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The company recorded an operating contribution from the Norwegian government totalling NOK 277.2 million excluding VAT as income in 2014. For the group, the amount was NOK 288.8 million. The appropriation for the year, excluding VAT, was NOK 278.3 million for Petoro AS and NOK 15.3 million for Petoro Iceland AS, giving a total amount of NOK 293.6 million for the group. The difference between the operating contribution recorded as income and the appropriation for the year reflects accruals between fiscal years. The invoiced contribution for Johan Sverdrup totalled NOK 29.5 million excluding VAT for 2014.

Other revenue primarily relates to invoicing of services provided to operators of joint ventures and other joint venture partners.

 

The change in deferred revenue recorded in the income statement comprises deferred revenue related to NOK 2.75 million in investment made during 2014 as well as NOK 2.74 million in depreciation of investments made during the year and in earlier years.

 

Payroll expenses*   (all figures in NOK 1 000)	2014	2013
Pay	99 806	90 535
Directors’ fees	1 690	1 657
Payroll taxes	13 998	12 801
Pensions (note 11)	30 227	26 356
Other benefits	3 753	4 046
Total	149 474	135 395
* Directors’ fees are specified in the table.
Employees at 31 Dec, including the CEO and senior executives	67	64
Employees with a signed contract who had not started work at 31 Dec	0	4
Average number of work-years employed	66	65

 

Remuneration of senior executives (all figures in NOK 1 000)	Pay	Other benefits	Total benefits	Expensed pension
Grethe Moen, president and CEO	3 231	187	3 418	1 961
Rest of the management team (seven people)
Olav Boye Sivertsen	1 727	153	1 880	776
Marion Svihus	2 244	158	2 402	1 031
Laurits Haga	2 394	148	2 542	1 197
Roy Tore Ruså	2 304	151	2 455	969
Jan Terje Mathisen	2 188	146	2 334	996
Nashater Solheim, from March	1 485	126	1 611	701
Kjell Morisbak Lund, from February	1 980	137	2 117	800
Rest of the management team (seven people)	14 322	1 019	15 341	6 471

Expensed pension liabilities represent the current year’s estimated cost of the overall pension liability for the president plus the rest of the management team. Pay includes payments from the credit balance in the loyalty scheme.

 

The declaration on remuneration for the president and other senior executives is in line with the provisions of the Norwegian Act on Public Limited Companies and the guidelines for state ownership, including the revised guidelines on conditions of employment for executives in state-owned undertakings and companies of 1 April 2011. These replaced the earlier guidelines for state ownership – attitude to executive pay, which dated from 2006.

Guidelines on remuneration
Petoro’s remuneration guidelines are entrenched in the company’s vision, goals and values. The relationship between the level of performance, demonstrated leadership/collegiality and reward will be predictable, motivational, clear and easy to communicate. Petoro has an integrated pay policy and system for the whole company, and aims to pay a competitive rate without being a pacesetter on remuneration in relation to the relevant market for the petroleum industry.

Decision-making process
The board determines compensation arrangements for the president, who in turn determines the compensation arrangements for the other members of the company’s senior management. The board has appointed a compensation sub-committee comprising the deputy chair and another director. The human resources manager provides the secretariat function for this committee, which prepares proposals and recommendations for the board on compensation issues.

Main principles for remuneration in the coming fiscal year
The compensation package for the president and the other senior executives will reflect the responsibilities and complexity of the role in question, the company’s values and culture, the relevant executive’s behaviour and performance, and the need to attract and retain key personnel. The arrangements are transparent and accord with the principles for good corporate governance. New guidelines for pay and other remuneration for senior executives in enterprises and companies with a state ownership interest were established by the Ministry of Trade, Industry and Fisheries with effect from 13 February 2015. These guidelines primarily affect pension schemes above 12 times the National Insurance base rate (G), and the company has begun work to review and understand these provisions.
    
Basic pay is the main component in Petoro’s compensation scheme. Senior executives are also entitled to benefits on the same lines as others in the company, including car allowance as well as pension and insurance benefits, but with a somewhat wider entitlement to communication allowance. All employees other than the president also have a loyalty scheme which comprises an annual payment determined by the board. The scheme accords with the calendar year. Also embracing the management team, the scheme involves allocating a sum equivalent to five per cent of annual pay up to a maximum of 24G annually at 1 January. The calculation is based on the value of G at 1 January.

One-third of the credit balance at 31 December is first paid out after a minimum qualifying period of three years. Payment will be made together with regular salary in January. The first pay-out will be made in January 2016 to employees who meet the conditions. Thereafter, one-third of the credit balance at any given time will be paid annually. The accumulated sum is lost if the person concerned resigns from the company or is under notice at the due date for payment. In the event of retirement, the credit balance will be paid in its entirety on departure. The sum paid is reported as a payroll expense.

Petoro does not have a bonus programme. Share programmes, options and other option-like arrangements are not used by the company.

Pay levels in a reference market comprising relevant companies in the upstream oil and gas industry provide the basic guidelines for the company’s remuneration profile. Basic pay is primarily fixed on the basis of the responsibilities and complexity of the position. Basic pay is subject to an annual assessment.

Petoro has a defined benefit pension scheme. The president has a retirement age of 67. Her employment contract stipulates a mutual six-month period of notice. Agreement has been entered into on a pay guarantee scheme of 12 months in addition to the period of notice. One member of the management team has the opportunity to retire on a full pension upon reaching the age of 62. Two members of the management team can opt to retire upon reaching the age of 65 on a reduced pension. The remaining executives retire at 67. The pension benefit is calculated as about 66 per cent of the pension basis, less an estimated National Insurance benefit. For competitive reasons, Petoro has an unfunded defined benefit plan for personnel earning more than 12 times G. This pension agreement was established before the revised guidelines on employment terms for senior executives in state-owned undertakings and companies came into force. It embraces all employees of the company earning more than 12G, and is not confined to senior executives.

Petoro has begun work on an overall review of the company’s pension schemes and has established a project to assess the options, taking account of the legal framework and the terms of union-management agreements, relevant pension projects available on the market and Petoro’s competitive position in the industry. New legislation on occupational and contributory pensions will occupy a key place in this work.

Remuneration principles and their implementation in the preceding year
The annual evaluation of the basic pay of the president and other senior executives is conducted with effect from 1 July. Assessments of senior executives other than the president in 2014 took place during the second quarter. The board considered the president’s pay assessment at its meeting of 5 September 2014. The president’s pay is adjusted at 1 July 2015.

 

All figures in NOK 1 000	Fixed fittings	Equipment, etc	ICT	Total
Purchase cost 1 Jan 14	4 021	8 320	24 282	36 623
Addition fixed assets	288	201	2 261	2 750
Disposal/obsolescence fixed assets	-	-	-	-
Purchase cost 31 Dec 14	4 310	8 520	26 543	39 373
Accumulated depreciation 1 Jan 14	3 727	7 509	21 956	33 192
Reversed accumulated depreciation				-
Depreciation for the year	337	198	2 203	2 739
Accumulated depreciation 31 Dec 14	4 064	7 707	24 160	35 931
Book value at 31 Dec 14	246	813	2 383	3 442

 

 

Economic life	Until lease expires in 2020	3-5 years	3 years
Depreciation plan	Linear	Linear	Linear

Operational leasing contracts include office equipment and machines. The initial hire period is three-five years.

 

All figures in NOK 1 000	2014	2013
Financial income
Interest income	3 399	3 770
Currency gain	49	20
Financial expenses
Interest expenses	3	78
Currency loss	436	287
Other financial expenses	3	0
Net financial items Petoro AS	3 006	3 424
Net financial items Petoro Iceland AS	72	65
Net financial items group	3 078	3 489

 

 

Company	Acquisition date	Business office	Interest	Voting  share	Equity 31 Dec	Profit 2014
Petoro Iceland AS	11 Dec 2012	Stavanger	100 %	100 %	2 109	62

Petoro AS received a contribution of NOK 2 million in 2012 which was earmarked as share capital for Petoro Iceland AS. This contribution has been offset against the acquisition price of the shares. For that reason, investment in Petoro Iceland has been recorded as NOK 0 in the balance sheet.

Petoro Iceland receives its own appropriations over the central government budget to fund its operations. It has also entered into an agreement with the parent company, Petoro AS, on an overdraft facility of NOK 3 million. This agreement has been established on the arm’s-length principle and is based on normal commercial terms and principles, and is thereby considered to accord with the pricing of corresponding financial services in the market. The facility remained undrawn at 31 December 2014.

 

Other debtors consist in their entirety of pre-paid costs relating primarily to rent, insurance, licences, subscriptions for market information and VAT credits. 

 

Of consolidated bank deposits totalling NOK 178.3 million, Petoro AS accounts for NOK 173.5 million. That includes NOK 130.7 million in withheld tax and pension plan assets. 

 

The share capital of the company at 31 December 2014 comprised 10 000 shares with a nominal value of NOK 1 000 each. All the shares are owned by the Ministry of Petroleum and Energy on behalf of the Norwegian government, and all have the same rights.

 

Petoro AS (All figures in NOK 1 000)	Share capital	Other equity	Total
Equity at 1 Jan 14	10 000	12 764	22 764
Change in equity for the year
Net income		(6 015)	(6 015)
Equity at 31 Dec 14	10 000	6 749	16 749

 

Group (All figures in NOK 1 000)	Share capital	Other equity	Total
Equity at 1 Jan 14	10 000	14 829	24 829
Corrected equity at 1 Jan 14		(18)	(18)
Change in equity for the year
Net income		(5 953)	(5 953)
Equity at 31 Dec 14	10 000	8 858	18 858

 

Consolidated reserves include a contribution of NOK 2 million from the Norwegian government in connection with the establishment of Petoro Iceland AS.

 

The company is legally obliged to have an occupational pension plan pursuant to the Act on Mandatory Occupational Pensions. The company’s pension plans comply with the requirements of this Act.
    
The company has defined benefit pension plans covering all its employees, with the exception one person who has a defined contribution plan. The plans confer the right to defined future benefits. These depend primarily on the number of years of pensionable earnings, the level of pay at retirement and the size of national insurance benefits. 

Net pension cost  (Figures in NOK 1 000)	2014	2013
Present value of benefits earned during the year	22 486	21 799
Interest expense on pension obligation	8 798	8 056
Return on pension plan assets	(3 609)	(3 775)
Recorded change in estimates	(693)	(2 726)
Payroll tax	3 171	3 002
Pension cost, defined benefit plans	30 154	26 356
Pension cost, defined contribution plan	73	0
Net pension cost	30 227	26 356

 

Capitalised pension obligation	2014	2013
Estimated pension obligation at 31 Dec	293 218	203 561
Pension plan assets (market value)	(105 821)	(90 255)
Net pension obligations before payroll tax	187 397	113 306
Unrecorded change in estimates	(88 493)	(22 374)
Payroll tax	14 078	12 954
Capitalised pension obligation	112 983	103 886

Financial assumptions applied in calculating net pension expense for the year relate to the preceding year for net pension costs and to the present year for the net pension obligation:
 

	2014	2013
Discount rate	2.3 %	4.1 %
Expected return on plan assets	3.2 %	4.4 %
Expected increase in pay	2.75 %	3.75 %
Expected increase in pensions	0.0 %	0.6 %
Expected change in NI base rate	2.5 %	3.5 %

The actuarial assumptions are based on common assumptions made in the insurance business for demographic factors.

 

Other current liabilities relate almost entirely to provision for costs incurred, pay outstanding and holiday pay.

 

Erga Revisjon AS is the group’s elected auditor. Fees charged by Erga Revisjon to Petoro for external auditing in 2014 totalled NOK 0.37 million. The figure for Petoro AS was NOK 0.26 million. 
    
In accordance with the Act on Government Auditing of 7 May 2004, the Auditor General is the external auditor for the SDFI. Deloitte AS has also been engaged to conduct a financial audit of the SDFI as part of the company’s internal audit function. Deloitte charged NOK 0.77 million for this service in 2014, and also executed internal audit projects and delivered services related to partner audits for a total of NOK 2.3 million.

 

Petoro AS entered into a lease with Smedvig Eiendom AS for office premises in the autumn of 2003. The ordinary term of the lease expired at 31 December 2014. Petoro chose to exercise its option to extend the lease to 31 December 2020.

The remaining term of the lease is now five years, with an option to renew for a further five-year period. Rent for the year was NOK 8.95 million, which included all management and shared expenses. 

 

Petoro has entered into a new agreement with Upstream Accounting Excellence (Upax) on the delivery of accounting and associated ICT services related to the SDFI accounts. This agreement applies from 1 March 2014 and runs for five years with an option for Petoro to extend it for a further year. Evry is the sub-contractor for ICT services. The recorded accounting fee for Upax in 2014 was NOK 15 million. Other services purchased from the contractor totalled NOK 2.2 million.

 

Statoil ASA and Petoro AS have the same owner in the Ministry of Petroleum and Energy, and are accordingly close associates. Petoro purchased services in 2014 relating to the audit of licence accounts, insurance services for the Norwegian Government Petroleum Insurance Fund and other minor services. NOK 0.91 million was recorded in 2014 for the purchase of services from Statoil ASA. These were purchased at market price on the basis of hours worked. NOK 3.94 million has been invoiced for services rendered to Statoil ASA under the arm’s-length principle, based on hours worked by Petoro personnel and contract staff.

 

Petoro Iceland AS has entered into a management agreement with Petoro AS. Its purpose is that Petoro AS will manage the operations of Petoro Iceland AS on the terms and conditions specified in the agreement. NOK 1.79 million was invoiced in 2014 for the purchase of hours and services, including NOK 0.05 million for travel. These services are purchased at market price, based on hours worked and the government’s scale for travel expenses. The parent company has a credit of NOK 0.08 million with the subsidiary. The amounts have been eliminated in the accounts.

 

The Icelandic government awarded two licences on 4 January 2013 to explore for and produce hydrocarbons on the Icelandic continental shelf. A third licence was awarded in January 2014. The Norwegian government has resolved that Petoro Iceland AS, through its branch office in Iceland, will manage the Norwegian participatory interest of 25 per cent in these two licences. The work programme in the licences is divided into three phases, and the licensees can opt to relinquish the licences at the end of each phase. The first phase for one licence expired at 4 January 2015. The work programme was fulfilled in 2014. In line with the operator’s recommendation, the government has resolved that Norwegian state participation in this licence will not continue into the next phase.

 

Tax expense for the year breaks down as	2014	2013
Tax payable	26	18
Excess provision for tax 2013	(6)	0
Icelandic tax	13	1
Total tax expense	34	19
Calculation of tax base for the year
Profit before tax expense	96	65
Permanent differences	0	0
Change in temporary differences	0	0
Tax base for the year	96	65
Tax payable	18	18