and value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels at which separate cash flows are identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that has suffered impairment are reviewed for possible reversal of the impairment at each reporting date.
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2.9 Financial Assets
The Group classifies its financial assets as fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Loans and receivables are measured at fair value at the transaction date, subsequently remeasured at amortized cost. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets are included in current assets, except for those with maturities greater than 12 months after balance sheet date, in which case they are classified as non-current assets.
2.10 Trade Receivables
Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The provision is recognized in the income statement as ‘other operating expense’.
2.11 Cash and Cash Equivalents
In the consolidated statement of cash flow, cash and cash equivalents includes cash in hand, bank deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the consolidated balance sheet, bank overdrafts are shown within interest-bearing debt in the current liabilities section in the balance sheet.
2.12 Share Capital
Ordinary shares are classified as equity. Costs directly attributable to the issuance of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any Group company acquires the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable cost (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable transaction cost and income tax, is included in equity attributable to the Company’s equity holders.
2.13 Interest-Bearing Debt
Interest-bearing debt is initially recognized at fair value, net of transaction cost incurred. Interest-bearing debt is subsequently stated at amortized cost. Any difference between the proceeds and the redemption value is recognized in the income statement over the period of the interest-bearing debt using the effective interest method.
2.14 Current and Deferred Income Tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
The Brazilian subsidiary incurs corporate taxes based on a presumed profit (presumed profit system). Under the presumed profit system, corporate taxes are charged on a presumed profit that is generally calculated by applying a fixed percentage to the gross sales, plus 100% of the company’s passive income. Therefore, no expense deductions are allowed and tax losses may not be deducted or carried forward. Corporate taxes are computed on a quarterly basis.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and legislation) that have been enacted or substantially enacted by balance sheet date and are expected to apply when the deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. The tax base included in the calculation of deferred income tax is calculated in local currency and translated into USD at foreign exchange rates prevailing at balance sheet date. Deferred income tax asset and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
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2.15 Employee Benefits
Pension obligations
The Group provide its employees with defined contribution plans. The plans are funded through payments to insurance companies. The Group has no further payment obligation once the contribution has been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available.
2.16 Provisions
A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and the amount has been reliably estimated.
Provisions are not recognized for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured as the present value of the expected expenditures required to settle the obligation using a pre-tax discount rate that accounts for time value of money and risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.
2.17 Revenue Recognition
Revenue comprises the fair value of the consideration receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown, net of value-added tax, estimated returns, rebates and discounts and after eliminated sales within the Group.
The group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group’s activities as described below. The group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.
Revenue is recognized as follows:
• | Charter revenues are recognized on a straightline basis over the contract period during which the services are rendered, and at the rates established in the underlying contracts. |
• | Mobilization expenses are offset by mobilization revenues and recognized using the straight line method over the full fixed term of the underlying charter contract. |
• | Penalties imposed as compensation to client for delivery of an FPSO later than contractually agreed shall be accrued for on a separate account in the balance sheet at the date the charter contract commences. If any part of the penalties is recoverable from vendors due to directly correlated delays caused by them, the penalty recoverable from the vendor shall offset the accrual of penalties payable to the client. Net accrued amount shall subsequently be amortized as a reduction of income over the fixed term of the charter contract. |
2.18 Leases
Leases in which more than an insignificant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
When assets owned by the Group are leased to clients under an operating lease, the asset is included in the balance sheet based on the nature of the asset. Lease income is recognized in accordance with the underlying contract.
2.19 Dividend Distribution
Dividend distribution to the Company’s shareholders is recognized as a liability in the Group’s financial statements in the period in which the dividend is approved by the Company’s shareholders.
2.20 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
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Note 3 Financial Risk Management
3.1 Financial Risk Factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.
3.1.1 Market Risk
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures, primarily with respect to Brazilian Real. Foreign exchange risk arises from future commercial transactions, recognized assets or liabilities, and net investments in foreign operations.
Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not an entity’s functional currency.
The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk.
If the Brazilian Real exchange rate was 10% stronger/weaker against the USD at the balance sheet date than the actual exchange rate (all other variables held constant), before-tax loss for the period would have been USD 366 higher/lower than the actual loss before tax mainly as a result of foreign exchange gains/losses on translation of trade receivables, cash and cash equivalents nominated in Brazilian Real.
3.1.2 Credit Risk
Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institution. Credit exposures to customers are mainly concentrated around the charter contracts.
3.1.3 Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available.
The Group has implemented routines to continuously update its cash flow forecast when changes to main assumptions relating to repayment schedules, interest rates changes etc to be able to foresee the necessary actions to taken to rectify any potential adverse effects on its future liquidity position. Reference is made to Note 13 for a maturity analysis of the Group’s financial liabilities.
3.1.4 Cash Flow and Fair Value Interest Rate Risk
The Group’s interest rate risk arises from non-current debt. Debt subject to floating interest rates exposes the Group to cash flow interest rate risk.
3.2 Fair Value Estimation
At November 30, 2011, the Group does not have any financial assets or liabilities at fair value through profit or loss.
Note 4 Accounting Estimates and Judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are assumed to be reasonable under current circumstances.
4.1 Critical Accounting Estimates and Assumptions
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.
Estimated impairment of Piranema Spirit
The Group has tested whether the Piranema Spirit has suffered any impairment, in accordance with the accounting policy stated in Note 2.5. The recoverable amount of the asset has been determined based on fair value less cost to sell. These calculations require the use of estimates. The impairment loss in 2011 is due to an increase in its weighted average cost of capital assumption and a reduction of estimated uptime of the FPSO.
Income taxes
The Group is subject to income taxes in various jurisdictions. Judgment is required in determining the provision for income taxes. During the ordinary course of business, transactions and calculations occur for which the ultimate tax effect is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
12
The accounting for deferred income tax asset relies upon management’s judgment of the Group’s ability to generate future positive taxable income in each respective jurisdiction. Deferred tax assets are not recognized in the balance sheet as at November 30, 2011 due to the extent that it is not probable that the Group can use this against future taxable profits.
Option periods for charter contracts
Some charter contracts include options for the client to extend the contractual period at predefined terms. Option periods are taken into consideration when assessing value-in-use for each asset. Option periods are not included in the order back-log in Note 22.
Depreciation of unit in operation
The Group uses estimates when assessing Piranema Spirit’s useful life and residual value to determine the depreciation plan for the unit in operation.
Note 5 Property, Plant and Equipment
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Unit in Operation (UIO) | ||||
Period ended November 30, 2011 | ||||
Book value January 1 | 318,034 | |||
|
| |||
Currency translation adjustments | -20 | |||
Additions | 4,398 | |||
Impairment | -143,127 | |||
Depreciation | -13,678 | |||
Transferred to asset held for sale | -165,000 | |||
|
| |||
Book value November 30 | 607 | |||
|
| |||
At November 30, 2011 | ||||
Cost or valuation | 32,719 | |||
Accumulated impairment | -24,595 | |||
Accumulated depreciation | -7,517 | |||
|
| |||
Book value November 30 | 607 | |||
|
|
Subsequent to the end of the reporting period the Group sold the Piranema Spirit for USD 165 million to the parent company Piranema LLC. See also note 26.
When Teekay became a major shareholder in former parent company, Sevan Marine ASA, the Group carried out a review of recoverable amount of Piranema Spirit. The recoverable amount for the Piranema Spirit has been determined based on fair value less cost to sell.
Net sales value is calculated based on a charter free FPSO and adjusted for the value of present charter contract. Net present value is use when both values are calculated. The charter free value is based on observed FPSO rates for similar FPSO’s. The value of the contract is based on agreed rates and budgeted operating expenses. In both calculations a discount rate of 12.5 % is used. The discount rate is based on a weighted average cost of capital.
Note 6 Intangible Assets
(Amounts in the tables below are prepared in lFRS and presented in USD 1,000)
Software | ||||
Period ended November 30, 2011 | ||||
Book value January 1 | 53 | |||
|
| |||
Currency translation adjustments | 44 | |||
Additions | 22 | |||
Amortization | -68 | |||
|
| |||
Book value November 30 | 51 | |||
|
| |||
13
At November 30, 2011 | ||||
Cost or valuation | 548 | |||
Accumulated amortization and impairment | -497 | |||
|
| |||
Book value November 30 | 51 | |||
|
|
Note 7 Financial Instruments by Category
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Accounting principles for financial instruments were applied to the line items below as indicated:
November 30, 2011 | Loans and receivables | Assets at fair value through profit and loss | Derivatives used for hedging | Available for sale | Total | |||||||||||||||
Financial assets | ||||||||||||||||||||
Trade and other receivables | 5,302 | 0 | 0 | 0 | 5,302 | |||||||||||||||
Cash and cash equivalents | 2,439 | 0 | 0 | 0 | 2,439 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total financial assets | 7,741 | 0 | 0 | 0 | 7,741 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
November 30, 2011 | Other financial liabilities | Liabilities at fair value through the profit and loss | Derivatives used for hedging | Available for sale | Total | |||||||||||||||
Financial liabilities | ||||||||||||||||||||
Interest-bearing debt | 167,760 | 0 | 0 | 0 | 167,760 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Trade and other payables | 5,726 | 0 | 0 | 0 | 5,726 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total financial liabilities | 173,486 | 0 | 0 | 0 | 173,486 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Note 8 Credit Quality of Financial Assets
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
The credit quality of financial assets that were neither past due nor impaired was assessed by reference to external credit ratings (where available) and by analysis of historical information about counterparty default rates:
Trade receivables - Counterparty with external credit rating | November 30, 2011 | |||
BBB | 3,792 | |||
|
| |||
Total | 3,792 | |||
|
| |||
Cash at bank and short-term bank deposits | November 30, 2011 | |||
|
| |||
BBB | 141 | |||
|
| |||
No rating available | 2,298 | |||
|
| |||
Total cash and cash equivalents | 2,439 | |||
|
|
Note 9 Trade and Other Receivables
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
November 30, 2011 | ||||
Trade receivables | 3,792 | |||
Provision for impairment of receivables | 0 | |||
|
| |||
Trade receivables – net | 3,792 | |||
|
| |||
Prepayments | 579 | |||
Other receivables | 415 | |||
Accrued income | 516 | |||
|
| |||
Trade and other receivables | 5,302 | |||
|
|
14
Fair value of trade and other receivables were as follows:
November 30, 2011 | ||||
Trade receivables | 3,792 | |||
Prepayments | 579 | |||
Other receivables | 415 | |||
Accrued income | 516 | |||
|
| |||
Total trade and other receivables | 5,302 | |||
|
|
Aging of trade receivables was as follows:
November 30, 2011 | ||||
Before due date | 3,792 | |||
Up to 3 months after due date | — | |||
Between 3 and 6 months after due date | — | |||
More than 6 months after due date | — | |||
|
| |||
Total trade receivables—net | 3,792 | |||
|
|
Carrying amounts of trade receivables were denominated in the following currencies:
November 30, 2011 | ||||
USD | 3,245 | |||
BRL | 547 | |||
|
| |||
Total trade receivables—net | 3,792 | |||
|
|
Note 10 Cash and Cash Equivalents
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
November 30, 2011 | ||||
Cash at bank and in hand | 2,439 | |||
|
| |||
Total cash and cash equivalents | 2,439 | |||
|
|
Note 11 Share Capital
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
The total authorized number of ordinary shares was 0.1 million with a par value of NOK 400 per share. All issued shares were fully paid at balance sheet date.
Number of shares | Share capital | Share premium | Total | |||||||||||||
January 1,2011 | 100,000 | 3,310 | 173,943 | 177,253 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Debt conversion November 25, 2011* | 0 | 3,415 | 194,124 | 197,539 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
November 30, 2011 | 100,000 | 6,725 | 368,067 | 374,792 | ||||||||||||
|
|
|
|
|
|
|
|
* | Debt conversion was done by an increase of nominal value from NOK 200 to NOK 400 per share. |
The company’s shareholders are:
Name | Number of shares | Ownership- share (%) | ||||||
Piranema LLC | 99,990 | 99.99 | ||||||
Teekay Offshore Partners LP | 10 | 0.01 | ||||||
|
|
|
| |||||
Total Shares | 100,000 | 100 | ||||||
|
|
|
|
15
Note 12 Current Liabilities
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
November 30, 2011 | ||||
Trade payables | 2,484 | |||
Accrued expenses relating to trade payables | 647 | |||
|
| |||
Total trade payables | 3,131 | |||
|
| |||
Interest-bearing debt, current portion | 167,760 | |||
Income tax payable | 562 | |||
Employer’s contribution tax and other taxes | 407 | |||
Other payables | 1,626 | |||
|
| |||
Total current liabilities | 173,486 | |||
|
|
Note 13 Interest-bearing debt
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Sevan Group Companies | Piranema LLC | |||||||
Opening balance Intercompany debt | 337,219 | 0 | ||||||
Transfer of other Sevan Group debt | 26,819 | 0 | ||||||
Accumulated not paid interest | 1,261 | 0 | ||||||
Converted to equity | -197,539 | 0 | ||||||
Debt transferred to Piranema LLC | -167,760 | 167,760 | ||||||
|
|
|
| |||||
Interest-bearing debt, non current | 0 | 167,760 | ||||||
|
|
|
| |||||
Interest rate | Libor + 4.5 | % | 0.0 | % |
As a result of the sales agreement between Sevan and Teekay all debt to Sevan Group companies was transferred to Piranema LLC.
The debt to Piranema LLC was settled in February 2012 when the FPSO was sold. See note 26.
Note 14 Deferred Income Tax
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Deferred income tax assets and liabilities are offset when a legally enforceable right to offset current tax assets against current tax liabilities exists.
Gross movement on the deferred income tax account was as follows:
November 30, 2011 | ||||
Book value January 1, 2011 | 50,378 | |||
|
| |||
Income statement charge relating to deferred tax assets | -50,378 | |||
|
| |||
Deferred tax asset as of November 30, 2011 | 0 | |||
|
| |||
Specification of deferred tax assets/deferred tax liabilities: | ||||
November 30, 2011 | ||||
Fixed assets | 10,663 | |||
Losses carry forward | 88,489 | |||
|
| |||
Total deferred tax assets | 99,152 | |||
|
|
Deferred tax assets are not recognized in the balance sheet as at November 30, 2011, due to the subsequent sale of the FPSO which removes the potential to generate sufficient taxable profit in the entity.
Note 15 Retirement Benefit Obligations
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Companies in the Group operate only defined contribution plans.
16
Defined contribution plan:
11 months ended 11.30.11 | ||||
Pension costs, defined contribution plan | 118 | |||
|
| |||
Pension cost, including social security | 118 | |||
|
| |||
No. of employees included | 86 |
All employees in Piranema Servicios De Petroleo Ltda are part of the pension plan in Brazil.
Note 16 Employee Benefit Expense
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
11 months ended 11.30.11 | ||||
Wages and salaries | 5,474 | |||
Employer’s contribution tax | 1,931 | |||
Pension cost | 118 | |||
Other employee benefit expense | 1,159 | |||
|
| |||
Total employee expense | 8,682 | |||
|
| |||
No. of man-years | 86 |
There have been no remuneration to senior management or the Board of Directors in the period.
Former managing directors have been employed by Sevan Marine ASA and current managing director is employed by Teekay Petrojarl Production AS. The cost for their services have been charged through management fees to the Piranema Group.
Note 17 Financial Income and Financial Expense
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Currency gains and losses relating to operational activities were classified as a separate line item as an operational expense in the Income Statement and are not included in the tables below. Currency gains and losses relating to financing activities were presented as separate line item as a financial income/(expense) in the Income Statement and are specified in Note 23.
11 months ended 11.30.11 | ||||
Financial income: | ||||
Interest income | 1,714 | |||
|
| |||
Total financial income | 1,714 | |||
|
| |||
11 months ended 11.30.11 | ||||
Financial expense: | ||||
Interest expense | 16,036 | |||
Other financial expenses | 72 | |||
|
| |||
Total financial expense | 16,108 | |||
|
|
Note 18 Income Tax Expense
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
11 months ended 11.30.11 | ||||
Current tax | -1,093 | |||
Change in deferred tax | -50,378 | |||
|
| |||
Net tax income/(expense) | -51,471 | |||
|
|
17
Reconciliation between tax charge based on the nominal Norwegian statutory tax rate of 28% and actual tax charge:
11 months ended 11.30.11 | ||||
Profit/(loss) before tax | -167,505 | |||
|
| |||
Tax calculated at domestic tax rates applicable to profits in each respective countries | 46,901 | |||
Income not subject to tax | 4,827 | |||
Gross revenue tax | -1,093 | |||
Currency translation adjustment | 2,969 | |||
Expenses not deductible | -5,923 | |||
Change in unrecognized deferred tax asset | -99,152 | |||
|
| |||
Tax income/(expense) | -51,471 | |||
|
|
The weighted average applicable tax rate for the consolidated Group was 31%.
Note 19 Dividend per Share
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
No dividend was paid in 2011. No dividend is to be proposed at the Annual General Meeting on March 30, 2012.
Note 20 Cash Generated from Operations
11 months ended 11.30.11 | ||||
Profit/(loss) before tax | -167,505 | |||
|
| |||
Adjustments for: | ||||
– Depreciation and impairment | 165,903 | |||
– Amortization of intangible assets | 68 | |||
|
| |||
– Interest expense | 16,036 | |||
|
| |||
Changes in working capital: | ||||
– Trade and other receivables | -543 | |||
– Trade and other payables | 904 | |||
– Other current liabilities, provisions and charges | 6,457 | |||
|
| |||
Cash generated from operations | 21,320 | |||
|
|
Note 21 Related party transactions
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Transactions and outstanding balances with Teekay Group and Sevan Group
Note | Sevan Group Companies | Piranema LLC | ||||||||||
- Loans from related parties as of 11.30.11 | 13 | 0 | 167,760 | |||||||||
- Other intercompany balances as of 11.30.11 | 0 | 0 | ||||||||||
- Sales of goods and services | 0 | 0 | ||||||||||
- Guarantee income | 1,711 | 0 | ||||||||||
- Purchases of goods and services | -2,461 | 0 | ||||||||||
- Interest cost | -15,429 | 0 | ||||||||||
Information regarding ultimate parent.
18
The Group is controlled by Piranema LLC (incorporated in Marshall Islands), which owns 100% of the company’s shares. The Group’s ultimate parent is Teekay Offshore Partners LP (incorporated in Marshall Islands) which is publicly listed on the New York Stock Exchange.
Transactions with key mangement personnel
There are no transactions with key management personnel during the period.
Compensation of key management personnel of the Group
There have been no remuneration to key management personnel in the period.
Former managing directors have been employed by Sevan Marine ASA and the current managing director is employed by Teekay Petrojarl Production AS. The cost of their services have been charged through management fees to the Group.
Terms and conditions of transactions with related parties
The sales to and purchases from related parties are made at terms equivalent cost price plus a margin of 5—10%.
Guarantee income relates to rig pledge for a bond loan held by Sevan Marine ASA. The premium is 0.75% of the bond loan.
Outstanding balances at the year-end are unsecured and settlement occurs in cash.
There have been no guarantees provided or received for any related party receivables or payables.
For the period ended 30 November 2011, the Group has not recorded any impairment of receivables relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.
Note 22 Operating Leases
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Operating leases: Group company as lessee
The Group has entered into several lease- and rental-agreements for rental of offices. The agreements were entered into on ordinary operational terms. The Group’s lease expense for rental of offices amounted to USD 17 thousand for the 11 months ended 30.11.11.
At balance sheet date, the Group has entered into lease- and rental-obligations as follows:
Lease- and rental obligations | November 30, 2011 | |||
No later than 1 year | 39 | |||
Between 1-5 years | 306 | |||
Later than 5 years | 0 | |||
|
| |||
Total lease and rental-obligations | 344 | |||
|
|
Operating leases-Group company is lessor
The Group charters out one FPSO with fixed terms that end during 2018. The arrangement does not include any form of option to buy the FPSO at the end of contractual period.
Future lease payments receivable under charter contracts:
November 30, 2011 | ||||
No later than 1 year | 51,100 | |||
Between 1-5 years | 204,400 | |||
Later than 5 years | 51,100 | |||
|
| |||
Total minimum future charter revenues | 306,600 | |||
|
|
The overview includes charter revenue for the fixed lease period for the unit on charter-hire. License revenue and potential charter revenue for option periods not yet exercised was not included. At balance sheet date, the book value of assets generating charter revenue was USD 165 million.
Order back-log for charter revenue:
Unit | Client | Fixed term (years) | Option periods (years) | Commencement | Total Order back-log | |||||||||||||||
FPSO Piranema Spirit | Petrobras S.A. | 11 | 6 x 1 | Q1-2007 | 306,600 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
19
Note 23 Foreign Exchange Gain/(Loss) Related to Financing
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Foreign exchange gain/(loss) related to financing is mainly due to cash and cash equivalents nominated in foreign currency.
Foreign exchange gain/(loss) related to financing: | 11 months ended 11.30.11 | |||
Net realized gain/(loss) | 0 | |||
Net unrealized gain/(loss) | -25 | |||
|
| |||
Total foreign exchange gain/(loss) related to financing | -25 | |||
|
|
Note 24 Other Operating Expense
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
Other operating expense | 11 months ended 11.30.11 | |||
Office cost (IT, rental etc) | 488 | |||
Consultancy (audit, tax and legal) | 371 | |||
Marketing | 15 | |||
Other | 1,728 | |||
|
| |||
Total other operating expense | 2,602 | |||
|
|
Auditor’s fee is specified below | 11 months ended 11.30.11 | |||
|
| |||
Statutory audit | 17 | |||
Audit related services | 17 | |||
Tax related service | 4 | |||
|
| |||
Total auditor’s fee | | 38 | | |
|
|
Note 25 Other Non-Current Assets
Amounts in the tables below are prepared in IFRS and presented in USD 1,000
November 30, 2011 | ||||
Other | 35 | |||
|
| |||
Total other non-current assets | 35 | |||
|
|
Capitalized mobilization fee of USD 9,098 thousand is expensed as impairment loss and late delivery penalties of USD 4,375 thousand are classified as reduction in operating revenue due to a total valuation of the FPSO of USD 165 million.
Late delivery penalty was settled in 2011 with a higher dayrate than expected in the 2010 accounts which resulted in an additional penalty cost of USD 1.4 million in the 2011 accounts.
Note 26 Events after balance sheet date
On February 2, 2012 the Group sold the FPSO Piranema Spirit for USD 165 million to Piranema LLC. The sale price was settled against debt to Piranema LLC.
At the same time the Group entered into an agreement to charter back the FPSO from the buyer on a bareboat contract. The bareboat rate is USD 62,732 per day and is management best estimate on a market rate. The charter period expires on March 31, 2018. The Group has an option to extend the charter period beyond the expiration date at renegotiated rates.
20