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The company recorded an operating contribution from the Norwegian government totalling NOK 267.3 million excluding VAT as income in 2015. For the group, the amount was NOK 284.6 million. The appropriation for the year, excluding VAT, was NOK 265 million for Petoro AS and NOK 16.5 million for Petoro Iceland AS, giving a total amount of NOK 281.5 million for the group. The difference between the operating contribution recorded as income and the appropriation for the year reflects accruals between fiscal years. 
    
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 3.4 million in investment made during 2015 as well as NOK 2 million in depreciation of investments made during the year and in earlier years.

 

Payroll expenses*   (all figures in NOK 1 000)	2014	2013
Pay	98 681	99 806
Directors’ fees	1 737	1 690
Payroll taxes	15 044	13 998
Pensions (note 11)	38 881	30 227
Other benefits	3 663	3 753
Total	158 006	149 474
* Directors’ fees are specified in the table.
Employees at 31 Dec	64	67
Employees with a signed contract who had not started work at 31 Dec	0	0
Average number of work-years employed	65.5	66

 

Remuneration of senior executives (all figures in NOK 1 000)	Pay	Other benefits	Total benefits	Expensed pension
Grethe Moen, president and CEO	3 221	179	3 400	1 850
Rest of the management team (seven people)
Olav Boye Sivertsen	1 840	156	1 996	436
Marion Svihus	2 373	154	2 527	962
Laurits Haga	2 528	154	2 682	690
Roy Tore Ruså	2 468	154	2 622	585
Jan Terje Mathisen	2 362	151	2 513	899
Nashater Solheim	1 729	158	1 887	701
Kjell Morisbak Lund	2 323	151	2 474	678
Rest of the management team (seven people)	15 623	1 078	16 701	4 952

Expensed pension liabilities represent the current year’s estimated cost of the overall pension liability for the CEO plus the rest of the management team.
    
Nashater Solheim resigned from Petoro in February 2016.

 

The declaration on remuneration for the CEO 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 guidelines on pay and other remuneration for senior executives in wholly or partly state-owned undertakings and companies which came into force on 13 February 2015. These replaced the earlier guidelines on conditions of employment for executives in state-owned undertakings and companies of 31 March 2011.

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 CEO, 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 CEO 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 in accordance with the principles for good corporate governance. 
    
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. The management team, with the exception of the CEO, are also covered by a loyalty scheme like other employees. This matches the calendar year, and involves annually allocating a sum equivalent to five per cent of annual pay at 1 January up to a maximum of 24 times the National Insurance base rate (G). 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. The first pay-out was made in January 2016 to employees who met 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 had a defined benefit pension scheme in 2015. The CEO 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. Petoro also had an unfunded defined benefit plan in 2015 for personnel earning more than 12 G. This pension agreement was established before the revised guidelines on employment terms for senior executives in state-owned companies came into force. It embraces all employees of the company earning more than 12 G, and is not confined to senior executives.
    
The board approved a new pension plan for Petoro with effect from 1 January 2016. This is a defined contribution plan pursuant to the Defined Contribution Act. From the same date, Petoro has no collective pension plan for employees with pay above 12 G. A transitional arrangement has been put in place which applies equally to senior executives and other employees with less than 15 years to go before reaching the retirement age of 67. Senior executives with employment contracts entered into before 13 February 2015 are covered by the same transitional scheme as other employees.
    
Senior executives appointed after the new guidelines came into force on 13 February 2015 will only be covered by the company’s defined contribution plan for pay below 12 G. Consequently, after these new guidelines came into force, Petoro will have no new senior executives with a defined benefit pension and no pension expenses over and above those which follow from the tax-favoured defined benefit plan.

Remuneration principles and their implementation in the preceding year
The annual evaluation of the basic pay of the CEO and other senior executives is conducted with effect from 1 July. Assessments of senior executives other than the CEO in 2015 took place during the second quarter. The board considered the CEO’s pay assessment at its meeting of 3 September 2015. The CEO’s pay is adjusted at 1 July 2016.

 

 

All figures in NOK 1 000	Fixed fittings	Equipment, etc	ICT	Total
Purchase cost 1 Jan 15	4 310	8 520	26 543	39 373
Addition fixed assets	125	-	3 282	3 407
Disposal/obsolescence fixed assets	-	-	-	-
Purchase cost 31 Dec 15	4 434	8 520	29 825	42 780
Accumulated depreciation 1 Jan 15	4 064	7 707	24 160	35 931
Reversed accumulated depreciation				-
Depreciation for the year	80	17	1 694	1 991
Accumulated depreciation 31 Dec 15	4 144	7 924	25 853	37 921
Book value at 31 Dec 15	291	596	3 971	4 858

 

 

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	2015	2014
Financial income
Interest income	2 093	3 399
Currency gain	86	49
Financial expenses
Interest expenses	33	3
Currency loss	428	436
Other financial expenses	-	3
Net financial items Petoro AS	1 718	3 006
Net financial items from subsidiary	95	72
Net financial items group	1 813	3 078

 

 

Company	Acquisition date	Business office	Interest	Voting  share	Equity 31 Dec	Loss 2015
Petoro Iceland AS	11 Dec 2012	Stavanger	100 %	100 %	NOK 1 589	(521)

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 2015.

 

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 199.1 million, Petoro AS accounts for NOK 197.7 million. That includes NOK 145 million in withheld tax and pension plan assets. 

 

The share capital of the company at 31 December 2015 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 2015	10 000	6 749	16 749
Change in equity for the year
Net income		5 040	5 040
Equity at 31 Dec 2015	10 000	11 789	21 789

 

Group (All figures in NOK 1 000)	Share capital	Other equity	Total
Equity at 1 Jan 2015	10 000	8 858	18 858
Change in equity for the year
Net income		4 520	4 520
Equity at 31 Dec 2015	10 000	13 378	23 378

 

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 had defined benefit pension plans in 2015 covering all its employees, with the exception of 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.
    
Petoro has introduced a defined contribution plan with effect from 1 January 2016. Employees who had less than 15 years of pensionable service remaining at 31 December 2015 will stay in the existing defined benefit plans for employees earning below and above 12 G. Where other employees are concerned, Petoro’s collective pension plan for pay above 12 G has been discontinued with effect from 1 January 2016. A transitional arrangement has been established for employees transferring to the defined contribution pension plan.
 

Capitalised pension obligation	2015	2014
Estimated pension obligation at 31 Dec	281 649	293 218
Pension plan assets (market value)	(99 919)	(105 821)
Net pension obligations before payroll tax	181 730	187 397
Unrecorded change in estimates	(60 975)	(88 493)
Payroll tax	9 671	14 078
Capitalised pension obligation	130 425	112 983

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. The change to pension plans at the end of 2015 is reflected in the capitalised pension obligations at 31 December.

 

	2015	2014
Discount rate	2.5%	2.3%
Expected return on plan assets	3.3%	3.2%
Expected increase in pay	2.25%	2.75%
Expected increase in pensions	0.0%	0.0%
Expected change in NI base rate	2.5%	2.5%

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 2015 totalled NOK 0.4 million. The figure for Petoro AS was NOK 0.3 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 was engaged until 30 June 2015 to conduct a financial audit of the SDFI as part of the company’s internal audit function. Deloitte charged NOK 0.5 million for this service in 2015, and also executed internal audit projects and delivered services related to partner audits for a total of NOK 1.1 million. PricewaterhouseCoopers AS (PwC) has been engaged as the company’s financial auditor with effect from 1 July 2015. PwC charged NOK 0.3 million for financial auditing in 2015, and also delivered services related to partner audits for a total of NOK 0.9 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 five years, with an option to renew for a further five-year period. Rent for the year was NOK 8.9 million, which included all management and shared expenses. 

 

Petoro has entered into an agreement with Upstream Accounting Excellence (Upax) on the delivery of accounting and associated ICT services related to the SDFI. 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 2015 was NOK 13.2 million. Other services purchased from the contractor totalled NOK 0.6 million.

 

Statoil ASA and Petoro AS have the same owner in the Ministry of Petroleum and Energy, and are close associates. Petoro purchased services in 2015 relating to the audit of licence accounts, insurance services and other minor services. These were purchased at market price on the basis of hours worked. NOK 0.4 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 1.4 million was invoiced in 2015 for the purchase of hours and services. These services are calculated at market price on the basis of hours worked and the government’s scale for travel expenses. The parent company has a credit of NOK 0.1 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 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. At 31 December 2015, Petoro Iceland AS had participatory interests in two production licences.

 

Tax expense for the year breaks down as	2015	2014
Tax payable	0	26
Excess provision for tax 2013	0	(6)
Icelandic tax	28	13
Total tax expense	28	34
Calculation of tax base for the year
Profit before tax expense	(493)	96
Permanent differences	0	0
Change in temporary differences	0	0
Tax base for the year	(493)	96
Tax payable	0	26