Board of Directors Report Seismic operations in general are split between contract seismic, where data is acquired exclusively for a customer, and multi-client, where Polarcus owns the data which is marketed to multiple customers on a non-exclusive basis. Polarcus took on contract seismic in 2010, rather than multi-client, since financing for the latter was not in place. Moving forward, the company has an overall objective of having 80% of the active vessel time used for contract seismic and 20% for multi-client surveys. In order to enter into multi-client projects, Polarcus in 2010 entered into a multi-client cooperation agreement with Searcher Seismic Pty. Ltd of Australia, to jointly develop and license marine 3D multi-client acquisition projects across Australia and Indonesia. The agreement is intended to see the development of highly financed multi-client projects to complement potential future contract operations in the strategic Asia-Pacific market. Searcher Seismic is a large and well known independent multiclient company in Australia with a reputation for delivering high quality multi-client projects. The agreement complements the existing cooperation agreement with Geo Partners covering northwest Europe and Africa. Polarcus saw contract prices remain stable throughout 2010, despite the disruptions seen post the Macondo tragedy in the Gulf of Mexico coinciding with new capacity entering the market. From Polarcus’ point of view, contributing factors to this price stability has been industry capacity reductions following scrapping of vessels grown old, and the increase in demand, driven by higher E&P spending by all the oil-companies, nationals, supermajors and independents. Historically, demand not supply has been the cycle creator and destroyer. This was last shown in the upturn from 2004-2008 when prices increased around 140% to the peak level at the same time as capacity doubled.
4. Financial results for 2010 2010 marks Polarcus first year of production, hence comparisons against 2009 numbers are to a large extent irrelevant and left out in the following review of the results. Polarcus generated revenues of USD 122.7 million for the year ended 31 December 2010. Revenues include other income of USD 3.5 million which was related to insurance claims on seismic equipment less deductibles. Vessel operating expenses amounted to USD 67.1 million and sales, general and administrative costs were USD 25.1 million. Depreciation came to USD 26.8 million of which USD 3.8 million was related to damaged seismic equipment. An impairment loss of USD 1.0 million was recorded due to waived slot reservations as a different shipyard was chosen for building vessels 7 and 8. Total operating profit for the year was USD 2.6 million.
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Net Finance costs were USD 32.0 million in total which is less USD 18.7 million in interest expenses capitalized to vessels under construction. USD 3.5 million of finance costs are related to currency exchange and other financial losses. Net finance income was USD 4.6 million which is mainly related to currency exchange gains. A non-cash loss of USD 3.6 million is related to revaluation of fair value of liabilities on warrants issued. The total net loss for 2010 amounted to USD 28.3 million. In 2009 Polarcus discontinued a foreign currency hedge program related to the vessel building by buying NOK to cover the cost of Norwegian equipment to be delivered to the vessels. As a result of cash flow hedges Polarcus booked a net gain of USD 4.6 million in 2009. This was booked directly against the balance sheet and was shown in the total comprehensive loss for 2009. For 2010 Polarcus has continued to have foreign currency positions but not accounted for this as cash flow hedges.
5. Cash flows and financing For 2010 net cash flow provided by operating activities was USD 11.7 million. The amount increased throughout the year as the company became more profitable as more vessels have become operational. Cash and cash equivalents as of 31 December 2010 were USD 86.8 million. Due to global economic conditions at the time, the Company in July 2009 carried out a restructuring of Polarcus. Under the restructuring the Company sold two of its vessel owning subsidiaries, Polarcus 4 owning the vessel POLARCUS SELMA and Polarcus 6 owning the vessel POLARCUS ALIMA to Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) for a consideration of USD 1 each per vessel. After this transaction, ZL carried all financial obligations related to Polarcus 4 and Polarcus 6, while Polarcus had an option to repurchase each of POLARCUS SELMA and POLARCUS ALIMA or the corresponding vessel owning companies at a price equal to the remaining cost of completing each vessel. In October 2010, Polarcus exercised the option to repurchase POLARCUS ALIMA after raising USD 200 million in new capital comprising USD 65 million in equity, placed at NOK 5.15 (USD 0.90), a USD 80 million bond with a coupon of 12.50% and a USD 55 million bank loan facility with an average interest rate of approximately 5%. Furthermore, in November 2010 Polarcus signed shipbuilding contracts for two additional high-end 3D seismic vessels for delivery in the first half of 2012. To partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel the company raised USD 65 million of equity at NOK 5.30 (USD 0.93) in a private placement. Polarcus has also received a proposal from Eksportfinans ASA for 12 years financing for the two vessels of an amount up to 80% of the total project capital expenditure. The Eksportfinans facility is subject to ap-