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idemitsu petroleum norge as annual report 2008


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Annual Report 2008, Idemitsu Petroleum Norge AS Design and Art direction: Uniform AS Photography: Page 5 and 15: Kai Myhre Page 9: StatoilHydro Page 11 and 12: Idemitsu Print: RK Grafisk AS

idemitsu petroleum norge as

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contents key data

04

message from the managing director

05

exploration

06

production and operations

08

idemitsu group

11

the idemitsu munch connection

12

annual report of the board of directors

13

profit and loss statement

17

balance sheet

18

cash flow statement

20

accounting principles

21

notes to the accounts

24

audit report

35

annual report 2008

3


key data 2008

2007

2006

2005

2004

Operating revenues, million NOK

6343

5057

4592

4093

4234

Operating profit, million NOK

2972

2125

1967

2148

2226

Profit after tax, million NOK

942

530

492

497

462

Crude oil sales, million barrels

11.1

11.2

10.2

10.6

15.6

Daily oil production, thousand barrels

31.2

31.2

27.9

31.7

40.2

Investments, million NOK

794

831

695

357

283

Equity in % of balance

45%

48%

41%

37%

46%

Cash flow before financing, million NOK

1407

487

- 426

1117

1434

Crude oil reserves, million Sm3

14.5

15.6

19.8

21.3

20.4

136%

74%

72%

71%

64%

Return on capital

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


Kosuke Tsuji, Managing Director

message from the managing director Another eventful and productive year is now behind us and we can look back on several significant discoveries as well as a steadily growing organization. As we enter into our 20th year on the Norwegian Continental Shelf (NCS), Idemitsu Petroleum Norge (Idemitsu) is as committed as ever to continue our value creating contribution in all areas of the NCS. Our best asset and key to our success continues to lie with our team of skilled and inspired staff members. We do our utmost to offer a good working environment with great opportunities for further development and training for our professional staff. Through this continuous effort we strive to remain at the forefront of the developments in the industry and to be perceived as an active and attractive business partner on the NCS. With regards to exploration activities, 2008 has been a remarkable year for Idemitsu. We have participated in several key discoveries on the NCS, among them Jordbær and Afrodite. We are aiming to maintain this active exploration strategy ahead. On the operational side, the Fram Øst development was successfully completed when the last well in the drilling program was finished just a few days into the new year. 2008 has otherwise been another year of good and stable production from IPN’s producing fields. HSE is a primary focus at all levels of Idemitsu’s operations, both for management and employees. Likewise, corporate governance and accountability are areas of our concern and we have worked hard to upgrade IPN’s system and our awareness in these areas. The management has had a particular focus on improvement of internal control systems and reliability of financial reports. In line with the Idemitsu group’s longstanding tradition for corporate social responsibility, it was our honour to finance the restoration of national treasures Skrik and Madonna after the robbery nearly five years ago. We were very pleased that the masterpieces were back on display again when our long-time friends at the Munch museum hosted our traditional business reception last year.

Kosuke Tsuji Managing Director

annual report 2008

5


exploration

Norwegian Sea

Northern North Sea

Central North Sea

2008 was another very successful year for Idemitsu’s exploration activities in Norway. G&G studies were conducted in preparation for licensing rounds and onward business development activities, and the company’s license portfolio was expanded through farm-in activity. The company participated in two of the most publicised finds in 2008: the 34/12-1 Afrodite gas/condensate discovery and the 34/3-1 S Jordbær oil discovery, both located in the Northern North Sea. Moreover, Idemitsu also made oil and gas discoveries in the greater Fram and Snorre areas. Idemitsu participated in six wells with pure or additional exploration objectives and made four discoveries. Of the ten Idemitsu wells with dedicated or additional exploration objectives drilled since 2005, eight have been hydrocarbon discoveries. the northern north sea In PL 057 (part block 34/4; 9.6% IPN interest) remaining exploration potential is under evaluation. In PL 089 (part block 34/7; 9.6% IPN 6

idemitsu petroleum norge as

interest) exploration has entered a late phase, but the license still contains attractive exploration potential. In 2008, the well 34/7-33 explored the M5 South prospect, which turned out dry. However, well 34/7-D-2 AH proved up a new oil pool, increasing the resource basis in the Borg field area. In PL 090 (located in block 35/11; 15% IPN interest) exploration pilot well 35/11-B-23 H proved oil in the C-Øst prospect during early 2008. Work to mature undrilled prospects has been undertaken and will proceed. In PL 090 B and 090 C (located mainly within block 35/11; 15% IPN interest), 3D seismic acquisition was undertaken across the Vega field and the Astero discovery in order to optimise later field development. In PL 293 (blocks 34/12, 35/10 and part block 35/7; 15% IPN interest) exploration well 34/12-1 drilled the Jurassic Afrodite prospect. The well proved gas/condensate in Middle Jurassic sandstones. Field evaluation studies are ongoing.


Idemitsu Northern North Sea core area Gas 211 Oil Condensate Idemitsu licenses

Production Interest license (PL) (%)

Field/ discovery

PL 057

9.6

Snorre

PL 089

9.6

Snorre Statfjord Øst Sygna Tordis Vigdis

PL 090

15.0

Fram area H-Nord C-Øst

PL 090 B

15.0

Astero

PL 090 C

15.0

Vega Sør

PL 090 D

15.0

PL 273

10.0

PL 293

15.0

Afrodite

PL 318

20.0

Peon

PL 318 B

20.0

PL 373 S

25.0

PL 377 S

70.0

PL 390

30.0

PL 391

20.0

PL 420

30.0

318 PL 31 1 Peon Jordbær

Agat

318 PL 31 1 B

35

34

Sygna na na

S Snorre Vigdis V

Statfjord St t rd r øst øs s

Vega Nord Visund

PL L 377 S

Tordis Tor T or

Nøkken Gullfaks

Kvitebjørn

Afrodite o

420 PL P L 42

Aurora Vega Sentral

Gjøa

Sør Vega S r Astero Ast st t

Fram m

Jordbær

3

3

(IPN operated)

Troll

30

31

Huldra

In PL 318 (block 35/2; 20% IPN interest) controlled-source electromagnetic survey (CSEM) acquisition took place to facilitate evaluation of the hydrocarbon potential. In PL 373 S (located mainly within block 34/3; 25% IPN interest) exploration well 34/3-1 S was sunk into the Jordbær Central prospect. The well discovered oil in the Lower Jurassic sandstones, and the sidetrack wellbore 34/3-1 A appraised this promising discovery. Further Jordbær discovery appraisal is planned for 2009. In Idemitsu-operated PL 377 S (part block 35/7; 70% IPN interest) prospect evaluation based on new and reprocessed 3D seismic is ongoing. In PL 420 (part block 35/9; 30% IPN interest) evaluation on reprocessed 3D seismic was completed. A license decision to drill the Titan prospect has recently been made (January 2009). The Central North Sea During 2008 Idemitsu obtained a 10% share in PL 273 (part block 2/9). Well 2/9-4 was drilled but did unfortunately not prove

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movable hydrocarbons. Remaining license is being evaluated.

Veslefrikk prospectivity

The Norwegian Sea In PL 390 (blocks 6506/4 and 6505/6 & 9; 30% IPN interest) and PL 391 (block 6506/1; 20% IPN interest) 3D seismic acquisition and processing took place. Interpretation and prospect evaluation based on the 3D seismic were initiated. Maintaining a long-term view on the prospectivity of the Norwegian Continental Shelf, Idemitsu will utilise its staff of skilled E&P professionals to continue and strengthen its exploration activities during the years to come. This objective will be achieved through acquisition of promising exploration acreage via active licensing round participation and pursuit of attractive farm-in opportunities.

annual report 2008

7


production and operations tampen area Five of Idemitsu’s producing fields are located in the Tampen Area of the North Sea. Good cooperation has been achieved among the fields in this area with StatoilHydro as the common operator. Through cooperation, the Tampen fields 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. Snorre Spanning blocks 34/4 and 34/7, the Snorre field has been producing since August 1992, and embraces two platforms A and B. Snorre A is an integrated production, drilling and quarters (PDQ) unit. This tension leg platform (TLP) is moored to the seabed by steel tethers. Oil and gas from Snorre A is piped to the nearby Statfjord A platform for final processing. The oil is then loaded into shuttle tankers. Gas not used for injection at the Snorre field is exported through the Gassled system to Kårstø. The Snorre B platform came on stream in June 2001. This semi-submersible PDQ floater lies about seven kilometers north of the A platform. Oil from Snorre B is piped to Statfjord B for storage and export. 8

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Water Alternate Gas (WAG) injection is used to maintain reservoir pressure and improve recovery. Snorre A is in the process of being modified for safe operation in the extended production period expected to be at least until 2030. Major activities cover upgrade of the safety systems, new facilities for better working environment, modifications for increased robustness and increased recovery. This will improve the HSE level and the production regularity of the platform. Idemitsu’s share of the crude oil production from the Snorre field was 0.82 million Sm3 (5.2 MMSTB) in 2008, as compared to 0.80 million Sm3 (5.1 MMSTB) in 2007. The Snorre partners have a determined strategy for increasing field recovery with a defined schedule for various Increased Oil Recovery (IOR) projects in the coming 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 back to the Gullfaks C platform ten kilometres away for processing. Water injection is used to maintain pressure in the reservoirs.


The Snorre B platform

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 decided in 2005 to implement the Tordis IOR project. The project is divided into two steps:

vigdis The Vigdis field is a satellite development tied back to the Snorre A platform seven kilometres away for processing. Vigdis started its production in 1997. In 2003 the first phase of the Vigdis extension project came on stream, while Vigdis extension phase two started production in 2008. After completion of the Vigdis extension projects, the field will altogether comprise six 4-slot templates and two satellite structures.

1) Enable low pressure production at the Gullfaks C facilities 2) Expand the Tordis subsea facilities to include a subsea processing facility

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.

The Tordis IOR step one was completed in 2006 and the pressure at Gullfaks C has been reduced. Tordis IOR step two was completed and started operation in December 2007 with high regularity and increased production from existing wells. The subsea processing facilities however, had to shut down in May 2008 due to injection well integrity problems. Evaluations are ongoing for required measures to bring the subsea processing facilities back on stream. Idemitsu’s share of the Tordis crude oil production was 0.16 million Sm3 (1.01 MMSTB) in 2008, as compared to 0.23 million Sm3 (1.45 MMSTB) in 2007.

Idemitsu’s share of the Vigdis crude oil production was 0.29 million Sm3 (1.82 MMSTB) in 2008, as compared to 0.32 million Sm3 (2.02 MMSTB) in 2007. statfjord øst Statfjord Øst is a subsea satellite field tied back to the Statfjord C platform. In Statfjord Øst, Idemitsu’s share of crude oil production was 0.04 million Sm3 (0.3 MMSTB) in 2008, as compared to 0.06 million Sm3 (0.4 MMSTB) in 2007. Sygna Sygna is also a subsea satellite field tied back to the Statfjord C platform. annual report 2008

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Idemitsu’s share of the Sygna field’s crude oil production was 0.01 million Sm3 (0.1 MMSTB) in 2008, as compared to 0.02 million Sm3 (0.1 MMSTB) in 2007. fram area In 2002, Idemitsu purchased a 15% share in the PL 090 license, which later has been divided into PL 090, PL 090 B and PL 090 C and further expanded with area PL 090 D. Today, the Fram licenses are among the core areas for the company. Fram Vest The Fram Vest field is located 20 kilometres north of the Troll C platform, and started production in October 2003. Fram Vest is developed with two 4-slot templates, and the wellstream is transported to the Troll C platform for processing. Stabilised oil is transported to Mongstad through the Troll oil pipeline, while the gas is partly re-injected into the reservoir for pressure support. Idemitsu’s share of the Fram Vest crude oil production in 2008 was 0.13 million Sm3 (0.8 MMSTB), as compared to 0.19 million Sm3 (1.2 MMSTB) in 2007. Fram Øst Like Fram Vest, Fram Øst is developed by two 4-slot subsea templates. By the end of 2008, five producers and one water injector were in operation, while the remaining water injector was completed in early 2009. The wellstream is routed to a new pipeline to Troll C and a crossover pipeline to the existing Fram Vest pipeline to Troll C platform for processing. Produced water from Troll C is used as pressure support in the Fram Øst reservoir. This contributes to significant positive environmental gains through reductions in emissions to the sea in the Troll field. Production started in October 2006. Idemitsu’s share of the Fram Øst crude oil production in 2008 was 0.37 million Sm3 (2.3 MMSTB) as compared to 0.20 million Sm3 (1.3 MMSTB) in 2007. Gas export from Fram Vest and Øst Gas export started from the Fram Vest and Fram Øst wells on 1 October 2007 at a gross rate of 0.77 million Sm3/day (Idemitsu’s share 0.11 million Sm3/day). The export rate increased to a gross rate of 1.1 million Sm3/day (Idemitsu’s share 10

idemitsu petroleum norge as

0.17 million Sm3/day) from 1 October 2008, and will further increase to a gross rate of 2 million Sm3/day from 1 October 2009 (Idemitsu’s share 0.30 million Sm3/ day) and onwards. The Fram gas is routed via Troll C to the Kollsnes gas plant, where the liquids are extracted and piped to the Vestprosess processing plant located close to the Mongstad terminal, while the dry gas is piped to the market in Europe. Vega Sør (PL 090 C) The Vega Sør PDO was approved by the authorities in June 2007. Vega Sør will be jointly developed with PL 248 (Vega Sentral and Vega Nord). The development consists of 2 producers drilled from a 4-slot subsea template and a new production pipeline connected to the Gjøa platform through Vega Sentral and Vega Nord template. The gas and condensate will be processed on the Gjøa platform. Condensate will be transported through a new pipeline connecting to the Troll II pipeline system, while gas will be transported using a new gas pipeline through the FLAGS system to the terminal in St. Fergus UK. Production start is planned to be in October 2010. Work is at present ongoing to include the Vega Sør oil volumes in the Vega Sør gas development through drilling of commingled wells (producing simultaneously from the gas/condensate and oil reservoirs). Astero (PL090 B) The concept selection for a possible Astero development is scheduled to second quarter of 2010. New seismic shooting was completed in 2008 (also covering the Vega area) and further interpretation will be carried out during 2009. Further development within the Fram Area There have been 3 discoveries within the PL 090 and PL 090 D areas. The C-Øst and H-Nord discoveries are matured as a joint development (named Fram phase 3). These discoveries make valuable contributions to the future development of the Fram area, and different development scenarios will be pursued both internally in IPN and also within the license.


The Chiba refinery

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. Idemitsu is aiming to be a company that contributes to society through stable and sustainable growth. However, for Idemitsu, sustainable growth in itself is not synonymous with fulfilling its corporate social responsibilities. In Idemitsu the concept “Respect for Human Beings” is a starting point of management. Sazo Idemitsu has stated that “People carry out business. So it is people who are our capital. Therefore, nurturing people through business operations who are trusted by society is our primary objective.” 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, geothermal energy, coal and uranium mining, highly valueadded production of petrochemicals and lubricants, electronic materials and new wind-power and biotechnology business. Idemitsu’s exploration activities started in 1971, with an aim to develop a full line of integrated activities ranging from upstream to downstream 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 almost 40 years. In order to secure future oil and gas reserves and production, Idemitsu is actively pursuing a balanced combination of asset opportunities and organic exploration activities in our core areas of Norway, United Kingdom and Southeast Asia. Norway has been a core area since we entered the Snorre development in 1989. The Idemitsu group commits to actively seek investments on the Norwegian Continental Shelf and continuously contribute to the Norwegian society.

idemitsu key figures (Consolidated group figures for the year ended 31.03.2008) Sales revenue Balance Employees Gas stations

3 864 billion JPY (290 billion NOK)* 2 420 billion JPY (182 billion NOK)* 7 503 4 808

Refineries in Japan Petrochemical plants in Japan Overseas offices

4 2 36 cities *JPY/NOK rate 31.12.2008

annual report 2008

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The Idemitsu Munch connection Representatives from the management of Idemitsu Kosan and Idemitsu Petroleum Norge were given a briefing by conservation team members from the Munch museum. From the left: Akira Idemitsu, art historian Elsebet Kjerschow, Kosuke Tsuji, Mrs Idemitsu and curator Biljana Tapolova-Casadiego

The Idemitsu Group has a long tradition for corporate social responsibility. This social commitment has benefitted the Norwegian public on more than one occasion through the continuing relationship between us and the Munch museum in Oslo. Founder of our parent company Idemitsu Kosan, Mr Sazo Idemitsu, happened to be an avid art collector for more than 70 years. Today, his comprehensive collection is being displayed in two different branches of the Idemitsu Art Museum – one in Tokyo, where the group’s head quarter is located and one in Moji, where Idemitsu was founded. In 1993, Idemitsu Kosan contributed 57 million NOK to the expansion and refurbishment of the Munch museum in Oslo. As part of the agreement between the two entities, Idemitsu Art Museum has been borrowing three works by Edvard Munch every year for the last 15 years for the Japanese public to see. A number of Munch’s masterpieces have been exhibited in Tokyo throughout this period.

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The relationship between Idemitsu and the Munch museum was further consolidated when Idemitsu Petroleum Norge donated 4 million NOK for research, conservation and exhibition of the recovered paintings Skrik and Madonna. The masterpieces were finally displayed in May of 2008, nearly four years after the shocking robbery that made headlines around the world. Mr Akira Idemitsu, the founder’s nephew, came from Japan to give a speech at the opening of the exhibition Skrik and Madonna revisited. In connection with the restoration process and the exhibition, two catalogues were also published in three different languages – Japanese, Norwegian and English – describing the conservation process and telling the story behind each of the iconic images. For several years the Munch museum has played host to our renowned annual business receptions. The exciting blend of Norwegian art and Japanese delicacies has proven to be a successful one among our partners and associates, and we hope to be able to uphold this tradition for a long time to come.


annual report of the board of directors 2008 introduction 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 License (PL) 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, and Vigdis 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 a 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% is held by the holding company Osaka Gas Summit Resources Co., Ltd. (Osaka Gas 70% and Sumitomo 30%) exploration & portfolio In 2008 Idemitsu farmed into the PL 273 license, where an exploration well was drilled in mid 2008. The company took part in several successful exploration wells in 2008, including the Afrodite discovery in PL 293, the Jordbær discovery in PL 373 S and the C-Øst discovery in PL 090. Work is carried out to progress these discoveries towards future developments. The Board of Directors is pleased that the project base of Idemitsu is expanding, and 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. Production & Operations The total net production from Idemitsu’s producing fields in 2008 was around the same level as in 2007. The production in the Fram Area is increasing more than

expected, but the fields in the Tampen Area are in a declining stage. The Vega Sør development (PL 090 C) is ongoing according to plan. Production is scheduled to start in 2010. Idemitsu is the operator for PL 377 S in the Northern North Sea. In 2008, 3D seismic reprocessing was carried out. A drill or drop decision is scheduled in 2009. Health, Safety & Environment (HSE) Idemitsu takes the ‘see to’ duty as partner and operator seriously. We are committed to monitor and enhance health and safety and protect 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 and operator. As of yet, Idemitsu has no responsibility for offshore drilling or production operations. Safety and environmental matters arising from the activities in our partner-operated licenses are reported to the authorities by the operators, in accordance with industry practice. In the Idemitsu operated license PL 377 S, the HSE preparation for possible own drilling in 2010 is ongoing and this activity will expand in 2009. Idemitsu is continuing the systematic build up of a solid HSE culture in the company. This responsibility is taken seriously, and the company’s monitoring and follow-up is consistent with and supported by its Governing Documentation. At the end of the year, the company had 26 permanent employees. The number of women among the employees was 8. The Board of Directors finds the working environment to be good. Total sick leave in 2008 was 1.0% of total working time. This was substantially below the sick leave in 2007 of 4.7%. There have been no accidents or damage incidents. Idemitsu has a practice of equal opportunity for both genders. The number of women in the Board of Directors has been 1 (20%) in 2008. annual report 2008

13


The company’s office activities have not caused pollution to the external environment. Financial result (1) Profit and loss statement Idemitsu posted a profit after tax of 942 million NOK in 2008. This is the highest profit in the company’s history. Total sales income has increased by 25% compared to 2007. The increase is mainly due to higher crude oil price. The total sales volume of crude oil decreased from 11.2 to 11.1 million barrels. Operating expenses have increased with around 19%. 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 2008 is 1 513 million NOK. The increase in cost related to this agreement is the main reason for the increased operating expenses. Exploration expenditure has increased significantly compared to 2007, but due to several discoveries a major part of this expenditure has been capitalized. Idemitsu has had a significant net financial income in 2008 from FX gains due to the strengthening of the USD against NOK. The company has changed its accounting method for booking of abandonment and decommissioning costs. The company has previously booked abandonment and decommissioning costs nominally based on the Unit of Production method. From 1 January 2008 the company has changed its accounting principle by booking abandonment and decommissioning costs according to the net present value method. According to the net present value method, the company records as liability the net present value of future abandonment and decommissioning costs at each balance sheet day. Change in estimates is booked against the related producing asset and is depreciated along with this asset. Interest cost related to the time value of the liability is booked as financial cost. The company has also changed its accounting method for future uplift. The company has previously booked future uplift 14

idemitsu petroleum norge as

as a temporary difference giving rise to a deferred tax asset. From 1 January 2008 no deferred tax is recorded in relation to uplift which will become payable in the future. Furthermore, the company has changed its accounting principle for pension. In accordance with NRS 6A, the company has changed from NRS 6 to IAS 19 for the accounting of pension from 1 January 2008. The effect on equity was minor. The changes in accounting principles have been made to improve accounting principles as a result of developments in generally accepted accounting principles and to align accounting principles to group accounting policies after accounting rules for subsidiaries changed in Japan. (2) Balance sheet Idemitsu has currently no long term loans. No dividend has been proposed for 2008. Equity represents 44.6% of total assets. Capitalized exploration cost has increased significantly due to several promising discoveries in 2008. (3) Cash flow statement Total investment in productions facilities in 2008 was 794 million NOK, compared to 831 million NOK in 2007. The investments are partly related to the new Fram Ă˜st field where the drilling of production wells was almost completed in 2008. There have also been substantial investments in other producing fields, especially Snorre, in order to maintain the production at the highest possible level. Cash flow from operation is somewhat lower than the operating profit. The main difference between cash flow from operation and operating profit is caused by depreciation and tax payments. The 2008 financial statement is given under the going concern assumption. Financial risk Market risk The company is fully exposed to the oil price fluctuation risk. Idemitsu has most of its income in USD and cost in NOK. 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. Liquidity risk The company has no long term loans and a comfortable cash position. The cash flow from fields in production is strong and sufficient to cover the company’s obligations even when the crude oil price is fairly low. It is expected that the company has substantial loan capacity based on the security of its producing assets. Credit risk The customers and banks which are doing business with the company are large and solid corporations. The company is spreading its financial assets among several banks. 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 at a fairly low level also in 2009. Due to the solid equity and high cash flow from existing licenses, Idemitsu can expect to be profitable even at fairly low crude oil prices. The crude oil production and sales volume also affect the annual results. The 2009 production is expected to be slightly lower than in 2008. 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 941 521 675 is proposed allocated as follows: Dividends

0

Retained earnings

941 521 675

Total allocated

941 521 675

All of the accumulated retained earnings are available for dividends.

2 April 2009

Trond Stang Chairman

Cathrine Hambro

Kosuke Tsuji Managing Director

Toshinori Takeyasu

Hajime Oshima annual report 2008

15


財務諸表 årsregnskap accounts


profit and loss statement note

2008

2007

operating revenue Sales of crude oil

1, 12

6 047 364 200

4 841 250 258

Sales of NGL

1

80 000 093

96 335 134

Sales of dry gas

1

187 327 401

91 335 149

Tariff income and other revenue

1

28 369 043

28 496 128

6 343 060 736

5 057 416 668

701 451 458

615 397 483

54 693 667

81 428 197 1 108 647 080

Total operating revenues

operating expenses Production cost, processing tariff, CO2 Gas and transportation costs Profit sharing agreement

7

1 513 492 026

Changes in inventory and over- / underlift

9

- 65 975 194

12 311 705

214 127 314

108 896 350

2, 3

47 145 667

33 686 472

3

29 977 971

27 007 413

4, 5, 16

800 833 178

778 304 230

Exploration costs Salaries, social security, pension payments Other operating and administrative costs Ordinary depreciation Ordinary depreciation of production rights

74 710 391

64 924 184

Total operating expenses

5, 7

3 370 456 479

2 830 603 114

Operating profit

2 972 604 257

2 226 813 555

financial income and expenses Interest income Foreign exchange gain Interest expense Foreign exchange loss

11, 12

82 969 507

41 714 384

679 522 273

119 287 737

16

46 669 775

38 863 905

11, 12

430 302 579

170 186 092

Other financial expenses

140 139

146 899

285 379 286

- 48 194 775

3 257 983 543

2 178 618 780

2 316 461 868

1 649 588 167

941 521 675

529 030 612

0

0

Allocated to retained earnings

941 521 675

529 030 612

Total allocated

941 521 675

529 030 612

Net financial items

Profit before taxes

Taxes on ordinary result

profit for the year Proposed dividend

6, 16

annual report 2008

17


BAlance sheet note

31.12.2008

31.12.2007

5, 7

537 567 229

612 277 620

537 567 229

612 277 620

fixed assets intangible fixed assets Production rights Total intangible fixed assets

tangible fixed assets Successful efforts exploration wells

5

690 244 343

313 291 477

5, 8, 16

3 347 254 260

3 245 328 721

Production facilities under development

5

132 432 685

52 272 596

Furniture and fixtures and cars

5

8 343 323

4 014 092

4 178 274 610

3 614 906 886

1 447 338

514 000

Production facilities in operation

Total tangible fixed assets

financial fixed assets Employee long term receivables Pension assets

2

0

429 857

15

52 713 088

1 613 592

54 160 426

2 557 449

4 770 002 265

4 229 741 955

80 235 536

82 706 444

39 973 209

28 594 796

273 190 945

507 245 090

42 361 579

106 361 856

355 525 733

642 201 743

Bank and cash

1 942 800 795

791 776 671

total current assets

2 378 562 064

1 516 684 858

7 148 564 329

5 746 426 812

Other long term receivables Total financial fixed assets

total fixed assets

current assets stocks and underlift Inventory and underlift

9

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

bank

total assets

18

idemitsu petroleum norge as


BAlance sheet note

31.12.2008

31.12.2007

equity Paid-in share capital

13

727 900 000

727 900 000

Retained earnings

13

2 459 162 036

1 773 901 904

3 187 062 036

2 501 801 904

2, 16

3 801 568

0

6, 16

1 391 928 802

1 208 220 056

10, 16

763 956 526

553 899 174

2 159 686 897

1 762 119 230

113 209 969

293 834 347

893 639

769 314

total equity

liabilities provisions Pension liabilities Deferred tax Abandonment accrual Total provisions

current liabilities Suppliers payable Payables group companies Accrued payroll taxes, VAT, etc.

14 760 396

4 318 369

6

1 277 898 771

981 173 053

9, 14

395 052 622

202 410 595

Total current liabilities

1 801 815 398

1 482 505 678

total liabilities

3 961 502 294

3 244 624 908

7 148 564 329

5 746 426 812

Taxes payable Other current liabilities and overlift

total equity and liabilities

2 April 2009

Kosuke Tsuji

Trond Stang

Toshinori Takeyasu

Managing Director

Chairman

Cathrine Hambro

Hajime Oshima

annual report 2008

19


cash flow statement 2008

2007

3 257 983 543

2 178 618 780

-1 834 036 470

- 1 468 262 508

875 543 569

843 228 414

34 230 969

32 292 322

Pension accrual

1 678 949

- 1 727 711

(Gain) / loss on sale of fixed assets

- 179 418

- 104 000

311 730 919

- 85 622 397

2 646 952 062

1 498 422 900

- 6 596 830

- 2 077 290

214 000

104 000

Investment in production facilities

- 794 061 071

- 831 022 251

Investment in successful exploration wells

- 387 751 202

- 177 515 164

- 52 032 835

- 825 850

-1 240 227 938

- 1 011 336 556

0

0

- 255 700 000

- 554 900 000

New loans

0

0

Loan repayments

0

0

C

- 255 700 000

- 554 900 000

A+B+C

1 151 024 125

- 67 813 656

791 776 671

859 590 327

1 942 800 795

791 776 671

MNOK

MNOK

5.0

4.8

cash generated from / used in operating activities Profit / (loss) before taxes for the year Taxes paid Ordinary depreciation Interest expense, asset ret. obligation

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

A

cash flow used for investments Investment in furniture and fixtures and cars Proceeds from sales of fixtures and cars

Change in other long term assets Net cash flow to investments

B

cash flow used for financing Share capital increases / (decreases) Paid dividend

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

20

idemitsu petroleum norge as


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 and special tax deductions. 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. No deferred tax is recorded in relation to uplift which will become payable in the future. 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.

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. Asset retirement cost Obligations related to future abandonment and decommissioning of production facilities are recorded at net present value (NPV) in the balance sheet. According to the net present value method, the company annual report 2008

21


records as liability the net present value of future abandonment and decommissioning cost at each balance sheet day. Change in estimates is booked against the related producing asset and is depreciated along with this asset. Interest cost related to the time value of the liability is booked as financial cost. 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’ or ‘Financial fixed assets’. Paid pension premiums and changes in net liability are recorded under ‘Salaries, social security, pension payments’ in the profit and loss statement. Pension obligations are recorded in accordance with IAS 19. 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 year end market 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 year end rates, and unrealized gains and losses are recognized through the profit and loss statement. 22

idemitsu petroleum norge as

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. 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.


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 StatoilHydro on a long term sales agreement. Idemitsu Petroleum Norge AS receives the norm price linked price paid by StatoilHydro 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 2008, a total of 11.1 million barrels was sold. royalty: Idemitsu does not participate in production licenses where royalty is levied. ngl: All NGL is sold to StatoilHydro on long term contracts. dry gas: All dry gas is sold to StatoilHydro on long term contracts. 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, processing tariff ’ respectively, have no net profit impact on the company’s accounts.

24

idemitsu petroleum norge as


2. pensions Pension rights for Japanese employees are covered in Japan by group companies. Idemitsu has a group pension insurance with Vital covering 18 local employees. The group pension insurance is in accordance with the requirements stated in Norwegian pension legislation. 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 cost in the Profit and loss statement. In accordance with NRS 6A, the company has changed from NRS 6 to IAS 19 for the accounting of pension cost starting from 2008. In accordance with the transitional rules in NRS 6A, no comparison numbers have been prepared for 2007. The difference in obligation based on the use of IAS 19 instead of NRS 6 is treated as estimate changes. The transition has caused the following effects:

NOK Booked pension asset 31 December 2007

429 857

Effect of transition to IAS 19

-2 552 476

Pension obligation 1 January 2008

2 122 619

Movements in 2008, amounts in NOK

Below 12G

Above 12G

2008

2008

Service cost

2 711 918

361 722

Interest cost

399 563

81 803

-515 836

-41 761

Return on pension plan assets Administration Net pension cost before social security Social security on pension cost Actuarial loss /(gain) Net pension cost

57 656

-

2 653 301

401 764

374 115

56 649

-14 270

13 224

3 013 146

471 637

Below 12G

Above 12G

IAS 19

NRS 6

IAS 19

NRS 6

31.12.08

31.12.07

31.12.08

31.12.07

Estimated pension obligations

12 883 096

8 501 332

4 902 370

1 740 492

Pension plan assets (market value)

11 409 418

8 077 397

2 035 680

726 284

Net pension obligation - overfinanced / (underfinanced)

-1 473 678

-423 935

-2 866 690

-1 014 208

-207 789

0

-404 203

0

-1 681 467

-423 935

-3 270 893

-1 014 208

-741 405

0

1 749 987

0

0

1 557 141

0

310 859

Social security on obligation Net pension obligation including social security Unrecognized actuarial loss / (gain) Unrecognized effects of estimate deviations Estimate deviation social security Net benefit obligations

-104 538

0

246 748

0

-2 527 410

1 133 206

-1 274 158

-703 349

Economical assumptions: Discount rate

4.30%

Expected compensation increase

4.50%

Expected return on pension plan assets

6.30%

Adjustments in National Insurance base rate

4.25%

Adjustments in pensions

2.00%

annual report 2008

25


3. administration costs Fee to non-employed Directors was NOK 70 000. Employed Directors have not received remuneration for their work as members of the Board. Total compensation to the 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. The amount of loan to employees was 1.4 million NOK at 31 December 2008. The company had 26 employees at the end of 2008. Total booked compensation to auditor PriceWaterhouseCoopers AS is NOK 672 071 excl. VAT, of which NOK 387 273 is for auditing services. Split of payroll expenses

2008

2007

Wages and salaries

38 623 536

30 415 916

Social security tax

5 441 309

4 009 602

Pensions including pension liability

4 172 959

645 961

227 694

212 512

Allowances

4. depreciation and reserves The reserve numbers shown below are the estimated total produceable reserves in the currently producing fields. 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 2008 are broken down as follows: million Sm3

MMBOE

Snorre

8.5

53

Tordis area

0.9

6

Vigdis area

1.9

12

Statfjord Øst & Sygna

0.3

2

Fram area (O.E.)

2.9

18

Total (31.12.08)

14.5

91

The net remaining reserves at the beginning of 2008 were 15.6 million Sm3 (98 MMBOE). During 2008, 1.9 million Sm3 (11 MMBOE) of net crude oil was produced. Effects of adding new projects such as infill wells and re-evaluation of the reserves have increased the volume by 0.8 million Sm3. Thus, the remaining reserves at the end of 2008 is 14.5 million Sm3 (91 MMBOE) with a net reduction of 1.1 million Sm3 (7 MMBOE) during 2008. The reserve numbers have not been audited.

26

idemitsu petroleum norge as


5. fixed assets (1000 nok) a) Petroleum fields under development Cost 01.01.08

Additions in 2008

Disposals in 2008

Transfer to fields Book value in operation 31.12.08

Vega Sør

52 273

80 160

-

-

132 433

Total

52 273

80 160

-

-

132 433

Cost 01.01.08

Additions in 2008

Disposals in 2008

Cost 31.12.08

Accum. depr. 01.01.08

Depr. in 2008

Accum. depr. 31.12.08

Snorre

4 090 870

244 052

-

4 334 922

-3 208 862

-205 002

-3 413 864

921 058

325 327

Snorre B

1 763 688

93 452

-

1 857 141

-967 793

-228 154

-1 195 947

661 193

130 017

329 678

15 810

-

345 488

-300 160

-9 188

-309 348

36 140

15 814

Tordis

1 123 232

40 121

-

1 163 353

-836 710

-45 405

-882 115

281 237

24 706

Vigdis

1 270 625

236 189

-

1 506 815

-939 224

-106 954

-1 046 178

460 637

39 587

Sygna

98 736

3 647

-

102 383

-88 186

-4 385

-92 571

9 813

2 939

Fram

1 283 434

267 254

-

1 550 688

-374 002

-199 511

-573 513

977 176

16 546

Total

9 960 264

900 526

-

10 860 790

-6 714 936

-798 600

-7 513 536

3 347 254

554 936

b) Petroleum fields in operation

Statfjord Øst

Book value Capitalized 31.12.08 interest

Ingoing balance 01.01.08 was changed due to a change in accounting principle for asset retirement cost, cf. note 16.

c) Production rights – See Note 7 Accum. depr. Cost

Depr.

Accum. depr. Book value

01.01.08

in 2008

31.12.08

31.12.08

Production rights Snorre

-713 582

-27 731

-741 314

277 787

Production rights Fram

-144 241

-46 979

-191 220

259 780

-857 823

-74 710

-932 534

537 567

Total

1 470 101

d) Successful efforts exploration wells

Total

Cost 01.01.08

Additions in 2008

Disposals in 2008

Transfer to fields in operation

Cost 31.12.08

313 291

387 751

-

-10 798

690 244

Cost 01.01.08

Additions in 2008

Disposals in 2008

Cost 31.12.08

Accum. depr. 01.01.08

Depr. in 2008

Depr. disposals in 2008

21 044

6 597

-1 539

26 102

-17 030

-2 233

1 504

e) Other fixed assets

Furniture & fixtures

Accum. depr. Book value 31.12.08 31.12.08 -17 759

8 343

annual report 2008

27


6. taxes (nok) Difference between profit before tax and tax basis Profit before tax Permanent differences

2008

2007

3 257 983 543

2 178 618 780

73 605 440

71 659 319

Movement temporary differences - fixed assets - other temporary differences Tax basis - corporate tax (28%) - financial items w/o special tax effect -uplift Tax basis - special tax (50%)

18 041 014

208 287 254

-24 930 977

-168 305 251

3 324 699 020

2 290 260 102

-483 857 270

15 887 957

-244 875 654

-216 347 597

2 595 966 096

2 089 800 462

2 228 898 774

1 686 173 054

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

65 416

- 5 398 925

87 497 678

-31 185 962

2 316 461 868

1 649 588 167

1 745 660 985

1 763 701 999

Deferred tax liability related to temporary differences 31.12 Fixed assets Other temporary differences Basis for corporate tax Temporary difference valuation of FX contracts Basis for special tax*

Deferred corporate tax

28%

Deferred special tax

50%

Profit before tax Uplift Permanent differences Financial items applied onshore only Effective tax rate

-214 701 927 1 549 000 072

164 247 014

-

1 843 484 572

1 549 000 072

470 186 516

433 720 020

921 742 286

774 500 036

1 391 928 802

1 208 220 056

Income (MNOK)

Tax amount (MNOK)

Effective tax rate

3 258

2 541

78.0%

-245

-122

-3.8%

74

57

1.8%

-320

-160

-4.9%

2 316

71.1%

Total deferred tax

Reconciliation of nominal and effective tax rate 2008

-66 423 427 1 679 237 558

*The company has changed its accounting method for future uplift, cf. note 16. The company has previously booked future uplift as a temporary difference giving rise to a deferred tax asset. From 1 January 2008 no deferred tax is recorded related to uplift which will become payable in the future.

28

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 Interest

1 100 000 000

Total

1 121 879 151

Allocated to Development cost Snorre

- 102 778 360

21 879 151

- 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 2008, 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 31.12.08) Production License

Block

Expiry Year

Producing Fields

Operator

Interest

057

34/4

2015

Snorre

StatoilHydro

9.6%

089

34/7

2024

Snorre, Tordis area, Vigdis area

StatoilHydro

9.6%

Statfjord Øst

StatoilHydro

4.8%

1)

Sygna

StatoilHydro

4.32%

2)

Fram Vest, Fram Øst

StatoilHydro

15%

090

35/11

2024

090 B

35/11

2024

StatoilHydro

15%

090 C

35/11

2024

StatoilHydro

15%

090 D

35/12

2010

StatoilHydro

15%

273

2/9

2009

ConocoPhillips

10%

293

34/12, 35/7, 10

2009

Eni Norge

15%

318

35/2

2010

StatoilHydro

20%

318B

35/4, 5

2010

StatoilHydro

20%

373 S

34/2,3,5,6

2011

BG Norge

25%

377 S

35/7

2013

Idemitsu

70%

390

6505/6,9 6506/4

2011

BG Norge

30%

391

6506/1

2011

BG Norge

20%

420

35/9

2012

RWE Dea

30%

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 2008

29


9. inventory Crude oil

Inventory

Field

value NOK

Statfjord Ă˜st

2 851 048

Tordis

159 159

Vigdis

4 018 253

Fram

5 437 719

Value recorded as asset 31.12

A

Field

12 466 179

Net liability NOK

Snorre

16 126 390

Sygna

945 769

Value recorded as Other current liabilities and overlift 31.12

17 072 159

Natural gasoline

value NOK

Inventory

Value recorded as asset 31.12

B

312 908 Net liability NOK

Value recorded as Other current liabilities and overlift 31.12

412 302

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

Inventory

Ethane Value recorded as asset 31.12

value NOK C

633 436 Net liability NOK

Value recorded as Other current liabilities and overlift 31.12

Stock of spare parts etc. held by operators Total inventory value A+B+C+D

30

idemitsu petroleum norge as

266 195

D

66 823 013

80 235 536


10. asset retirement 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. Idemitsu’s through-put based share of pipeline / transportation system removal is immaterial. There is currently no legislation for onshore installations of pipelines on foreign territories. No accrual is made. Abandonment and decommissioning obligations are recorded at net present value. Reference is made to Accounting Principles and Note 16 (changes in Accounting Principles).

All numbers in NOK Provision for abandonment liability 1 January

2008

2007

553 899 174

501 196 416

Change of estimate

84 267 976

51 083 297

Effect of changed discount rate

91 558 405

-30 672 861

Interest effect on the NPV obligation Provision for abandonment liability 31 December

34 230 969

32 292 322

763 956 526

553 899 174

In the calculation of net present value an inflation rate of 2.5% and a discount rate of 5.3% have been used. All the liability is long term. There are significant uncertainties inherent in the calculations of abandonment and decommissioning costs, which is highly dependent upon future technology levels and the degree of removal required. Idemitsu obtains abandonment and decommissioning cost estimates from the operators. The estimates are reviewed by Idemitsu’s own technical staff. 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.

11. financial instruments 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. Idemitsu had a number of forward exchange contracts outstanding as of 31.12.08. All outstanding contracts have been revalued at market value at 31.12.08. The annual requirement to exchange currencies from USD to NOK is approximately between 500 and 600 million NOK for operations. In addition, all tax payments must be made in NOK. For investment in petroleum fields, the exchange requirement varies.

annual report 2008

31


12. financial risk Market risk Idemitsu is fully exposed to the oil price fluctuation risk. The company has most of its income in USD and cost in NOK. 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. Liquidity risk The company has no long term loans and a comfortable cash position. The cash flow from fields in production is strong and sufficient to cover the company’s obligations even when the crude oil price is fairly low. It is expected that the company has substantial loan capacity based on the security of its producing assets. Credit risk The customers and banks which are doing business with the company are large and solid corporations. The company is spreading its financial assets among several banks.

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. in Japan. Group accounts are prepared by the ultimate parent company, Idemitsu Kosan Co., Ltd. and are available at www.idemitsu.co.jp. The parent company is located in Tokyo, Japan. Changes in equity Retained earnings 31.12.07 Changes in accounting principles, cf. note 16 Adjusted retained earnings 01.01.08

1 897 273 985 -123 372 081 1 773 901 904

Change to IAS 19 for pension, cf. note 16 Profit 2008

-561 544 941 521 675

Paid extraordinary dividend

-255 700 000

Retained earnings 31.12.08

2 459 162 036

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.

32

idemitsu petroleum norge as


Idemitsu has been involved together with other partners in a forced arbitration process against StatoilHydro regarding pension liabilities in ex 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 and drilling activities. Total committed investments for exploration well drilling were 229 million NOK as of 31 December 2008, related to three exploration wells in the licenses PL 373 S, PL 089 and PL 318. Furthermore, Idemitsu has committed to investments in Vega Sør where PDO has been approved and development is ongoing. Based on PDO numbers, the remaining committed investments for Vega Sør as of 31 December 2008 were 312 million NOK. There are also substantial investments planned in fields where PDOs are not yet submitted 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.

15. OTHER LONG TERM RECEIVABLES Prepaid tariff from Vega Sør to Gjøa has been recorded as ‘Other long term receivables’ in the balance sheet. This prepayment will be recovered through lower tariff at Gjøa during the production period for Vega Sør.

16. CHANGES IN ACCOUNTING PRINCIPLES From 1 January 2008, the company has decided to change its accounting principles for the following items: Asset retirement cost The company has changed its accounting method for booking of provisions for abandonment and decommissioning cost. The company has previously booked abandonment and decommissioning cost nominally based on the Unit of Production method. From 1 January 2008, the company has changed its accounting principle by booking abandonment and decommissioning cost according to the net present value method. According to the net present value method, the company records as liability the net present value of future abandonment and decommissioning cost at each balance sheet day. Change in estimates is booked against the related producing asset and is depreciated along with this asset. Interest cost related to the time value of the liability is booked as financial cost.

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The change in accounting principle resulted in the following effect in the 2008 ingoing balance of Production facilities in operation: All numbers in KNOK

Gross increase of production asset value

Change in accumulated depreciation

Net increase of production asset value

Snorre

86 906

-28 552

58 353

Snorre B

58 488

-19 323

39 165

Statfjord Ă˜st

12 222

-9 445

2 777

Tordis

59 360

-24 599

34 761

Vigdis

66 951

-27 649

39 302

Sygna

7 145

-3 360

3 786

Fram

113 775

-23 951

89 824

Total

404 847

-136 879

267 969

The change of accounting principle for asset retirement cost resulted in a net increase of equity of 64.8 million NOK and a net increase in deferred tax liability of 229.9 million NOK on 1 January 2008. Uplift The company has changed its accounting method for future uplift. The company has previously booked future uplift as a temporary difference giving rise to a deferred tax asset. From 1 January 2008, no deferred tax is recorded in relation to uplift which will become payable in the future. The change of accounting principle for uplift resulted in a net decrease of equity and a net increase of deferred tax liability of 188.2 million NOK on 1 January 2008. Due to the above mentioned changes of principles the comparison numbers in the profit and loss statement for 2007 and the balance sheet as of 31 December 2007 have been recalculated as follows:

Balance sheet 31 December 2007 Production facilities in operation

Before change of principle

After change of principle

2 977 359 886

3 245 328 721

Abandonment provision

580 649 994

553 899 174

Deferred tax

790 128 320

1 208 220 056

2 625 173 985

2 501 801 904

Ordinary depreciation

743 836 913

778 304 230

Abandonment accrual expense

136 250 000

0

6 571 583

38 863 905

1 578 906 146

1 649 588 167

530 222 272

529 030 612

Equity

Profit and Loss statement 2007

Interest expense Taxes on ordinary result Profit for the year

Pension In addition to the above, the company has changed its accounting principle for pension. In accordance with NRS 6A, the company has changed from NRS 6 to IAS 19 for the accounting of pension from 1 January 2008. In accordance with the transitional rules in NRS 6A, no comparison numbers have been prepared for 2007. The difference in obligation based on the use of IAS 19 instead of NRS 6 is treated as estimate changes. The change in accounting principle for pension resulted in a reduction of equity of 0.6 million NOK on 1 January 2008.

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idemitsu petroleum norge as


PricewaterhouseCoopers AS Postboks 748 NO-0106 Oslo Telephone +47 02316 Telefax +47 23 16 10 00

To the Annual Shareholders' Meeting of Idemitsu Petroleum Norge AS

Auditor’s report for 2008 We have audited the annual financial statements of Idemitsu Petroleum Norge AS of December 31, 2008, showing a profit of NOK 941 521 675. We have also audited the information in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit. The annual financial statements comprise the balance sheet, the statements of income and cash flows and the accompanying notes. The regulations of the Norwegian accounting act and accounting standards, principles and practices generally accepted in Norway have been applied in the preparation of the financial statements. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on other information according to the requirements of the Norwegian Act on Auditing and Auditors. We conducted our audit in accordance with the laws, regulations and auditing standards and practices generally accepted in Norway, including standards on auditing adopted by The Norwegian Institute of Public Accountants. These auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and auditing standards an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. In our opinion, • the financial statements have been prepared in accordance with the law and regulations and give a true and fair view of the financial position of the company as of December 31, 2008, and the results of its operations and its cash flows for the year then ended, in accordance with accounting standards, principles and practices generally accepted in Norway • the company's management has fulfilled its duty to produce a proper and clearly set out registration and documentation of accounting information in accordance with the law and good bookkeeping practice in Norway • the information given in the directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit are consistent with the financial statements and comply with the law and regulations.

Oslo, April 2, 2009 PricewaterhouseCoopers AS

Gunnar Slettebø State Authorised Public Accountant (Norway) Note: This translation from Norwegian has been prepared for information purposes only.

Alta Arendal Bergen Bodø Drammen Egersund Florø Fredrikstad Førde Gardermoen Gol Hamar Hammerfest Hardanger Harstad Haugesund Kongsberg Kongsvinger Kristiansand Lyngseidet Mandal Mo i Rana Molde Mosjøen Måløy Namsos Oslo Sandefjord Sogndal Stavanger Stryn Tromsø Trondheim Tønsberg Ulsteinvik Ålesund PricewaterhouseCoopers navnet refererer til individuelle medlemsfirmaer tilknyttet den verdensomspennende PricewaterhouseCoopers organisasjonen Medlemmer av Den norske Revisorforening • Foretaksregisteret: NO 987 009 713 • www.pwc.no

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35


ありがとうございました tusen takk THANKYOU


Idemitsu Petroleum Norge AS Drammensveien 173-177, P.O. Box 215 Skøyen, 0213 Oslo, Norway Tel. +47 23 25 05 00, Fax +47 23 25 05 01, mail@idemitsu.no


Annual Report 2008