251844 Awilco_aars_eng.ps - COSL Drilling Europe AS

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ConocoPhillips. The assignment runs until July 2006 when it will commence the eleven month long Frigg Decommissioning Program for AkerKvaerner and Total. Markets and Prospects Drilling services The rig market has developed positively throughout the year and by year end most market segments were experiencing close to full utilization. Awilco Offshore sees a strong market during the coming years based on its view on the following: • Continued high energy prices • Increasing E&P spending by oil companies • Demand for jackup drilling rigs outstripping supply R/R-ratio at lowest levels ever seen Sustained high oil prices have contributed to an increased demand for drilling services, which have resulted in day rates for jack-up drilling units showing a very positive development. Correlation between oil price and drilling activity USD/bbl 80 70 60 50 40 Number of rigs 5 000 4 500 4 000 3 500 3 000 2 500 160 % 150 % 140 % 130 % 120 % 110 % 100 % 90 % 80 % 70 % 60 % 152 % 155 % 128 % 110 % 123 % 110 % 112 % 102 % 103 % 95 % 85 % 76 % 74 % 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006E 30 20 10 0 2 000 1 500 1 000 500 0 Organic reserve/Replacement ratio Source: Enskilda Securities / Oil Companies The early deliveries of Awilco Offshore’s uncommitted newbuildings make it well positioned to benefit from the continued strong market. jan-83 jan-85 jan-87 jan-89 jan-91 jan-93 jan-95 jan-97 jan-99 jan-01 jan-03 jan-05 jan-07 jan-09 Oil price (Brent) Oil futures price (WTI) Baker Hughes World Wide Rig Count Source: Enskilda Securities / Oil Companies The positive market view is also reflected in the increase of newbuilding contracts entered into during 2005. As a result, most shipyards are operating at full capacity and realistic new rig deliveries are now well into 2009. In 2005, the industry saw the effects of multiple hurricanes making their paths through some of the most active offshore areas in the US Gulf of Mexico, resulting in a number of smaller and older units never returning to active duty. This incident has highlighted the need for replacing an aging worldwide jack-up fleet. It is our view that the industry’s focus on Health, Safety and Environment (HSE) is a substantial argument in favor of increased demand for new high specification jack-up units. For the first time in several years, the market is experiencing close to full utilization. Some segments are experiencing a shortage of available units, resulting in the deferral of drilling programs. This situation is expected to affect the jackup drilling market positively going forward. Awilco Offshore believes it is well positioned to take part in the continued strong market. Due to the increased demand for jackup drilling services and increased focus on safety and efficiency, we expect all new jackups scheduled for delivery over the next years to be absorbed and find attractive employment in the market. Accommodation services The market for North Sea accommodation units improved considerably during the second half of 2005. The utilization factor for the existing fleet increased and rate levels improved. In early 2006, all North Sea units were fully employed. Port Reval is available from mid 2007, and Awilco Offshore is actively seeking new employment for the unit. Awilco Offshore expects market rates to remain at least at current levels. Hence, Port Reval should benefit from a strong North Sea market with limited supply and a historically high rate level. We also expect the current strong market will result in additional contract opportunities for Port Rigmar. HSE and Organization Awilco Offshore emphasizes in all its business areas to stay in the forefront of developments regarding safe and secure operations. The business operates in compliance with national and international requirements and guidelines. The operational management of the drilling and accommodation units achieves high quality standards through management agreements. The Chairman of the Board is Sigurd E. Thorvildsen, and the Managing Director is Henrik Fougner. The working environment and team spirit are considered to be good.There have been no work accidents, resulting in injuries to personnel, during the year 2005. The corporate management of Awilco Offshore is focused on preventing any discrimination due to gender or race in matters such as pay, promotion and recruitment. 8
Awilco Offshore has built up site teams in Singapore to supervise the construction process at the two yards, Keppel FELS and PPL. Commercial and operational management of the drilling rigs are ensured through Premium Drilling.Premium Drilling has developed a systematic integrated approach to HSE management that is designed to ensure compliance with relevant laws and regulations and achieve continuous improvement of business performance. These systems will be in place when the first rig is to be delivered from the shipyard. The operation of the accommodation units is handled through the independent managers OSM Offshore and Polycrest. The management companies report a negligible frequency of injury and accidents and no spill or contamination to the external environment. Statements on corporate governance Awilco Offshore adheres to the Norwegian Code of Practice for Corporate Governance issued in December 2005. The company applies this code to ensure that it has implemented corporate governance that clarifies the respective roles of shareholders, the board of directors and executive management. The Code of Practice is based on the comply or explain principle, whereby the Board of Awilco Offshore annually produces a report where it explains any differences from the Code ofPractice. The report can be viewed in detail on our web site; www.awo.no. Awilco Offshore is organized based on a clear and simple model in order to achieve the highest possible efficiency,a clear division of responsibility and the benefits of measurable corporate synergies within its organization and business areas. The Board of Directors ofAwilco Offshore manages business risks by fostering proper controls, though without discouraging innovation and entrepreneurship. The Board is comprised of people with broad experience within management, finance, law and the offshore industry.Management and the Board have a good working relationship that has enabled efficient management and a profitable development of the company through its first year of operations. Company risks Awilco Offshore is exposed to market risks, construction risks, operational risks, financial risks and strategic risks. The Board and management manage these risks through ensuring a close supervision of the construction process, retaining a close relationship with the external management providers and through continuous reporting and monitoring. Strict safety management systems are implemented to ensure a safe and efficient operation and working environment in the rig operations. The increase in newbuilding activity for drilling rigs has resulted in pressure on all parties involved in the construction of the rigs,mainly the yards and the various suppliers ofequipment to the rigs. Although we have no information that such increased newbuilding activity should result in delays, it is a risk that is closely followed. Awilco Offshore’s project teams monitor the construction progress closely. Major factors in determining market risks are future oil and gas prices. As presented elsewhere in this report we believe that future energy prices will remain high. If, however, future oil and gas prices were to fall significantly this could result in a lower than expected demand for Awilco Offshore’s drilling rigs. Shareholders and equity Awilco Offshore’s main shareholder is Awilco AS, which, at the date of this report, owns approximately 41.5 % of the outstanding shares. As of December 31, 2005, the 20 largest shareholders owned approximately 80 % of the outstanding shares. Investors located outside Norway owned approximately 50 % of the free float. At December 31, 2005, Awilco Offshore ASA had distributable reserves according to the Norwegian Companies Act of NOK 525.7 million, including the transfer ofNOK 526.1 million from the share premium reserve resolved by the general meeting of April 4, 2005. The parent company showed a net profit of NOK 7.3 million for 2005, which the Board proposes to allocate to retained earnings. The annual general meeting is planned to be held on May 23, 2006. The Board recommends no dividend to be paid. Oslo,March 29, 2006 The Board of Directors of Awilco Offshore ASA Sigurd E. Thorvildsen Chairman Tor Bergstrøm Arne Alexander Wilhelmsen Jarle Roth Marianne Blystad Henrik Fougner Managing Director 9
Page 1 and 2: Awilco Offshore ASA Annual Report 2
Page 3 and 4: Key figures Figures in USD 1.000 In
Page 5 and 6: Premium Drilling In it’s venture
Page 7: Depreciation expense was USD 7.2 mi
Page 11 and 12: PPL Design: Class: Water depth Dril
Page 13 and 14: Port Rigmar Design: Built / convert
Page 15: USD mill. Paid 1q06 2q06 3q06 4q06
Page 18 and 19: Profit and Loss Statement Awilco Of
Page 20 and 21: Cash Flow Statement Awilco Offshore
Page 22 and 23: Notes Awilco Offshore group Note 1
Page 24 and 25: Notes Awilco Offshore group Stateme
Page 40 and 41: Proforma figures 2004 Awilco Offsho
Page 42 and 43: Balance sheet Awilco Offshore group
Page 44 and 45: Profit and Loss Statement Awilco pa
Page 46 and 47: Cash Flow Statement Awilco parent c
Page 48 and 49: Notes Awilco parent company Note 1
Page 50 and 51: Notes Awilco parent company The com
Page 54 and 55: Notes Awilco parent company Deferre
Page 58 and 59:
Notes Awilco parent company Note 21
Page 60:
Auditor's Auditors Report report fo
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