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IDEMITSU PETROLEUM NORGE AS ANNUAL REPORT 2006


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Idemitsu Petroleum Norge AS Annual Report 2006. Design and Art direction: Uniform AS. Photography: Page 5, 12, 13, 14 and front cover: Kai Myre. Page 9: Norsk Hydro ASA.Page 11: Idemitsu. Print: RK Grafisk AS

IDEMITSU PETROLEUM NORGE AS

2


CONTENTS KEY DATA

04

MESSAGE FROM THE MANAGING DIRECTOR

05

EXPLORATION

06

PRODUCTION AND OPERATIONS

08

IDEMITSU GROUP

11

ANNUAL REPORT OF THE BOARD OF DIRECTORS

12

PROFIT AND LOSS STATEMENT

16

BALANCE SHEET

17

CASH FLOW STATEMENT

19

ACCOUNTING PRINCIPLES

20

NOTES TO THE ACCOUNTS

23

AUDIT REPORT

31

ANNUAL REPORT 2006

3


KEy data 2006

2005

2004

2003

2002

Operating revenues million NOK

4592

4093

4234

3136

2787

Operating profit million NOK

1967

2148

2226

1707

1551

Profit after tax million NOK

492

497

462

423

369

Crude oil sales million barrels

10,2

10.6

15.6

14,3

13.2

Daily oil production, thousand barrels

27.9

31.7

40.2

39.3

36.5

Investments, million NOK

695

357

283

582

614

Equity in % of balance

41%

37%

46%

48%

49%

Cash flow before financing, million NOK

-426

1117

1434

439

-28

Crude oil reserves, million Sm3

19.8

21.3

20.4

20.6

21.3

Return on capital

72%

71%

64%

61%

23%

DEFINITIONS

4

Daily oil production

= Average daily oil production, Idemitsu share

Investments

= Offshore investments excl. production rights

Crude oil reserves

= Probable, commercially recoverable resources

Return

= Annual profit + interest expense +/- unrealized forex loss/gain on loan

Capital

= Share capital and interest-bearing loans at year end

IDEMITSU PETROLEUM NORGE AS


Managing Director Kosuke Tsuji.

message from the managing director 2006 has been a year marked by important changes for Idemitsu Petroleum Norge AS (Idemitsu). The company has been through its first year as operator for a NCS license. Even though the operating activities are still limited compared to Idemitsu’s partner-operated activities, the operator tasks have offered new perspectives and challenges. Our operating activities have increased our focus on Health, Safety and Environment (HSE) issues further, and the continuous improvement of our HSE culture is an important goal for the company. Growth and changes have also affected our organization. The company has had the pleasure of welcoming several new and highly qualified employees, who are expected to contribute substantially to the onward growth and development of the company through our team work spirit among professionals. With a view to further expansion, the company will have a continued requirement for new staff. Our existing portfolio of producing and prospective licenses, together with our long and stable history on the NCS, makes me confident that our company can continue to offer attractive job opportunities in the current competitive labor market for petroleum industry professionals. On the operational side, the company has been taking part in several important development projects advanced to various stages during 2006. Fram Øst started production on schedule in October 2006, while a PDO for Vega Sør was submitted in December. In the 19th Round of Licensing, Idemitsu was awarded its first two licenses offshore Mid-Norway. Moreover, two licenses in the North Sea were recently awarded to Idemitsu in the Awards in Predefined Areas 2006. Idemitsu is firmly committed to expanding our exploration activities and production, through building on our current portfolio and by acquiring additional prospective acreage. For 2007, the participation in five exploration wells is planned. In 2006 Idemitsu’s expansion reached the stage where new office premises were required. After careful preparations for almost a year, the company moved into bright and modern offices in the Skøyen/Sjølyst area in the beginning of 2007. During the preparations, substantial efforts have been made to create a comfortable, safe and healthy working environment. The office move marks a new era for our company, and I am hopeful that our company will thrive and expand in these new and inspiring surroundings.

Kosuke Tsuji Managing Director

ANNUAL REPORT 2006

5


EXPLORATION 2006 was a successful year for Idemitsu’s exploration activities in Norway. Idemitsu participated in one of the exploration and/or appraisal wells that were spudded, a well that proved up oil and gas resources. Out of the 26 wells quoted by the Norwegian Petroleum Directorate, only four resulted in new discoveries. In April 2006, Idemitsu was granted two licenses in the 19th Round of Awards. These are designated PL 390 (blocks 6506/4 and 6505/6 & 9 30% Idemitsu interest) and PL 391 (block 6506/1; 20% Idemitsu interest). The awarded acreage broadens Idemitsu’s geographical area of activities to the Mid-Norway offshore. Near-future activities in these licenses include 3D seismic acquisition. Following applications for Awards in Pre-defined Areas 2006 Idemitsu was awarded ownership in two new exploration licenses during February 2007. The licenses, designated PL 318 B (Idemitsu interest 20%) and PL 420 (Idemitsu interest 30%), comprise part blocks 35/4 & 5 and the western part of block 35/9, respectively. PL 318 B is located south of our PL 318 Peon gas discovery, while PL 420 is situated close to the Gjøa oil and gas discovery. In PL 057 (part block 34/4; 9.6% Idemitsu interest) partial relinquishment took place during 2006. In PL 089 (part block 34/7; 9.6% Idemitsu interest) exploration has entered a late phase. However, the license still contains attractive exploration potential. In 2006 no exploration drilling was carried out due to limited rig availability. In PL 090 (located in block 35/11; 15% Idemitsu interest) work to mature undrilled prospects and leads to a drillable stage will continue. In PL 090 B (located mainly within block 35/11; 15% Idemitsu interest) the 35/11-14 S delineation well was drilled by the semisubmersible drilling rig

6

IDEMITSU PETROLEUM NORGE AS

“Transocean Winner” to appraise the Astero oil and gas discovery made by well 35/11-13 in 2005. Well 35/11-13 proved oil and gas in Upper Jurassic sandstones, similar to the productive reservoirs of the adjacent Fram Vest Field. The 2006 results from 35/11-14 S are positive, and they are being assessed in conjunction with the rest of the area around the Fram Field as regards commercial exploitation. The license maintains a high activity level and further exploration drilling will be undertaken. In PL 318 (block 35/2; 20% Idemitsu interest) operations in well 35/2-1 R, the re-entered Peon gas discovery well, were completed with the drilling rig “Deepsea Trym” during July 2006. A planned production test was postponed during the operations. The Peon gas discovery was made during August 2005, about 100 km west of the coast of Sogn og Fjordane county. A programme aiming to increase the understanding of the discovery is now underway, in order to seek an optimal field development solution. Additional data acquisition and planning activities are in progress, and further drilling activities lies ahead. In PL 373 S (part block 34/4; 25% Idemitsu interest) reprocessing of 3D seismic was performed. An obligation well will be drilled during 2007. In Idemitsu-operated PL 377 S (part block 35/7; 70% Idemitsu interest) 3D seismic acquisition over the prospective areas was initiated during September 2006 and will be completed during 2007. Idemitsu will utilise its staff of skilled E&P professionals to continue and strengthen its exploration activities during the years to come. An important contribution towards meeting this end is further acquisition of promising exploration acreage through active licensing round participation and pursuit of attractive farm-in opportunities.


Gas Oil 211 Condensate Idemitsu licensed areas

34

35

36

PL 373 S License

Idemitsu Interest (%)

PL 057

Agat

9.60

PL 089

9.60

PL 090

15.00

PL 090 B

15.00

PL 090 C

15.00

PL 090 D

15.00

PL 318

20.00

PL 318 B

20.00

PL 373 S

25.00

PL 377 S

70.00

PL 390

30.00

PL 391

20.00

PL 420

30.00

Peon

Snorre

Sygna

PL 420 Statfjord Øst

PL 377 S

Visund

Vega

Vigdis Tordis

Vega Sør

Kvitebjørn

Gullfaks

Astero

Fram Vest 3

30

Gjøa

Fram Øst

31

32

Huldra

Troll

A

Veslefrikk

B

Marulk

PL 391

6505

Norne

6507

Idun

6508

6509

6408

6409

Trondheim PL 390

Skarv

Victoria

A

Snadd

Bergen

Heidrun

Oslo Smørbukk Åsgard

Kristin 6405

Midgard

6406

6407 Tyrihans Tyrihans Sør Lavrans Mikkel

B ANNUAL REPORT 2006

7


Production and operations TAMPEN AREA Five of Idemitsu’s six producing fields are located in the Tampen Area of the North Sea. Good cooperation has been achieved among the fields in this area with Statoil as the common operator. All fields are represented in a Tampen Forum where we have common aspirations to improve health, safety and environmental standards while optimizing economic recovery of resources. Through cooperation in the Tampen Forum, companies have established common use of Light Well Intervention vessels, sharing of long-term rig contracts, joint seismic acquisition and a common Emergency Preparedness Plan. The fields are furthermore striving together to find optimum long-term solutions for their late phase production. Idemitsu is also grateful for the strong cooperation on the HSE side through the Tampen HSE Forum. Here companies share experience from their own HSE measures and verification activities. Snorre The Snorre reservoir is comprised of the Statfjord and Lunde sandstone formations at depths of 2300 to 2700 m which contain oil zones with varying recovery factor. The field has been developed in two phases. In the first phase, a tension leg platform (Snorre A) and a subsea production facility were installed. Production started on Snorre A from the Statfjord formation in 1992. In 1993, production also started from the Lunde formation via the subsea template. Partially stabilized oil is exported to 8

IDEMITSU PETROLEUM NORGE AS

Statfjord A for final processing and offshore loading. Gas not used for injection at the Snorre field is exported through the Gassled system to Kårstø. The second phase comprises a semisubmersible floater (Snorre B) located about 7 km north of Snorre A platform. The platform was installed in 2001. Production is mainly from the Lunde formation. Stabilized oil is exported to Statfjord B platform for offshore loading. Gas not used for injection may be exported via Snorre A. Snorre A is in the process of being modified for safe operation in the extended production period to 2030. Major activities cover upgrade of the safety systems, new facilities for better working environment and modifications for increased robustness. This will improve the HSE level and the production regularity of the platform. A well work-over program has been carried out to maintain production at a high safety level for the existing wells. Even with a longer revision stop and an unplanned shut-down due to modification of the life-boats at Snorrre A, the platform still produced above expectations. The Snorre B platform delivered close to planned production volumes. Idemitsu’s share of the crude oil production from the Snorre field was 0.78 million Sm3 (4.9 MMSTB), as compared to 0.84 million Sm3 (5.3 MMSTB) in 2005. Idemitsu actively contributes to the HSE work for the field by coordination of the partners’ participation in management HSE


© Norsk Hydro ASA

inspections on- and offshore. The Snorre unit has a determined strategy for increasing field recovery with a defined schedule for various Increased Oil Recovery (IOR) projects the next years. There are also plans being developed for continued production after possible shut-down of the connected facilities. Tordis The Tordis Area, consisting of the structures Tordis, Tordis Øst, Tordis Sørøst and Borg is developed by subsea installations tied in to Gullfaks C by two production pipelines and one injection pipeline. The production from Tordis started in 1994 and during the years of operation, the Tordis Area has shown generally good production performance and high regularity. After more than ten years of operation, the Tordis Area is now experiencing a natural decline in production. In order to counteract this development, the license partners have decided to implement the Tordis IOR project. This project will accelerate and increase production from today’s estimate of 51% recovery to 55% recovery. The project is divided into two steps: 1) Enable low pressure production at the Gullfaks C facilities 2) Expand the Tordis subsea facilities to include a subsea processing facility Step 1 was completed in 2006 and the

pressure at Gullfaks C has been reduced. The subsea production facilities have been prepared for installation of the subsea processing facility in 2007. Tordis IOR step two will be important in order to bring subsea processing forward as a proven technology. The experience that will be gained by utilizing subsea processing for the Tordis IOR project is expected to be of great value for the industry. Subsea processing is a key element in order to develop future deep water fields and long distance tiebacks. Idemitsu’s share of the Tordis crude oil production was 0.16 million Sm3 (1.01 MMSTB) in 2006, as compared to 0.30 million Sm3 (1.83 MMSTB) in 2005. A prolonged revision stop resulted in lower production than planned. Vigdis The Vigdis field is a satellite develoment tied in to Snorre A. Vigdis started its production in 1997. In 2003 the first phase of the Vigdis extension project came on stream. Phase two of the Vigdis extension project proceeds as planned. A new production template was installed in 2006 and will start production late 2007. The phase two of the Vigdis Extension project will ensure the possibility to extend with a phase three development. This is obtained by installing a 4-slot template of which only two slots will be used for the ANNUAL REPORT 2006

9


phase two development. After completion of the Vigdis extension projects, the field will altogether comprise six 4-slot templates and two satellite structures. Idemitsu’s share of the Vigdis crude oil production was 0.36 million Sm3 (2.26 MMSTB) in 2006, as compared to 0.35 million Sm3 (2.22 MMSTB) in 2005. A project has been established to utilize spare water injection capacity from Statfjord C to the Vigdis area. Additional capacity can be used for future developments. Statfjord Øst Statfjord Øst is a subsea satellite field tied into the Statfjord C platform. In Statfjord Øst Idemitsu’s share of crude oil production was 0.06 million Sm3 (0.4 MMSTB) in 2006, as compared to 0.05 million Sm3 (0.3 MMSTB) in 2005. Sygna Sygna is also a subsea satellite field tied into the Statfjord C platform. Idemitsu’s share of the Sygna field’s crude oil production was 0.02 million Sm3 (0.1 MMSTB) in 2006, as compared to 0.03 million Sm3 (0.1 MMSTB) in 2005. FRAM AREA In 2002 Idemitsu purchased a 15% share in the PL 090 license and parts of the surrounding area, and thereby established a new core area for the company. Fram Vest The Fram Vest field is located 20 kilometres north of the Troll C platform. The wellstream is transported to the Troll C platform for processing, and stabilised oil is transported to Mongstad through the Troll oil pipeline, while the gas is re-injected into the reservoir for pressure support. The Fram Vest started production in October 2003. Idemitsu’s share of the Fram Vest crude oil production in 2006 was 0.23 million Sm3 (1.4 MMSTB), as compared to 0.27 million Sm3 (1.7 MMSTB) in 2005.

10

IDEMITSU PETROLEUM NORGE AS

Fram Øst The Fram Øst PDO was submitted to the authorities on 23 February 2005 and approved on 22 April 2005. The Fram Øst development is the second phase of Fram Area development after the successful Fram Vest in 2003. Fram Øst reservoir will be developed by two 4-slot subsea templates with five producers and two water injectors. The wellstream is routed to the new pipeline and existing Fram Vest pipeline to Troll facilities on the Troll C Platform for processing. Production started 30 October 2006, with an expected plateau oil volume of 7 000 Sm3/sd. Peak gas production will reach 1.5 million Sm3/sd. Idemitsu’s share of the Fram Øst crude oil production in 2006 was 0.02 million Sm3 (0.1 MMSTB). Vega Sør (Fram B) The Vega Sør PDO was submitted to the authorities on 15 December 2006. Vega Sør will be jointly developed with Vega (PL 248, Vega Sentral/Vega Nord).The development consists of two producers drilled from a subsea 4-slot template and a new production pipeline connected to Gjøa platform through Vega Sentral and Vega Nord template. The production will be processed on Gjøa platform. Condensate will be transported through a new pipeline to Troll II transportation system, while gas will be transported through a new gas pipeline to FLAGS system. Production start is planned to be in October 2010.


Idemitsu Group The Idemitsu group was founded in 1911 by Sazo Idemitsu in order to realize his ideas and philosophy through business. The group has achieved remarkable business growth, especially through the second half of the twentieth century, and is now one of the largest independent energy corporations in Japan. For over nine decades the company has adhered to a management philosophy rooted in “Wa”, the traditional Japanese concept of harmonious relationship. Today still, Idemitsu group has put into practice the concept of respect for human dignity in the conduct of business and is seeking to be a corporation that deserves the high expectations and trust of society. The activities of the group now include oil-related business for stable supply of energy, and also compound energy

businesses such as onsite fuel cell/gaseous energy, oil exploration, highly value-added production of petrochemicals and lubricants, electronic materials and new biotechnology business.Idemitsu’s exploration activities started in 1971, with an aim to develop a full line integrated petroleum business that runs both upstream and downstream of petroleum business. Since the successful discovery of the first oil field offshore Japan in 1972, we have explored, developed and produced oil and gas for more than 30 years. In order to secure future oil and gas reserves and production, Idemitsu is actively pursuing a balanced combination of asset opportunities and new exploration acreages in our core areas of Norway and Southeast Asia. Norway has been a core area since we entered the Snorre development in 1989. Idemitsu group commits to expand investments on the NCS and contribute to Norwegian society continuously. IDEMITSU KEY FIGURES

(Consolidated group figures for the year ended 31.03.2006) Sales revenue

3 327 billion JPY

Balance

2 280 billion JPY

Employees VLCCs LPG ocean carriers Gas stations Refineries in Japan Petrochemical plants in Japan Overseas offices

4 447 6 2 5 249 4 2 36 cities

ANNUAL REPORT 2006

11


ANNUAL REPORT OF THE BOARD OF DIRECTORS 2006 BUSINESS AREA Idemitsu Petroleum Norge AS (Idemitsu) is engaged in exploration for, development and production of crude oil and natural gas on the Norwegian Continental Shelf (NCS). Idemitsu was founded on 25 September 1989. On 2 October 1989, a 9.6% interest in the production licenses 057 and 089 was acquired from Statoil. These production licenses are located in the Tampen area in the Northern North Sea, and comprise the Snorre, Tordis, Statfjord Øst, Sygna, Vigdis and Borg fields. In February 2002, Idemitsu’s bid for one of the Fram packages of SDFI was accepted by the Norwegian state. The Fram package included a 15% share in PL 090. Within PL 090, Fram Vest and Fram Øst started production in 2003 and 2006 respectively. Idemitsu is part of the Japanese Idemitsu Kosan group. Idemitsu Snorre Oil Development Co., Ltd. (ISD), a Japanese company registered in Tokyo, owns all the shares. An owner share in ISD of 49.5% was sold in 2005 from the state owned company JNOC to the holding company Osaka Gas Summit Resources Co., Ltd. (Osaka Gas 70% and Sumitomo 30%) OPERATIONS The total net production from Idemitsu’s producing fields in 2006 was lower than in 2005. Most of Idemitsu’s producing fields are in a declining stage. But Snorre A production has been recovering after the 12

IDEMITSU PETROLEUM NORGE AS

serious gas leak incident in late 2004, and from October 2006 Fram Øst has started production. For the Vega Sør development (PL 090 C), a PDO was submitted to the government in December 2006. Idemitsu is operator for PL 377 S in the Northern North Sea. In 2006, the acquisition of 3D seismic was initiated. HEALTH, SAFETY & ENVIRONMENT (HSE) Idemitsu is committed, as a license partner and operator, to monitor and enhance safety and protection of the external environment in our licenses. The objective is to avoid accidents and provide a safe work environment for everybody working on installations where Idemitsu is a partner. Safety and environmental matters arising from the activities in our partner-operated licenses are reported to the authorities by operators Hydro and Statoil. Idemitsu is working systematically to build a solid HSE culture in the company. As of yet, Idemitsu has no responsibility for offshore drilling or production operations. Consequently, the HSE external responsibility presently includes seismic acquisition in Idemitsu’s operated license PL 377 S, in addition to the ‘see-to’-duties in partner-operated licenses. This responsibility is taken seriously, and the company’s monitoring and follow-up is


consistent with and supported by its Governing Documentation. Until Idemitsu operates drilling or production activities, we have recognised that HSE-risks of our own employees are primarily related to onshore office work and the individuals’ leisure activities. One of our main objectives is to foster and maintain an internal HSE culture. Our HSE manager possesses formal HSE competency as well as relevant experience from the NCS, including participation in relevant industry HSE fora. At the end of the year, the company had 22 permanent employees. The Board of Directors regards the working environment as good. Total sick leave in 2006 was 1866 hours, equaling 5% of total working time. There have been no accidents or damage incidents. Operators Hydro and Statoil report the working environment, sick leave and accidents in Idemitsu’s licenses. Idemitsu has a practice of equal opportunity for both genders. The number of women in the Board of Directors has been 1 (20%) in 2006. During October 2006 Idemitsu arranged its second internal HSE seminar. The seminar was obligatory for management and technical personnel. The topic was a review of prevailing HSE regulations on the Norwegian Continental Shelf, with a particular emphasis on regulatory changes. The seminar lasted for two days for recently recruited personnel, whereas a one day update was provided for staff that had attended the previous seminar. The company’s office activities have not caused pollution to the external environment.

Pictures taken from the New office in Oslo.

GAS SALES All gas from the Tampen fields is sold to Statoil on a long term contract. In order to efficiently transport the gas to the delivery point, Idemitsu has entered into a contract with one of the larger gas producers on the NCS for dispatching and booking services in the Gassled system. NGL products which are extracted from the rich gas entering the Kårstø terminal are sold exit Kårstø.

EXPLORATION & PORTFOLIO Idemitsu was awarded its first two license shares offshore Mid-Norway in the 19th licensing round. The Board is pleased that the active area of Idemitsu is expanding, and is hopeful that the activities in this area will further increase. In the Awards in Predefined areas 2006, Idemitsu was also awarded two license shares. They are both located in the Northern North Sea. The Board of Directors regards the potential on the NCS as being good. Idemitsu intends to actively take part in coming licensing rounds and seek further investment opportunities on the NCS. FINANCIAL RESULT (1) Profit and loss statement Total sales income has increased by 12% compared to 2005. The increase is mainly due to higher crude oil price. The total sales volume of crude oil decreased from 10.6 to 10.2 million barrels. Operating expenses have increased slightly. As part of the sales agreement for PL 089 and PL 057, Idemitsu must pay to the seller 50% of sales value of petroleum above a certain threshold level of the crude oil price. The total booked cost for this obligation in 2006 is 995.1 million NOK. The accrual for abandonment cost was increased significantly compared to previous years due to new estimates for abandonment by the operators. Total investment in productions facilities in 2006 was 695 million NOK. (2) Balance, Liquidity And Cash Flow Idemitsu currently has no long term loans. Proposed dividend for 2006 is 554.9 million NOK. Idemitsu has a comfortable liquidity situation. Equity represents 41.3% of total assets. Most of the USD to NOK currency exchange risk was covered by short term foreign exchange contracts. Risk reductions by using the mentioned financial instruments will never exceed the actual risk position. The 2006 financial statement is given under the going concern assumption.

ANNUAL REPORT 2006

13


OUTLOOK Idemitsu’s annual profits are closely linked to the crude oil price and exchange rates. These elements, especially the crude oil price, are difficult to estimate. Idemitsu expects the crude oil price to remain high also in 2007. Due to the solid equity and high cash flow from existing licenses, Idemitsu can expect to be profitable even at significantly lower crude oil prices. The crude oil production and sales volume also affect the annual results. The 2007 production is expected to be slightly higher than in 2006, due to the new production from Fram Ă˜st. The Board of Directors is not aware of any significant matters not already presented in this report or in the financial statements. ALLOCATION OF THE ANNUAL PROFIT The profit for the year of NOK 491 551 359 is proposed allocated as follows: Dividends

554 900 000

Retained earnings

-63 348 641

Total allocated

491 551 359

All of the Retained earnings are available for dividends.

18 April 2007

Trond Stang Chairman

Kosuke Tsuji Managing Director

Catthrine Hambro

Hajime Oshima

Shogo Hirahara 14

IDEMITSU PETROLEUM NORGE AS


財務諸表 ÅRSREGNSKAP ACCOUNTS


Profit and loss statement NOTE

2006

2005

OPERATING REVENUE Sales of crude oil

1, 12

4 281 419 096

3 776 272 921

Sales of NGL

1

128 458 180

130 817 032

Sales of dry gas

1

153 344 899

151 123 193

Tariff income and other revenue

1

29 046 154

34 492 972

4 592 268 329

4 092 706 118

573 257 358

531 860 433

Total operating revenues

OPERATING EXPENSES Production cost, processing tariff, CO2

95 777 405

138 208 935

Statoil premium

Gas and transportation costs 7

995 064 963

775 366 517

Changes in inventory and over- / underlift

9

58 179 265

- 203 550 650

74 189 337

28 394 197

10

200 889 994

12 790 000

2, 3

35 554 738

38 217 437

3

34 201 329

36 138 916

Ordinary depreciation

4, 5

513 927 759

537 704 684

Ordinary depreciation of production rights

5, 7

Exploration costs Abandonment accrual expense Salaries, social security, pension payments Other operating and administrative costs

48 510 030

51 902 031

- 3 907 351

- 2 714 013

Total operating expenses

2 625 644 828

1 944 318 487

Operating profit

1 966 623 501

2 148 387 631

Capitalized administration costs

FINANCIAL INCOME AND EXPENSES Interest income Foreign exchange gain

11, 12

Interest expense Foreign exchange loss

11, 12

Other financial expenses

49 275 096 259 972 643

34 324 287

21 647 739

313 017 499

221 278 253

313 108

158 383

Net financial items

- 20 621 134

66 163 363

Profit before taxes

1 946 002 368

2 214 550 994

1 454 451 009

1 717 328 789

491 551 359

497 222 205 594 200 000

Taxes on ordinary result

PROFIT FOR THE YEAR

16

69 128 547 257 905 213

6

Proposed dividend

554 900 000

Allocated to retained earnings

-63 348 641

-96 977 795

Total allocated

491 551 359

497 222 205

IDEMITSU PETROLEUM NORGE AS


BAlance sheet NOTE

31.12.2006

31.12.2005

5, 7

677 201 804

725 711 833

677 201 804

725 711 833

FIXED ASSETS INTANGIBLE FIXED ASSETS Production rights Total intangible fixed assets

TANGIBLE FIXED ASSETS Successful efforts exploration wells

5

163 561 247

89 611 220

5, 8

2 905 945 512

2 582 341 084

Production facilities under development

5

6 066 181

141 985 340

Furniture and fixtures and cars

5

4 587 319

5 657 816

3 080 160 259

2 819 595 461

Employee long term receivables

428 600

705 100

Other long term receivables

873 141

1 000

1 301 741

706 100

3 758 663 804

3 546 013 394

76 839 519

68 517 853

Production facilities in operation

Total tangible fixed assets

FINANCIAL FIXED ASSETS

Total financial fixed assets

TOTAL FIXED ASSETS

CURRENT ASSETS STOCKS Inventory, gas banking and underlift

9

DEBTORS Accounts receivable Receivables from group companies Other current assets Total debtors

22 333 869

40 124 805

336 270 864

339 772 194

17 371 048

28 558 367

375 975 781

408 455 366

859 590 327

1 880 135 731

1 312 405 627

2 357 108 950

5 071 069 431

5 903 122 344

BANK Bank and cash

TOTAL CURRENT ASSETS TOTAL ASSETS

ANNUAL REPORT 2006

17


BALANCE SHEET NOTE

31.12.2006

31.12.2005

EQUITY Paid-in share capital

13

727 900 000

727 900 000

Retained earnings

13

1 367 051 713

1 430 400 354

2 094 951 713

2 158 300 354

TOTAL EQUITY

LIABILITIES PROVISIONS Pension liabilities

2

1 297 854

1 049 684

Deferred tax

6

891 996 303

1 020 162 334

10

444 399 994

243 510 000

1 337 694 152

1 264 722 019

137 322 668

65 305 743

1 681 219

1 772 843

Abandonment accrual Total provisions

CURRENT LIABILITIES Suppliers payable Payables group companies Accrued payroll taxes, VAT, etc. Taxes payable

6

Other current liabilities and overlift

9, 14

9 189 565 890 167 413

724 540 910

1 513 664 408

Total current liabilities

1 638 423 566

2 480 099 972

TOTAL LIABILITIES

2 976 117 718

3 744 821 990

5 071 069 431

5 903 122 344

TOTAL EQUITY AND LIABILITIES

Kosuke Tsuji

Trond Stang

Cathrine Hambro

IDEMITSU PETROLEUM NORGE AS

Shogo Hirahara

Managing Director

Chairman

18

6 217 337 768 661 432

Hajime Oshima


cash flow statement 2006

2005

1 946 002 368

2 214 550 994

CASH GENERATED FROM / USED IN OPERATING ACTIVITIES Profit / (loss) before taxes for the year Taxes paid

-1 704 123 020

-1 599 778 766

Ordinary depreciation

562 437 789

589 606 715

Accrual for abandonment cost

200 889 994

12 790 000

248 170

276 538

0

0

Pension accrual Unrealized forex (gain) / loss on loan (Gain) / loss on sale of fixed assets Generated from the year’s operations

- 221 620

- 282 507

1 005 233 680

1 217 162 975

Change in inventory and short term assets and liabilities (excl. dividend payment) Net cash flow from operations

A

- 656 712 506

324 611 213

348 521 174

1 541 774 188

- 2 069 465

- 3 776 748

221 620

392 470

0

0

- 695 045 297

- 357 413 943

- 77 377 795

- 65 412 563

- 595 641

1 923 595

- 774 866 578

- 424 287 189

0

0

- 594 200 000

- 684 300 000

0

0

CASH FLOW USED FOR INVESTMENTS Investment in furniture and fixtures and cars Proceeds from sales of fixtures and cars Investment in production rights Investment in production facilities Investment in successful exploration wells Change in other long term assets Net cash flow to investments

B

CASH FLOW USED FOR FINANCING Share capital increases / (decreases) Paid dividend New loans Loan repayments Net cash flow to financing

Net movement in bank and cash Bank and cash at 1 January

BANK AND CASH AT 31 DECEMBER Bank and cash: restricted funds for employee withholding tax

0

0

C

- 594 200 000

- 684 300 000

A+B+C

-1 020 545 404

433 186 998

1 880 135 731

1 446 948 732

859 590 327

1 880 135 731

MNOK

MNOK

4.6

4.6

ANNUAL REPORT 2006

19


ACCOUNTING PRINCIPLES SHARES IN JOINT VENTURES The company’s shares in joint ventures on the Norwegian Continental Shelf are booked under the respective lines in the profit and loss statement and the balance sheet.

CAPITALIZED INTEREST COSTS All interest costs associated with the development of production fields are capitalized up to production start and are thereafter depreciated using the U.O.P. method.

REVENUES Revenues are recognized according to the Sales method as opposed to the Entitlement method.

CAPITALIZED GENERAL AND ADMINISTRATIVE COSTS All general and administrative costs associated with the development of petroleum fields are capitalized according to man hours spent on each field up to production start and are thereafter depreciated using the U.O.P. method.

DEFERRED TAXES / TAX EXPENSE Tax expense comprises payable tax and deferred tax. The deferred tax asset or liability is calculated based upon net temporary differences between assets and liabilities recognized in the financial statements and their bases for tax purposes after offsetting for tax loss carry forwards, special tax deductions and uplift. The full liability method is followed and the asset or liability is not discounted to a net present value. Current tax rates are used when calculating deferred tax. Uplift reduces the special petroleum tax paid by oil companies under the current tax regime. The uplift related to investments will therefore also reduce the deferred special petroleum tax liability. The full effect of uplift is recorded in the accounts when the investment is made. DEVELOPMENT COSTS AND DEPRECIATION AND WRITE DOWN All offshore development costs are capitalized from the time when a discovery is deemed to give future commercial production. Development costs are depreciated using the Unit of Production (U.O.P.) method. Under this method, the annual depreciation charge is based on the percentage of the remaining estimated produceable reserves of an oil field actually extracted in a given year. Certain future investments are required to produce the remaining estimated produceable reserves. These future investments are included in the depreciation base. For tax purposes, offshore development costs are depreciated straight line over 6 years. If the net recorded value after deduction of accumulated depreciation for a field exceeds its value of future net cash flows, an extraordinary write down is made.

20

IDEMITSU PETROLEUM NORGE AS

PRODUCTION RIGHTS Production rights represent the excess of the price paid over the cost of assets acquired by the company. Production rights are depreciated using the U.O.P. method. FURNITURE, FIXTURES AND CARS Fixed assets are recorded in the balance sheet at cost after deduction of total ordinary depreciation. Ordinary depreciation is based on cost and is calculated on a straight line basis over the estimated economic life of the asset, which is 3 or 5 years. EXPLORATION COSTS Exploration costs are accounted for in accordance with the “Successful efforts” method. Under this method, all costs associated with the exploration of licenses are expensed as incurred, with the exception of drilling and testing costs of exploration wells where a commercial discovery is made. Such expenses are capitalized under ‘Tangible fixed assets’ and depreciated using the U.O.P. method together with the producing asset the discovery gave rise to. Exploration wells where the status of a discovery is pending are initially capitalized, and written off fully if the discovery is later deemed non-commercial. ABANDONMENT COSTS Annual provisions are made for the future costs of well closure and removal of offshore installations. Provisions are calculated using the U.O.P. method on nominal figures.


SALARY PRESENTATION IN PROFIT AND LOSS STATEMENTS The Accounting Act 6-1 requires salaries to be presented separately in the profit and loss statement. Such detailed information is not available in the license accounts, and salaries from the license accounts are therefore included in the respective lines in the income statement. PENSION COSTS The company finances a collective defined benefit retirement plan which covers all its local employees. This plan is administered by a Norwegian insurance company. In accordance with actuarial calculations the net present value of the future pension obligations are estimated and compared with the value of all funds paid and previously saved. The difference is shown in the balance sheet under ‘Other long term liabilities’. Paid pension premiums and changes in net liability are recorded under ‘Salaries, social security, pension payments’ in the profit and loss statement. FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currencies are translated at the exchange rates prevailing at the time of the transaction. Unrealized gains and losses arising from the individual revaluation of long term assets and liabilities at Norges Bank year end rates are recognized through the profit and loss statement. Unrealized gains are not recognized for tax purpose except to the extent that they represent a reversal of a previously recorded loss. Short term assets and liabilities are revalued individually at Norges Bank year end rates, and unrealized gains and losses are recognized through the profit and loss statement.

INVENTORIES AND OVER- / UNDERLIFT OF PETROLEUM PRODUCTS Liabilities arising from lifting more than the company’s share of the joint venture’s petroleum production (overlifting) are valued at the higher of gross market value and production cost, and booked under ‘Other current liabilities and overlift’. Inventories and underlifting are valued at the lower of production or acquisition cost and net market value, and booked under ‘Current assets’. Full production cost including indirect cost is used for crude oil. For natural gas liquids and dry gas, full production cost after separation from crude oil is included according to the economic carrying ability principle. GAS BANKING Gas banking inventories are valued at the lower of production cost (see above) and net market values. RESEARCH AND DEVELOPMENT The company’s research and development costs, which are immaterial amounts, are expensed as incurred. MAINTENANCE Maintenance costs are expensed as incurred. No accrual is made for periodic maintenance. CASH FLOW MODEL The indirect model is used. ‘Cash and bank’ includes bank deposits available for use at year end, except as noted for restricted funds.

FINANCIAL INSTRUMENTS Short term forward currency exchange contracts outstanding at the end of the year are revalued to market value. All other gains and losses are recognized at the time of realization. CURRENT ASSETS AND LIABILITIES Current assets and liabilities include items falling due within one year. ‘Bank and cash’ includes short term time deposits in banks. Current assets are recorded at face value. No losses are anticipated.

ANNUAL REPORT 2006

21


注記 NOTER NOTES


NOTES TO THE ACCOUNTS

1.

SALES

CRUDE OIL: All of the company’s crude oil production is sold to the ultimate parent company, Idemitsu Kosan Co., Ltd. The crude oil is sold on a FOB (Free On Board) basis. Idemitsu Kosan Co., Ltd. sells this oil directly to Statoil on a long term sales agreement. Idemitsu Petroleum Norge AS receives the norm price linked price paid by Statoil less a margin for Idemitsu Kosan Co., Ltd. This margin covers all sales and transportation and shipping activities as well as swapping arrangements to secure crude oil supply to Japan. In 2006, a total of 10.2 million barrels were sold. ROYALTY: Idemitsu does not participate in production licenses where royalty is levied. NGL: NGL is sold to Norsk Hydro based upon market prices, except ethane which is sold to Statoil. DRY GAS: All dry gas is sold to Statoil on a long term contract. TARIFF INCOME: Vigdis well stream is processed at the Snorre TLP. Idemitsu has a 9.6% share of both fields. The processing tariff revenue and cost, which are booked under ‘Tariff income’ and ‘Production cost and Process Tariff’ respectively, have no net profit impact on the company’s accounts.

2.

PENSIONS

Pension rights for Japanese employees are covered in Japan by group companies. Idemitsu has a group pension insurance with Vital for the local employees. Net pension obligations are recorded under ‘Provisions’ in the Balance sheet. The annual change in net obligation is recorded as expense under ‘Other operating and administrative expenses’ in the Profit and loss statement. Amounts in NOK

Below 12G

Service cost Interest cost Return on pension plan assets Amortization Administration Net pension cost

2006

2006

1 164 467

535 864

429 564

318 657

-387 390

-224 211

173 418

61 157

54 013

40 607

1 434 072

732 074

Below 12G

Mimimum obligation Estimated effect of future salary increase Estimated pension obligations Pension plan assets (market value) Unrecognized effects of change of plan Unrecognized effects of estimate deviations Net benefit obligations

Above 12G

Above 12G

31.12.06

31.12.05

31.12.06

31.12.05

7 215 798

5 545 630

4 394 130

4 765 629

4 253 273

2 000 045

3 785 846

4 080 332

11 469 071

7 545 675

8 179 976

8 845 961

8 145 618

6 712 849

4 703 608

3 966 655

0

0

527 604

586 227

4 202 672

1 923 440

771 691

2 152 782

-879 219

-1 090 614

2 177 073

2 140 297

Economical assumptions: Discount rate

4.35%

Expected compensation increase

4.50%

Expected return on pension plan assets

5.40%

Adjustments in National Insurance base rate

4.25%

Adjustments in pensions

1.60% ANNUAL REPORT 2006

23


Non-employed Directors have each received NOK 10 000 as remuneration. Employed Directors have not received remuneration for their work as members of the Board. Total compensation to Managing Director was 2.8 million NOK. No employee has options, profit sharings or “golden parachutes”. There are no loans or pledges of security to the Managing Director or board members.

3.

ADMINISTRATION COSTS

Total booked compensation to auditor PriceWaterhouseCoopers AS is NOK 312 862, of which NOK 231 469 for statutory audit. Split of payroll expenses

2006

2005

Wages and salaries

30 015 949

30 240 069

Social security tax

4 458 353

6 050 375

Pensions including pension liability

2 166 145

2 040 260

339 846

420 994

Allowances

The reserve numbers shown below are the estimated total producable reserves. The depletion of the reserves requires substantial future investments. These future investments are included in the depreciation base. The resulting depreciation charge is estimated to be equal to the depreciation of current investments over the reserves exploitable from the current investments. Production rights are depreciated using the U.O.P. method based on the total production from the area in question. Idemitsu only accounts for reserves of crude oil (except for Fram Area), as reserves of natural gas liquids and dry gas have very little net economic value for the company. The Idemitsu net remaining reserves (P50) at the end of 2006 are broken down as follows.

Snorre Tordis Area

million Sm3

MMSTB

10.4

65

1.5

10 14

Vigdis Area

2.3

Statfjord Øst & Sygna

0.5

3

Fram Area (O.E.)

5.1

32

Total (31.12.06)

19.8

125

The net remaining reserves at the beginning of 2006 were 21.3 million Sm3 (134 MMSTB). During 2006, 1.6 million Sm3 (10 MMSTB) of net crude oil was produced.

24

IDEMITSU PETROLEUM NORGE AS

4.

DEPRECIATION AND RESERVES


5.

FIXED ASSETS (1000 NOK) a) Petroleum fields under development

Cost 01.01.06

Additions in 2006

Disposals in 2006

Transfer to fields in operation

Book value Capitalized 31.12.06 interest

Vega Sør

-

6 066

-

-

6 066

Fram Øst

141 985

302 869

-

-444 854

-

-

Total

141 985

308 935

-

-444 854

6 066

-

Cost 01.01.06

Additions in 2006

Disposals in 2006

Snorre

3 652 985

116 407

Snorre B

1 584 945

50 523

b) Petroleum fields in operation Cost 31.12.06

Accum. depr. 01.01.06

-

3 769 392

-

1 635 468

-

Depr. in 2006

Accum. depr. 31.12.06

-2 746 888

-204 829

-2 951 717

817 675

325 327

-626 706

-132 832

-759 539

875 929

130 017

Book value Capitalized 31.12.06 interest

Statfjord Øst

289 744

10 342

-

300 086

-264 835

-13 720

-278 555

21 530

15 814

Tordis

795 163

148 208

-

943 371

-717 608

-32 643

-750 251

193 120

24 706

Vigdis

989 440

56 821

-

1 046 261

-732 127

-73 248

-805 375

240 886

39 587

Sygna

90 556

491

-

91 047

-76 771

-3 185

-79 955

11 092

2 939

513 010

3 317

-

516 327

-168 566

-37 858

-206 424

309 903

16 546

-

444 854

-

444 854

-

-9 045

-9 045

435 809

-

7 915 842

830 964

-

8 746 806

-5 333 501

-507 360

-5 840 861

2 905 945

554 936

Accum. depr. 01.01.06

Depr. in 2006

Accum. depr. 31.12.06

Prod.rights Snorre

-660 787

-24 842

-685 630

333 471

Prod.rights Fram

-83 602

-23 668

-107 269

343 731

0

-744 389

-48 510

-792 899

677 202

21 879

Fram Vest Fram Øst Total

c) Production rights See Note 7 Cost

Total

1 470 101

d) Successful efforts exploration wells

Cost 01.01.06

34/7-25S (STUJ)

Additions in 2006

Disposals in 2006

Cost 31.12.06

Accum. depr. 31.12.06

Book value Capitalized 31.12.06 interest 21 879

Book value Capitalized 31.12.06 interest

7 338

-

7 338

-4 196

3 141

-

34/7-29S (H-North)

10 798

-

10 798

-

10 798

-

34/7-31A (Borg N)

13 796

-

13 796

-5 218

8 578

-

35/11-13 (Astero)

28 307

60 328

88 636

-

88 636

-

34/7-D4-H (M5)

17 659

153

17 812

-1 747

16 065

-

35/2-1 (Peon)

19 446

16 896

36 342

-

36 342

-

Total

97 344

77 378

-

174 722

-11 161

163 561

-

Cost 01.01.06

Additions in 2006

Disposals in 2006

Cost 31.12.06

Accum. depr. 01.01.06

Depr. in 2006

Depr. disposals in 2006

24 021

2 093

-2 741

23 374

-18 364

-3 140

2 717

e) Other fixed assets

Furniture & fixtures

Accum. depr. Book value 31.12.06 31.12.06 -18 787

4 587

f) Additions of fixed assets (million NOK) Year

1989 1990

1991 1992

1993 1994

1994 1996

1997 1998

1999 2000

2001 2002

2003 2004

2005 2006

Petroleum fields

382

691

856

640

374

306

286

285

165

225

734

813

464

614

582

283

357

695

1

1

1

0

0

1

3

2

1

3

4

3

3

2

3

3

3

2

Furniture & fixtures

Sales of fixed assets is less than 2 milion NOK accumulated. ANNUAL REPORT 2006

25


6.

TAXES (NOK) Difference between profit before tax and tax basis Profit before tax Permanent differences

2006

2005

1 946 002 368

2 214 550 994

66 555 832

81 054 592

Movement temporary differences - fixed assets - other temporary differences Tax basis - corporate tax (28%) -uplift Tax basis - special tax (50%)

5 487 343

17 892 639

138 704 939

-74 381 681

2 156 750 482

2 239 116 544

-177 207 887

-165 686 988

1 979 542 595

2 073 429 555

1 593 661 432

1 663 667 413

-11 044 392

-18 511 216

Tax cost of the year Payable tax Correction prior years payable tax Change deferred tax Total tax cost

-128 166 031

72 172 593

1 454 451 009

1 717 328 789

1 645 758 042

1 651 245 385

Deferred tax liability related to temporary differences 31.12 Fixed assets Other temporary differences Basis for corporate tax

-143 300 322

1 363 752 781

1 507 945 063

-uplift, to be received

-343 461 731

-312 069 628

Basis for special tax

1 020 291 050

1 195 875 434

Deferred corporate tax

28%

381 850 779

422 224 618

Deferred special tax

50%

510 145 525

597 937 717

891 996 303

1 020 162 334

Total deferred tax

26

-282 005 261

IDEMITSU PETROLEUM NORGE AS


7.

§ 10-RULINGS The Petroleum Tax Act §10 states that transfer of interests in production licenses is subject to approval by the Norwegian government, and that the government can set certain conditions for approval related to the tax treatment of the transfer of interest. In connection with Idemitsu’s 1989 acquisition of a 9.6% interest in the production licenses 057 and 089 from Statoil, such a §10-ruling was made. This ruling states that: Cash payment to Statoil shall be treated as follows:

NOK

Cash payment for 9.6% of PL 057 and PL 089 1 100 000 000 Interest 21 879 151 Total 1 121 879 151 Allocated to Development cost Snorre

- 102 778 360

- 1)

Remainder - Production rights 1 019 100 791 - 2) 1) Tax deductible over 5 years straight line. Uplift is given. 2) Never tax deductible for corporate tax or special petroleum tax purposes. No uplift given.

In the Assignment Agreement for purchase of the 9.6% shares in PL 057 and PL 089, Idemitsu and Statoil agreed that Statoil shall receive 50% of the excess monthly value of petroleum production from these fields if the norm price exceeds USD 20/bbl, inflation-adjusted from 1989. There is a cap on the total amount. In 2006, the norm price exceeded this level in all months. In connection with Idemitsu’s acquisition in 2002 of shares in licenses 090, 174 and 191 from SDFI, another §10-ruling was made. This ruling states that the consideration to SDFI shall be non-deductible for Idemitsu. The consideration is classified as ‘Production rights’ in Idemitsu’s Balance sheet, and the depreciation according to the U.O.P. method is not deducted for tax purpose.

8.

INTERESTS IN NORWEGIAN PRODUCTION LICENSES (AS OF 31.12.06) Production License

Block

Expiry Year

Producing Fields

Operator

057

34/4

2015

Snorre

Statoil

089

34/7

2024

Snorre, Tordis area, Vigdis area

Statoil

Statfjord Øst

Statoil

090

35/11

2024

Sygna

Statoil

Fram Vest, Fram Øst

N. Hydro

090 B

35/11

2024

N. Hydro

090 C

35/11

2024

N. Hydro

090 D

35/12

2010

N. Hydro

318 373 S 377 S

35/2

2010

N. Hydro

34/2,3,5,6

2011

BG Norge

35/7

2013

Idemitsu

390

6505/6,9 6506/4

2011

BG Norge

391

6506/1

2011

BG Norge

I

1) According to current unitization agreement where PL 089 and PL 037 each has 50% interest. 2) According to first and final unitization agreement between PL 089 and PL 037. ANNUAL REPORT 2006

27


9.

INVENTORY Crude Oil

Inventory

Inventory

Field

in barrels

value NOK 12 516 072

Snorre

82 423

Sygna

4 850

501 198

Fram

43 668

3 238 773

Value recorded as asset 31.12

A

16 256 043

Overlift Field

in barrels

Net liability NOK

22 069

8 076 943

Statfjord Ă˜st Vigdis

101 067

36 989 082

Tordis

70 882

25 941 816

Value recorded as Other current liabilities and overlift 31.12

71 007 841 Inventory

Natural Gasoline Value recorded as asset 31.12

value NOK B

89 078 Net liability NOK

Value recorded as Other current liabilities and overlift 31.12

2 700 540

Idemitsu does not have inventory of propane and butane, as these products are sold on a monthly production basis to Norsk Hydro. Inventory

Ethane Value recorded as asset 31.12

value NOK C

202 192 Net liability NOK

Value recorded as Other current liabilities and overlift 31.12

840 553

Gas banking As a participant in Statfjord Ă˜st, Idemitsu has stored gas at Statfjord. The stored volumes are valued at the lower of production cost and net market value. Value recorded as asset at 31.12

D

627 967

Stock of spare parts etc. held by operators

E

59 664 239

Total inventory value A+B+C+D+E

28

IDEMITSU PETROLEUM NORGE AS

76 839 519


10.

ABANDONMENT COSTS The Norwegian government may, at the termination of production or expiration of a license, require Idemitsu to remove offshore installations. Given reserve estimates at license expiry, Idemitsu finds it unlikely that the Norwegian government will exercise its option to take over the installations. With current and expected future fishery and environmental concerns, it is likely that the Norwegian government or international institutions and legislation will require the installations to be removed. It is also necessary to close down all production and injection wells as their use is completed. Well closure and removal cost accrual is recorded gross before tax. Idemitsu records accruals for future removal and well closure cost according to the U.O.P. method for nominal numbers, retrospectively from each field’s start of production. Each year, the accrual is based upon updated information, and the accumulated accrual includes accrual for 2006 production, and changes in accruals for prior periods due to updated information. There are significant uncertainties inherent in the calculations of abandonment costs, which is highly dependent upon future technology levels and the degree of removal required. Idemitsu obtains abandonment cost estimates from the operators. The removal estimates are based upon complete removal and onshore disposal of any installations not below the seabed. Pipelines will be cleaned and left buried. Well closure cost includes cleaning wells and installing cement plugs in the permeable zones and upper part of the well. Idemitsu’s through-put based share of pipeline/transportation system removal is immaterial. There is currently no legislation for onshore installation of pipelines on foreign territories. No accrual is made. (Million NOK) Field

Full field well closure cost

Full Field removal cost

IPN share

Reservoir produced

Idemitsu net well closure cost

Idemitsu net removal cost

Idemitsu total accrual

1 070

1 611

9.6%

62%

63.62

95.79

159.41

Snorre B

410

1 074

9.6%

38%

15.08

39.50

54.58

Tordis

571

535

9.6%

75%

41.32

38.72

80.04

Vigdis

1 056

352

9.6%

61%

62.06

20.69

82.75

Statfjord Øst

424

248

4.8%

84%

17.03

9.95

26.98

Sygna

201

64

4.32%

69%

5.98

1.90

7.88

Fram Vest

505

86

15%

35%

26.85

4.57

31.42

Fram Øst

703

76

15%

1%

Snorre

1.21

0.13

1.34

233.15

211.25

444.40

Previously recorded

158.78

84.73

243.51

This year’s expense

74.37

126.52

200.89

ANNUAL REPORT 2006

29


11.

Retained earnings 31.12.05

1 430 400 354

FINANCIAL INSTRUMENTS

Profit 2006

491 551 359

Revenues are largely denominated in USD, while investments and operating costs generally accrue in NOK. Idemitsu uses forward exchange contracts to minimize this NOK exposure. All foreign exchange contracts entered into are short term.

Dividends declared

554 900 000

Idemitsu had a number of forward exchange contracts outstanding as of 31.12.06. All outstanding contracts have been revaluated to market value at 31.12.06. The annual requirement to exchange currencies from USD to NOK is approximately between 200 and 300 million NOK for operations. In addition, all tax payments must be made in NOK. For investment in petroleum fields, the exchange requirement varies. The credit risk of these foreign exchange contracts is negligible as the counterparties are financially strong banks. The foreign exchange contracts are linked to the real foreign exchange requirement so there is no liquidity risk.

12.

FINANCIAL RISK With the exception of some short term foreign exchange contracts being entered into, Idemitsu is fully exposed to fluctuations in the USD / NOK exchange rate. In 2006, the company was fully exposed to oil price fluctuation risk. At year end, Idemitsu had no long term assets or liabilities in foreign currency.

13. EQUITY

The share capital consists of 7 279 shares of NOK 100 000, all fully paid. All shares are owned by Idemitsu Snorre Oil Development Co. Ltd., Japan.

30

CHANGES IN EQUITY:

IDEMITSU PETROLEUM NORGE AS

Retained earnings 31.12.06

1 367 051 713

14.

OTHER LIABILITIES AND COMMITMENTS Idemitsu, as all other oil companies operating on the Norwegian Continental Shelf, has unlimited liability for possible compensation claims arising from its offshore operations, including pollution. To cover these liabilities, Idemitsu has obtained insurance covering such liabilities up to 1 065 million NOK for 100% share. The deductible is 30 million NOK. Liabilities arising from well blow outs are covered up to 1 916 million NOK for a 100% share, with a deductible of 30 million NOK. Liabilities arising from transportation of crude oil are the responsibility of the buyer, Idemitsu Kosan Co., Ltd. Offshore assets are insured at replacement value with third party insurance companies. Idemitsu is involved together with other partners in a forced arbitration process against Hydro regarding pension liabilities in Hydro-operated licenses for the period prior to 2001. No accrual has been made for any such possible liabilities. Through its license ownership interests, Idemitsu has certain obligations for future investments. There are also substantial investments planned in fields where PDOs are not yet submitted to or approved by the government. Idemitsu does not have any leasing agreements that can be defined as financial leases. Current leasing agreements are operational and the expenses are included under ‘Other operating and administrative costs’. Idemitsu is committed to certain dry gas delivery, transportation, and processing obligations as an integral part of the license activity. These obligations are not in excess of planned future production.


ANNUAL REPORT 2006

31


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Annual report 2006  

annual report