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Content Key Figures 4 2010 - A Ground Breaking Year 6 A Green Vision 8 Letter from the Chairman 10 Letter from the CEO 12 Track Record 2010 14 Service Offering 16 Polarcus Fleet 18 Explore Green 20 Board of Directors 22 Executive Management 24 Board of Directors Report 26 Share Information 32 Corporate Governance Commitments 34 Consolidated Financial Statements 42 Parent company unconsolidated Financial Statements 82 Auditors Report 101 Addresses 103

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3

Key Figures in first year in operations all numbers in USD

122.7 11.74 30.5 3.6

REVENUE

Million

Million

CASH FLOW from operations

EBITDA

Million

Million

EBIT

56.3

60 50

USD millions

40 30.8

30

24.8

21.1

20 10

10.8

Q1 -3.7

Q2

4

Q3

-6.6 Revenue

EBITDA

7.9 2.3

0.1

0 -10

8.5

4.6

EBIT

Q4

Vessel Utilization Vessel statistics for 2010 includes Polarcus Nadia, Polarcus Naila and Polarcus Asima.

5% 15% Exclusive Seismic Contract Transit Yard stay and shakedown 79%

Headcount 2010 During the year of 2010, 187 talented people was employed at Polarcus bringing the total number of employees up to 379

93 Office Field 280

2010 - A Ground Breaking Year In January the Company’s first seismic vessel commenced production and by December, having three seismic vessels in operation, the Company had a proven track record in high-end 3D seismic acquisition. Two more seismic vessels were close to delivery, and a further two seismic vessels ordered for delivery in 2012.

On 12 April Polarcus announced that POLARCUS NAILA had entered into production on her first project, offshore Cameroon, West Africa, under contract to Noble Energy Cameroon Limited, towing a 10 x 100m x 6,000m seismic spread.

25th Jan

12th Apr

On 25 January Polarcus announced that POLARCUS NADIA, the Company’s first 3D seismic vessel, had entered into production on her first project, offshore Liberia, under contract to TGS, towing a 10 x 100m x 7,200m seismic spread.

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On 26 September Polarcus announced that following an extensive process, the Polarcus Group had, on 17 September 2010, achieved certification in ISO 9001:2008 (Quality Management), ISO 14001:2004 (Environmental Management) and OHSAS 18001:2007 (Occupational Health and Safety).

31st Aug

26th Sep

On 31 August the Company took delivery of POLARCUS ASIMA, the Company’s third 3D seismic vessel, built to the ULSTEIN SX134 design. The vessel transited directly to the Black Sea to commence charter for Rosneft announced 17 June.

30 Se

0th ep

On 14 October Polarcus announced that through a Private Placement the Company had successfully raised gross proceeds of approximately USD 60 million. Subsequent to this the Company further announced on 19 October the successful completion of an USD 80 million bond. Together with a bank facility of USD 55 million, and a subsequent repair issue of USD 5 million, this inter alia financed the acquisition and completion of the vessel POLARCUS ALIMA.

14th Oct

On 30 September Polarcus announced that POLARCUS ASIMA had entered into production on her first project, in the Russian sector of the Black Sea. This was a 2,069 square kilometer 3D seismic acquisition project that the Polarcus / JSC Dalmorneftegeophysica (DMNG) partnership entered into with Rosneft. For this project POLARCUS ASIMA was towing a 12 x 100m x 6,000m seismic spread, the largest spread used to date by the Company.

18th Nov

On 01 December Polarcus announced the opening of a third regional marketing office, in Singapore, and the appointment of a VP Marketing Asia-Pacific, to develop and expand the Polarcus brand presence across the region.

1st Dec

7th Dec

On 18 November Polarcus announced that the Company had signed shipbuilding contracts for two additional highend 14 streamer 3D seismic vessels from Ulstein Verft AS of Norway for delivery in the first half of 2012 The Company also announced and successfully completed an equity issue of USD 65 million through a private placement to partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel.

On 07 December Polarcus announced the signing of a Multi-Client cooperation agreement with Searcher Seismic Pty. Ltd of Perth, Australia, to develop and license marine 3D multi-client acquisition projects across Australia and Indonesia.

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A Green Vision Our Vision

Goal

To be a pioneer in an industry where the frontiers of seismic exploration are responsibly expanded without harm to our world.

The Company’s corporate goal is “by 2012 to be the most environmentally responsible towed marine seismic service provider, with a strong focus on risk management and specializing in thehigh end 3D market and the Polar Regions whilst achieving 40% EBITDA margin, 10% market share and long term shareholder value”.

Our Mission Our mission is to deliver superior performance and shareholder value in marine acquisition services whilst demonstrating leadership in environmental responsibility. Our core values are the foundation stone for achieving this goal, and we are seeking to build on these values by attracting the best industry talent to join us.

Strategy To achieve the Company’s corporate goal a seven point business strategy has been defined comprising the following key elements:

Our Values

Pioneer the environmental agenda

One of our key strengths is our people. We are recruiting the highest talent into our company, and we are committed to implementing many of the latest industry lessons learned around crew welfare, health, safety, security, and general well-being so that we can protect and retain our workforce.

Optimize fleet configuration and composition

Recruit, develop and retain the highest caliber industry professionals

Develop a world-class service offering

Responsibility – for our actions, for each other, and for the environment and the world around

Maximize operational performance

Develop and maintain an effective marketing and sales organization

Build a strong risk management culture and ensure adoption in key decision making processes

Secure and optimize start-up financing requirements

Establish an optimal organizational structure and cost control programs

Innovation – in business and in operations Excellence – in delivery for shareholders and clients alike

Corporate Structure Polarcus Limited Cayman Island Polarcus DMCC Dubai

Polarcus 1 Ltd. Cayman Islands

Hull 292 Polarcus Amani

Polarcus 2 Ltd. Cayman Islands

Hull 293 Polarcus Adira

Polarcus Samur Ltd. Polarcus Samur Cayman Islands Polarcus MC Ltd. Cayman Islands Polarcus 6 Ltd. Cayman Island 8

Polarcus Seismic Limited Cayman Islands Polarcus Egypt

Polarcus UK Ltd. United Kingdom

Polarcus Multi-Client (CY) Ltd. Cyprus

Polarcus do Brasil Ltda Brazil

Polarcus Nadia AS Norway

Polarcus Naila AS Norway

Polarcus Asima AS Norway

Polarcus Nadia

Polarcus Naila

Polarcus Asima

Polarcus Alima AS Norway Polarcus Alima

Letter from the Chairman Dear Polarcus shareholders, 2010 has been a remarkable year for your company. On 25 January 2010 Polarcus truly came of age when we announced the successful commencement of our first seismic production, by POLARCUS NADIA delivered in December 2009 and on charter to TGS. This was a significant achievement in many respects, not least on account of the complex logistics of operating offshore Liberia, the location for this first project. The client required a complex technical configuration requiring a challenging deployment for an established player let alone a newcomer. Nevertheless, the survey was successfully carried out and POLARCUS NADIA subsequently went on to win the prestigious TGS Annual Safety Award for 2010. This was just the beginning of another year of achievements and milestones for Polarcus. By the close of 2010 we had three seismic vessels in operation, two further vessels approaching delivery from the shipyard, and a rapidly strengthening order book. This was a direct result of a growing recognition amongst our clients of our operational capabilities, technical know-how and our vessels’ reliable performance straight from the shipyard. The support of our clients has been invaluable and we are extremely grateful for the trust which they have placed in us. These achievements are all the more remarkable considering the backdrop of the continuing soft market during the year as national economies slowly recovered from the previous year’s financial crisis. They resulted from the professionalism of our employees, their unwavering commitment to their work, and from the small company spirit that has fostered strong teamwork and empowered our employees to succeed. We shall nurture and protect this valuable human capital as we grow the company. In terms of day rates it was evident that we were testing the bottom of the cycle in 2010 and that by year end encouraging signs of a stronger 2011 were becoming evident. This was an environment requiring strict cost control and efficient management, but one which we also saw as a period of opportunity. In keeping with our goal of controlled and sustainable growth we, in October 2010, reacquired and completed the construction of POLARCUS ALIMA and upgraded POLARCUS SAMUR from 6 to 8 streamers. This expansion was financed by means of a successful USD 145 million equity and bond issue, coupled with a USD 55 million bank facility. With a firm eye on our goal of delivering long term shareholder value we also took advantage of some highly advantageous contract terms and ordered in November 2010, two new 14 streamer seismic vessels from Ulstein Verft AS of Norway, simultaneously raising an additional USD 65 million through a private placement to partly finance the vessels’ capital expenditure. Now named POLARCUS ADIRA and POLARCUS AMANI, these new vessels will be delivered in the first half of 2012. We believe that we shall then be in pole position to grow profitably on the back of an expected recovery in demand for hydrocarbons and the corresponding up-turn and improvement in day rates which we believe will follow in the seismic market. As we move through 2011, and consistent with our stated corporate goals, we shall continue to focus on the high-end 3D segment 10

and on offering clients the service and equipment they need and expect. Seismic exploration is moving into new frontiers, both geographically and geologically. New areas such as the Arctic are starting to open, and the quest for more complex hydrocarbon plays in existing basins is gathering pace, resulting in an increasing demand for high-end seismic services that is well planned and right-sized for the objectives. Our new, ultra-modern 3D seismic fleet, with its low environmental footprint and state of the art equipment, is ideally positioned for these fresh challenges. Whilst we are always focusing on strong operating performance being vital in running a successful seismic company, we shall also continue to emphasize the importance of our one team philosophy and our know-how in project design. To this end we have strengthened our geophysical department and as a result have established a strong reputation for quality survey design, enabling us to plan and apply the optimal acquisition parameters to deliver the highest quality results. Some of this geophysical expertise we have started to move into our three regional offices located in London, Houston and since December 2010, Singapore. This will place us closer to our clients and enable us to better understand and solve their project objectives. In 2011 we are taking delivery of two new vessels, POLARCUS SAMUR, with an 8 streamer configuration well suited for exploration 3D and for mature markets such as the North Sea, and POLARCUS ALIMA with a 12 streamer configuration for ultraefficient large volume acquisition. The added vessels will give us the opportunity to spread our geographic footprint to new markets such as Asia-Pacific and reduce the need for long transits between contracts. We also have the remaining buy-back option on the 8 streamer POLARCUS SELMA available to us. We plan to enter the strategically important multi-client market in 2011, with a focus on projects that are well funded and provide flexibility to our vessel scheduling. In December 2010 we signed our second multi-client cooperation agreement with experienced domain experts, Searcher Seismic based in Perth, Western Australia, to develop project opportunities across Australia and Indonesia. Looking ahead, our commitment to our shareholders to build and develop Polarcus for the long term remains our highest strategic priority. Over this past year we have been able to demonstrate through actions rather than words our ability to deliver safe seismic operations to the highest quality standard. We are committed to providing consistency in delivery through our focus on operational excellence and on listening to our clients’ needs and developing innovative solutions for their project challenges. This time last year we were 186 employees strong. Today it is on behalf of 414 dedicated Polarcus employees that I thank you for your continued interest and support. Sincerely,

Peter M. Rigg Chairman of the Board

Letter from the CEO Dear Polarcus shareholders, 2010 was the year Polarcus successfully evolved from a vessel building company into a geophysical service provider operating all new high-end 3D seismic vessels. We stayed true to our strategy and delivered three such vessels into solid operations during the course of the year. We came into production first with POLARCUS NADIA in January 2010, followed by POLARCUS NAILA in April and POLARCUS ASIMA in late September. Despite a soft market and as a newcomer, the lack of an operational track record, we were able to employ these vessels at market rates. We quickly gained that all-important track record through these early contracts, and not only for conventional, or classic, 3D operations, but also for high-end acquisition such as long offset spreads, high density surveys, and 4D monitor and undershoot operations. We worked in many diverse and challenging environments and demonstrated our capabilities in such difficult operations like our survey in Cameroon where we experienced shallow waters of 15 meters combined with localized strong currents. During the course of the year we also gained track record in our technology offering, our environmental offering, and our geographical presence. We operated from 70 degrees north to 50 degrees south building our experience in the various environmental challenges along the way. We grew exposure with independents, majors and supermajors, and with national oil companies. Their response and feedback has been both positive and encouraging. I dare to state that we have established ourselves already as a ‘tier one’ seismic company in respect of our service offerings in 2010. We have shown that we can operate with top performance and deliver seismic data to the highest quality standards. 2010 was also the year where we further grew the organization for future challenges. We developed a good relationship with our seismic QC and processing partner, GX Technology. Their status as a tier one processing house coupled with the close cooperation between us has proven invaluable for our geophysical offering. Our focus on establishing a multi-client business and our agreement with GeoPartners has already resulted in a good understanding of the opportunities within this field. Towards the end of the year, we negotiated another partnership, this with Searcher Seismic in Perth for potential multi-client activity in Australia and Indonesia. Although it was premature to launch any multiclient surveys in 2010, we laid the foundations for a very solid business in this segment in the years to come. At Polarcus we have built our own management system, and we are operating our vessels under a unified maritime and seismic plan. We place the highest focus on safe operations. Having one management system, hiring our own seismic and maritime crew, and operating the vessels ourselves has proven to be an effective solution and the right decision. We achieved full accreditation in 2010 to the ISO 9001, ISO 14001 and OHSAS 18001 standards, both for our vessels and for the office. We were the first seismic service provider to have the entire company certified to these internationally recognized standards. Our financial performance has grown steadily from quarter to quarter as more vessels came into operation and delivered solid 12

performance. We saw a steady improvement in both revenue and operating margin throughout the year and, despite the relatively soft market, we have proven our financial viability with just three vessels in operation. We raised USD 265 million in new capital and we reacquired the optional vessel POLARCUS ALIMA. We further ordered two new high-end 14 streamer seismic vessels for delivery in Q1 and Q2 2012 respectively. In doing this we took advantage of very favorable terms from the shipyard, Ulstein Verft AS of Norway. We will with these two new orders reach an optimum fleet size with a very short time to market. We believe this will further strengthen our competitive position. We still have the option for the 8 streamer vessel POLARCUS SELMA, currently expected to be delivered Q3 2011. We are looking at various strategic options for this vessel including joint ventures, sale, charter arrangements, or simply exercising the vessel and utilizing her as an integral part of our fleet. As we transformed Polarcus from a vessel building company into a geophysical service provider in 2010, it was natural to look into the organizational model as well. This resulted in some restructuring in early 2011 where we merged our separate Technical and Operations departments into one Marine Acquisition department. We further placed all Marketing and Sales functions under one head and decided to strengthen the regional offices in London, Houston and Singapore with the addition of a marketing geophysicist in each of these locations. A Geophysical Support group was also set up to better serve the organization and client needs. Finally, we established a new-build department responsible for the construction and timely delivery of POLARCUS AMANI and POLARCUS ADIRA, our two new 14 streamer vessels. There is still much to do and many challenges will undoubtedly arise, but we are confident in our readiness to handle them. With five or six vessels in operation in 2011 and two more to come, we will devote our time to achieve operational excellence in the coming year. We will continue to develop our contract and multi-client capabilities and we will strive to start building a sound projects library. We will continue to work relentlessly for financial discipline and cost efficient and safe operations, and on delivering the highest quality service to our customers. We have dedicated and hardworking people within all disciplines and we have the right plans in place. We have right-sized and futureproofed our vessels and our fleet for the resurgent market. I am confident in our readiness to meet the new challenges that lie ahead and that we can take full advantage of a seismic market in recovery. Sincerely,

Rolf Ronningen Chief Executive Officer

Track Record 2010 Total area covered: 15,830 sq km Regular 3D/4D: 13,580 km2 High Density: 1,980 km2

Polarcus Naila

UK Exploration 3D 10 x 5100m @ 100m

Polarcus Nadia

Polarcus Naila

UK Exploration 3D/4D 10 x 5100m @ 50m

Nigeria Exploration 3D 10 x 8100m @ 100m

Polarcus Naila

Ghana Exploration 3D 10 x 8100m @ 100m

Polarcus Nadia

Liberia Exploration 3D 10 x 7200m @ 100m

Polarcus Nadia

Falkland Islands Exploration 3D 8 x 5550m @ 100m

Polarcus Asima

Falkland Islands Exploration 3D 10 x 5550m @ 100m

Polarcus Naila Polarcus Naila

Nigeria 4D Monitor 6 x 6000m @ 75m

Cameroon Exploration 3D 10 x 6000m @ 100m

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Polarcus Naila

Norway Exploration 3D 10 x 5100m @ 100m

Polarcus Naila

Norway 4D Baseline 10 x 5100m @ 100m

Polarcus Asima

Black Sea Exploration 3D 12 x 6000m @ 100m

Polarcus Samur

Namibia (2011) Exploration 3D 8 x 6000m @ 100m

Polarcus Naila

Namibia Exploration 3D 8 x 8100m @ 150m

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Service offering Polarcus is at the forefront of maritime and seismic innovation, well positioned to meet the current and future demands of the industry.

Contract and multi-client Polarcus has two principal business activities, Contract Seismic services and Multi-client projects, supported by the youngest and most sophisticated marine seismic fleet in the industry. In conjunction with these services Polarcus provides world-class geophysical solutions to effectively align survey design with the geological and geophysical objectives of the client in order to optimize the project deliverables.

Full range The Company offers the full range of contract seismic services including 3D, high-density 3D, 4D, multi-azimuth and wideazimuth data acquisition. The Polarcus fleet has through 2010 operated primarily along the Atlantic margins, from 75 degrees North in the Barents Sea to 55 degrees South in the Falkland Islands. Beyond the Atlantic margins the Company has also operated in key markets such as the Black Sea and plans in 2011 to grow into new markets in the Asia-Pacific region. The Company has also established in 2010 the foundation for a business line in multi-client projects. Multi-client projects are surveys designed and acquired by the Company on its own account, with the resultant processed data subsequently licensed to oil and gas companies on a non-exclusive basis. The Company has ownership of the data or in certain jurisdictions is granted an exclusive licence to market and sell the data by the applicable State authority. Multi-client projects can constitute a highly profitable business line that combined with Contract Seismic services also provides for greater flexibility in vessel scheduling and market entry as well as generating steady income in all phases of the seismic life cycle. To develop world-class multi-client projects the Company has to date established exclusive cooperation agreements with two experienced and well-networked partners possessing local geologic and petroleum systems knowledge. The first of these partnerships, with GeoPartners Limited, focuses on project opportunities across Europe and Africa. The second partnership, with Searcher Seismic Pty., focuses on project opportunities across Indonesia and Australia.

New frontiers The Company is placing a high focus on the Arctic, in line with the Company’s Arctic Frontiers Strategy and in order to generate value from the vessels’ significant differentiation that specifically benefits such operations. Polarcus is presently the sole operator of 3D seismic vessels combining the high ice class notation, ICE1A, with a double hull, DP2, and other environmental and safety features, providing a unique competitive advantage for the Company in Arctic operations. The Company is actively pursuing opportunities for operations within the Arctic and in preparation has developed a comprehensive set of Arctic / Cold Weather operational procedures to support such activities. Polarcus has 16

submitted these procedures to Det Norske Veritas (DNV) and is the first seismic company in the industry to receive a qualification statement with the new procedures certified as competent. Polarcus has received significant interest from a number of major oil companies active in the Arctic and is currently engaged in early discussions with certain operators regarding potential program opportunities across the Arctic Circle. The Company has already successfully undertaken contract seismic operations in 2010 within the Barents Sea, offshore northern Norway.

Advanced data processing In line with the Company’s pure play strategy, Polarcus has entered into an agreement with a reputable and non-aligned processing company GX Technology Corporation (GXT) in order to offer a ‘full service’ operation to clients. Under this agreement GX Technology provides seismic data quality control and data processing services onboard the Polarcus vessels, and advanced onshore seismic data processing capacity and services at one of their global Data Processing Centers as and when such services are part of the scope of surveys awarded to or required by the Company.

Cleaner and safer The expansion of the industry into frontier and other environmentally sensitive sea areas is driving calls for a much higher level of environmental compliance worldwide as new requirements on emissions to air and water are adopted, either through legislation or as a condition of tender. The Polarcus fleet is purpose-designed for such clean and safe operations in areas of environmental sensitivity ranging from the tropics to the Arctic. Design features such as DP2 dynamic positioning, a double hull, selective catalytic reduction (SCR) technology, bilge water cleaning and ballast water treatment systems, and the CLEAN DESIGN class notation all contribute to substantially reduce the vessels environmental footprint.

Global Considerable attention has been placed on the Company’s sales and marketing efforts with three regional Polarcus marketing offices now open, in Houston, London and Singapore, staffed by senior experienced industry professionals. The Company has also engaged a number of commercial agents worldwide to assist in the development of regional markets such as Brazil, India, and some of the African and Asian countries where such agents are a normal requirement for business development. Polarcus is a core member of the International Association of Geophysical Contractors (IAGC) and the Company’s CEO is a member of the IAGC Board of Directors. Polarcus has been successfully audited by a number of leading international oil and gas companies and is pre-qualified to tender on acquisition services by the vast majority of oil and gas companies worldwide. The Company is an approved supplier under the Achilles joint supplier qualification system for Norway and a Verified Supplier within the FPAL (First Point Assessment) supplier database for the United Kingdom.

Polarcus Fleet

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Polarcus Nadia & Polarcus Naila

Polarcus Samur

12 streamer 3D/4D seismic vessels

8 streamer Arctic-ready 3D/4D seismic vessel

Delivered in December 2009 and February 2010 respectively, POLARCUS NADIA and POLARCUS NAILA are 12 streamer 3D seismic vessels built to the ULSTEIN SX124 design. These vessels are capable of towing up to 12 streamer cables of 8,000m length with a lateral separation of up to 75m, or 10 streamer cables of 8,000m length with a lateral separation of 100m. POLARCUS NADIA and POLARCUS NAILA, whose names derive from the Arabic meaning ‘the beginning, first’ and ‘the acquirer, one who succeeds’ respectively, have an LOA of 88.8m, a draft of 6.6m and a maximum speed of 15 knots, and carry the ICE-C class notation enabling them to operate in light ice conditions. The vessels are amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced bilge water cleaning systems.

Delivered Q1 2011 POLARCUS SAMUR is an Arctic-ready 8 streamer 3D vessel built to the ULSTEIN SX133 design and capable of towing both conventional and wide tow spreads, including the Polarcus First Pass™ 3D technique requiring lateral streamer separations of 200m. POLARCUS SAMUR, whose name derives from the Arabic meaning ‘swift’, has an LOA of 84.2m, a draft of 6.7m and a maximum speed of 17 knots, and carries the high ice class notation, ICE-1A, enabling her to operate with the utmost safety in the Arctic Ocean. The vessel is also amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced ballast water treatment / bilge water cleaning systems.

Polarcus Asima & Polarcus Alima

Polarcus Amani & Polarcus Adira

12 streamer Arctic-ready 3D/4D seismic vessels

14 streamer Arctic-ready 3D/4D seismic vessels

Delivered in August 2010 and March 2011 respectively, POLARCUS ASIMA and POLARCUS ALIMA are both Arctic-ready 12 streamer 3D seismic vessels built to the ULSTEIN SX134 design and capable of towing up to 12 streamer cables of 8,000m length with a lateral separation of 100m. POLARCUS ASIMA and POLARCUS ALIMA, whose names derive from the Arabic meaning ‘protector’ and ‘wise’ respectively, have an LOA of 92.0m, a draft of 7.5m and a maximum speed of 15 knots, and carry the high ice class notation, ICE-1A, enabling them to operate with the utmost safety in the Arctic Ocean. The vessels are also amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced ballast water treatment / bilge water cleaning systems.

Launching in H1 2012, POLARCUS AMANI and POLARCUS ADIRA will both be 14 streamer 3D seismic vessels built to the ULSTEIN SX134 design and will be capable of towing up to 14 streamer cables of 8,000m length with a lateral separation of 100m. POLARCUS AMANI and POLARCUS ADIRA, whose names derive from the Arabic meaning ‘aspirations, wishes, desires’ and ‘strong, majestic, mighty’ respectively, will have an LOA of 92.0m, a draft of 7.5m and a maximum speed of 16 knots, and will carry the super-high ice class notation, ICE-1A*, enabling them to operate with the utmost safety in the Arctic Ocean.

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Explore Green Our goal at Polarcus is to build an environmentally responsible company that we envision as being an inspiration and  model for others. That goal is underpinned by our corporate values of respect, innovation and excellence,  instilled throughout  the business lifecycle at Polarcus: In the design of our seismic fleet, through the performance of our operations, to the eventual retirement and recycling of our vessels. These values are the foundation of what we at Polarcus call “our pioneering environmental agenda”. The  dialogue on environmental matters  is becoming increasingly vocal, almost day-by-day, with a corresponding demand for greater transparency. In our own industry we are witnessing an expansion into new frontiers and environmentally sensitive sea areas. This is driving calls for higher levels of environmental compliance from all participating  stakeholders, including seismic companies.  In order to assess the environmental footprint of marine seismic companies, Polarcus identifies four major types of emissions; solid, fluid, gaseous, and acoustic.  Producing these emissions are the seismic survey vessel itself, and the applied seismic acquisition technologies. We continually seek ways to address and reduce these four emission types, both by design and through our operations. Some examples include:

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Our vessels are constructed according to DNV’s CLEANDESIGN notation, not to be mistaken with the less stringent CLEAN notation.  The CLEAN-DESIGN notation recognizes that we have systems in place to control and limit operational emissions and discharges to air and water, along with recognizing our investment in defensive design elements such as a double hull.

We have incorporated high specification catalytic converters across the seismic fleet.  Reduction of polluting emissions to air in the marine and offshore industries is becoming a major public concern, with the focus being on CO2, NO2, and SO2 emissions. Although CO2 is the better known, NO2 and SO2 are by far the worst offenders. NO2 is a major greenhouse gas and air pollutant, with ~ 300 times more impact per unit weight than CO2.  Our selective catalytic reduction process on the exhausts uses urea to effectively reduce NO2 to simple nitrogen gas. The catalytic convertors also have positive effects on residual hydrocarbons, soot, and even sound, substantially reducing our emissions as follows: NOx Reduction:

90 - 98%

HC Reduction:

80 - 90%

Soot Reduction:

20 - 30%

Sound Attenuation:

20 - 35dB(A)

We utilize low sulfur Marine Gas Oil (MGO) by design. The alternate and more commonly used fuel, Heavy Fuel Oil (HFO) is  classified according to the EU Dangerous Substances Directive as carcinogenic, harmful and dangerous for the environment. One of the worst emission by-products of burning such heavy fuel oil is SO2, a toxic gas which contributes to the formation of acid rain.  The only  effective method to achieve lower  emissions of this pollutant  is to choose a responsible  fuel such as Marine Gas Oil (MGO) that contains < 0.2% sulfur as compared to a typical European HFO that contains as much as 4.5% sulfur. 

We measure our emissions on a per vessel per month basis. Polarcus is the first and only seismic company to receive the Det Norske Veritas (DNV) Vessel Emissions Qualification Statement, awarded to the Company in Q2 2010. This qualifies our emissions reporting methodology and accuracy of data, verifying our ability to predict the exhaust emissions footprint for any project and then, post-project, to subsequently provide actual emissions measurements. The results also provide  us with a real time ability to optimize operational performance during the course of a survey in order to reduce the overall emissions footprint.   

We have implemented a ballast water management system on our newest vessels, commencing with POLARCUS ASIMA. The discharge of untreated foreign ballast water contaminates  harbors and tributaries wreaking havoc on local ecosystems, in turn posing a serious threat to human health and negatively affecting local economies. Polarcus has selected the Alfa Laval PureBallast water management system, the first IMO-type approved system in the world, that offers ballast water treatment that is 100% chemical free. As a consequence we are  the first seismic company in the industry to hold DNV’s BWM-T class notation.

These are just a few examples of how Polarcus is implementing green solutions in order to build an environmentally responsible company. Needless to say, Polarcus uses only solid streamer technology to reduce the risk of releasing hydrocarbons directly into the sea (even a single fluid filled streamer can contain several thousand liters of hydrocarbon-based fluid), and is leading the way in modeling energy sources that only output sound in the useable frequency range for the particular objective, all other frequencies being noise in both the environmental and seismic sense.

Board of Directors

Peter M. Rigg

Carl-Peter Zickerman

Kitty Hall

Peter (born 1948) has an extensive background in investment banking with 21 years experience working in Asia and Europe, principally for Credit Suisse First Boston as a Worldwide Managing Director responsible for Asian Equity Capital Markets. Peter is a qualified Solicitor. He is also an independent non-executive Director of Shroderâ&#x20AC;&#x2122;s Oriental Income Fund Limited, and of two private equity funds specializing in Asia.

Carl-Peter (born 1972) holds valuable experience in the seismic industry, gained from his prior start-up ventures, Eastern Echo Ltd, and GeoBird Ltd. At present he is working in the capacity of Executive Vice President & Head of Strategic Investments at Polarcus.

Katherine (born 1956) has over 30 years experience within the geophysics industry and is currently President of ARKeX Ltd, where she is also a founding shareholder. Katherine was a Member of the Board of Eastern Echo Ltd.

Chairman of the Board

Shareholding in Polarcus: 275,000 Independent of the Company and management and independent of major hareholders

Carl-Gustav Zickerman Non-Executive Director

Carl-Gustav (born 1948) has substantial experience in the seismic industry gained from his involvement in the startup of Eastern Echo Ltd where he was also a Member of the Board and prior to that, as Director and Partner with SeaBird Exploration Ltd. Shareholding in Polarcus: 37,451,616 Warrants: 7,500,000 Representing Zickerman Holding Ltd

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Executive Director

Shareholding in Polarcus: 22,840,201 Warrants: 7,500,000 Part of the Executive Management team of the Company and representing Zickerman Group Ltd

Geoff Taylor

Non-Executive Director Geoff (born 1953) has extensive experience in the shipbuilding industry and held the position of Chief Executive Officer of Drydocks World LLC from 2004 to 2010. He was also a Member of the Board of Drydocks World LLC, Dubai World LLC and EZ World LLC. Shareholding in Polarcus: 300,000 Independent of the Company and management but representing Drydocks World LLC. Geoff has notified the Company that he resigns as director with effect from the 2011 AGM.

Non-Executive Director

Shareholding in Polarcus: 378,000 Independent of the Company and management and independent of major shareholders

Tore Karlsson

Non-Executive Director Tore (born 1953) is an independent consultant, a partner/ in MemeTree Ltd, and co-founder and partner in MoVa AS and GeoPublishing Limited. Tore has held senior roles within the seismic industry encompassing line management, strategy, marketing and geophysics. He was Chairman of the Board of Eastern Echo Ltd prior to its acquisition by Schlumberger Ltd in 2007. Shareholding in Polarcus: 395,934 Independent of the Company and management and independent of major shareholders

Hege Sjo

Jogeir Romestrand

Hege (born 1968) is a senior advisor for Hermes Investment Management Ltd. Prior to this she headed Hermesâ&#x20AC;&#x2122; European governance and engagement programs and before that held senior roles with the Oslo Bors.Hege is a non-executive director at Wilh Wilhelmsen ASA, Marine Harvest ASA and Det norske oljeselskap ASA.

Jogeir (born 1961) is owner and Director of Norwegian private investment firm Rome AS. He has over 20 years experience within marine technology and has previously worked in various management capacities within the ODIM Group since 1985, where he attained the position of CEO and President of ODIM ASA from 2003 to 2009.

Shareholding in Polarcus: 275,000 Independent of the Company and management and independent of major shareholders

Shareholding in Polarcus: 444,000 Independent of the Company and management and independent of major shareholders

Non-Executive Director

Non-Executive Director

Alan Locker

Non-Executive Director Alan (born 1952) has extensive technical experience, with his most recent position being Chief Technical Officer at Drydocks World LLC. Prior to that Alan held senior positions at Dubai Ports Authority and Eurotunnel Services Ltd. He holds an Engineering degree from the UK. Shareholding in Polarcus: 125,000 Independent of the Company and management. Alan has notified the Company that he resigns as director with effect from the 2011 AGM.

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Executive Management

Rolf Rønningen

Chief Executive Officer Rolf (born 1957) has over 30 years of seismic industry experience and has held senior positions at GECO and PGS, most notably as the President of Marine Acquisition at PGS Geophysical AS. Most recently he held the position of CEO of Eastern Echo Ltd. His experience covers both technical and operational management of towed streamer seismic vessels and seabed operations.

Eirin M. Inderberg General Counsel

Eirin (born 1968) has over 15 years experience as a lawyer and was formerly General Counsel of Eastern Echo Ltd. Prior to this she worked for the law firm Wikborg Rein & Co. in Oslo and London, and as a lawyer at the Oslo Stock Exchange. Her expertise includes Norwegian securities law, company law and ship financing.

24

Carl-Peter Zickerman

Executive VP & Head of Strategic Investments Carl-Peter (born 1972) holds valuable experience in the seismic industry, gained from his prior start-up venture, Eastern Echo Ltd where he held the position of Executive Vice President Business Development. Prior to this he was the Managing Director and founder of GeoBird Ltd., a marine seismic service provider, later sold to SeaBird Exploration Ltd. His experience covers both maritime and seismic operations, including vessel conversions and new builds. Carl-Peter is a Member of the Board of Polarcus Ltd.

Christian Fenwick

Senior VP Corporate Marketing & Multi Client Christian (born 1960) has over 28 years of industry experience and has held senior positions at Merlin Geophysical, Schlumberger Geco-Prakla, Schlumberger Information Solutions, and most recently was the Vice President Multi Client & Business Development at Eastern Echo Ltd. His experience covers business development, marketing, sales, operations and project management.

Tom Henrik Sundby Chief Financial Officer

Tom Henrik (born 1967) has over 17 years financial management and business development experience gained from the consulting services and commodities industries. He started his career with KPMG Norway, first as an auditor and then as a management consultant. Tom then joined TINE Norway, a top 25 industrial company in Norway, where he was Head of Controlling department and Head of M&A. Most recently he was Managing Director of TINE UK Limited, based in London.

Trygve Reksten

Senior VP Contract Sales Trygve (born 1963) has over 18 years of industry experience and held several management positions at PGS, most recently as Head of Contract Sales Asia Pacific Region, prior to joining Eastern Echo Ltd as Senior Vice President Contract Sales. His experience covers onboard technical roles, operations, sales, business development, procurement and market analysis.

Christopher Griffin

Duncan Eley

Magnus Oberg

Christopher (born 1961) has over 24 years of industry experience both onshore and offshore with Western Geophysical, Horizon Exploration, PGS and, most recently with Eastern Echo Ltd where he held the position of Vice President Environment, Health, Safety & Quality. His experience covers both onshore operations and project management, including 12 years in the field and 6 years in EHS&Q management.

Duncan (born 1972) has over 12 years of experience in the seismic industry. He worked with WesternGeco for 10 years supporting marine seismic operations in Europe, West Africa and North America. He also held positions in technology development and support in WesternGeco. Prior to joining Polarcus in 2009, Duncan worked for several years with strategy consultancy firm, L.E.K. Consulting, across the energy, transport and natural resources sectors.

Magnus (born 1970) has over 21 years of experience managing IT systems in large and medium size maritime companies. He joined Polarcus from Eastern Echo where he was VP Information Technology, and prior to that he held several senior management positions within Gulf Agency Company before becoming the Group IT Research & Development Manager based in Dubai. His expertise includes networking, security, and highavailability infrastructure solutions.

VP Environment, Health, Safety & Quality

Paul Lionel Hanna

Senior VP Marine Acqusition

VP IT

Phil Fontana

Senior VP Human Resources

Chief Geophysisist

Paul (born 1964) has over 23 years of industry experience and has held senior positions in various divisions of the Schlumberger group, including Connectivity Services Manager and Career Planning Manager for Schlumberger Information Solutions, London, UK; Data Services Business Manager for Data Consulting Services, Cairo, Egypt; and Area/Vessel Operations Manager for WesternGeco Gatwick, UK. His experience includes the technical, personnel and operational management of marine seismic vessels.

Phil (born 1952) has over 32 years of experience in the field of marine geophysics. During that time he has held several senior level technical positions in marine seismic data acquisition at Western Geophysical, WesternGeco, Veritas DGC, and CGGVeritas. His experience includes design and evaluation of marine acquisition technologies including seismic sources, towed streamers, ocean bottom systems, and navigation and positioning systems. He has also managed regional and global geophysical and navigation support groups. Prior to joining Polarcus in December of 2008, Phil held the position of Geophysical Manager for CGGVeritasâ&#x20AC;&#x2122; marine acquisition product line.

25

Board of Directors Report Polarcus (OAX: PLCS) is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole. Polarcus operates a fleet of high performance 3D seismic vessels incorporating an innovative design and advanced maritime technologies for improved safety and efficiency. Polarcus offers contract seismic surveys and multi-client projects worldwide and employs over 400 professionals. The Company’s principal office is in Dubai, United Arab Emirates. For more information, visit www.polarcus.com

1. Key developments 2010 •

Revenues of USD 122.7 million, EBITDA of USD 30.5 million and operating profit of USD 3.6 million

Positive net cash flow from operating activities of USD 11.7 million in the company’s first year in production

Prequalified for key markets and oil majors

Secured 100% backlog for the year, good visibility for the entire fleet

Three vessels in production: POLARCUS NADIA commenced production in January. POLARCUS NAILA delivered in February, commenced production in April. POLARCUS ASIMA delivered in August, commenced production late September. All vessels are delivering solid performance.

Additional four vessels under construction; POLARCUS SAMUR upgraded from 6 to 8 streamers. POLARCUS ALIMA financed and reacquired. Two new 12-14 streamer vessels ordered, POLARCUS AMANI and POLARCUS ADIRA to be delivered first half 2012. Company-wide EHSQ accreditations achieved in ISO 9001, ISO 14001 and OHSAS 18001

2. Environmental, health, safety and quality (EHSQ) During 2010 Polarcus entered marine seismic operations with the vessels POLARCUS NADIA, POLARCUS NAILA and POLARCUS ASIMA. This allowed the company to see positive first-hand results of the various risk strategies chosen after careful analysis was carried out during the planning phase for entering operations: Transits, project mobilizations and entering operations were all safely executed. Polarcus applies its strong, risk based approach to making sound business and operational decisions emphasizing a unique company safety culture. These risk assessment practices are also carried out onboard the company’s vessels with crewmembers being deeply involved with the risk management process. The vessels are brand new and some of the risk scenarios that are being studied have not previously been recorded in the marine geophysical world. Each one of Polarcus’ vessels builds a reference library of Hazard ID Assessments to be able to:

26

Classify activities

Identify hazards

Determine the risk

Decide if the risk is tolerable

Prepare an action plan as required.

This helps ensure that activities can be verified and managed to mitigate risk while ensuring that the Hazard ID reference library remains dynamic and relevant to the company’s business. In September 2010, Polarcus achieved an industry first by becoming the only Marine Geophysical Contractor holding certification for the following International Standards for Ship Management and Seismic Operations: •

ISM: Document of Compliance – International Management Code for the Safe Operation of Ships and for Pollution Prevention

ISO 9001: 2008 – Quality Management Systems

ISO 14001: 2004 – Environmental Management Systems

OHSAS 18001: 2008 – Occupational Health and Safety Management Systems

The Management System certification was awarded to Polarcus DMCC and the operating vessels by DNV according to the DNV five year certification program. Within the company’s first year of marine operations, the company accumulated 1,525,370 man-hours and experienced, Issues Fatalities: Lost Time Incidents: Medical Treatment Cases: Restricted Work Cases: High Potential Incidents: Environmental Spills:

# 0 2 1 1 0 0

In addition to an overall solid EHSQ performance companywide, POLARCUS NADIA was awarded the TGS 2010 Annual HSE Award as reflected in the following quote from TGS: “In early 2010, the newly formed Polarcus acquired its first survey for TGS, utilizing its first vessel, POLARCUS NADIA. From the very beginning of the project, the crew and management team demonstrated a high commitment to safety, as well as good operational procedures and excellent quality standards. HSE reporting was maintained at a high standard, especially lead indicator reporting. The crew used a high level of toolbox meetings, drills, audits and HSE meetings to accomplish the HSE task. Following the first survey the POLARCUS NADIA moved to the next project which exposed the crew to many challenges including obstructions, field activities and occasional severe weather. The crew

continued to perform at a high HSE standard, completing over nine months of work without incident. This strong HSE performance also helped lead to a strong operational and efficiency performance as confirmed by the statistics.” The work toward EHSQ excellence and the Management System review is an ongoing process with an emphasis on seeking continual improvement through auditing and inspection processes. During 2010 the Operations Department carried out a total of 447 EHSQ audits and inspections. These audits and inspections warranted a total of 804 Action Items and realized a close out rate of 77% for all audit/inspection actions recorded. The program for EHSQ excellence is embedded in the line management of the company and ably supported as required by a team of EHSQ professionals. From the outset Polarcus was looking to reduce its environmental footprint. The overall hydrodynamic efficiency of vessels and seismic spreads has a major impact on vessel fuel efficiency and thus the volume of exhaust emissions emitted during the course of the seismic operation. Det Norske Veritas (DNV), the international maritime classification society, has derived a quantitative emission model based upon a ships’ hull design, fuel type, propulsion efficiency, and exhaust mitigation for a given work load to compute an emission index where the corresponding volumes of COx, NOx, and SOx can be compared for different vessels performing the same work. For marine towed streamer surveys the work load can be computed by examining the hydrodynamic performance of each element in the acquisition spread.

Average Emission per vessel & month 100% 90%

3. Operations and markets When POLARCUS NADIA commenced production on 25 January 2010, Polarcus reached its most important milestone to date in its quest to become a new seismic major: Polarcus made the transition from a pure vessel building company to an operating seismic service provider. Later in 2010 POLARCUS NAILA and POLARCUS ASIMA also commenced production successfully and emphasized Polarcus ‘rapid growth. POLARCUS NADIA commenced production after 10 days of shakedown in line with Polarcus’ and client expectations. Since commencing production she achieved an average production rate of 47 square kilometers per day. Production in Liberia, West Africa was successfully completed 17 May, after which she transited to the North Sea to commence a large survey with excellent production performance which also earned the TGS 2010 Annual HSE Award. POLARCUS NAILA commenced production on 12 April and successfully completed her project, offshore Cameroon on the 20 May. This challenging project with parts of it in shallow water was safely and efficiently acquired for the client who highly commended the vessel and her crew on a strong performance.  The vessel then transited to the North Sea for the season where she conducted three different surveys including one north of the Polar circle, before she returned to Africa where the vessel took on Polarcus’ first multi-vessel 4D monitor survey in Nigeria. With their arrival into the North Sea both POLARCUS NADIA and POLARCUS NAILA have successfully utilized helicopter operations for crew changes. The backward-sloping bow design has proven to be a stable platform and a strong performer in varying weather conditions, not least harsh ones. POLARCUS ASIMA left her builders yard in Dubai, UAE on 31 August. The transit to Istanbul to mobilize for a Black Sea project was efficient, and POLARCUS ASIMA commenced mobilization on 22 September. Polarcus’ first 12 streamer deployment was efficiently conducted, including the shakedown, in only eight days. The survey was completed on 6 December and was Polarcus’ first turnkey project. Seismic data covering 2,069 square kilometers was delivered on time after 75 days in operation in harsh conditions. The vessel then transited to the Falkland Islands where she arrived in January 2011.

80% 70% 60% 50% 40% 30% 20% 10% 0% NOx %

SOx %

High end Seismic Fleet**

CO2 % Polarcus Fleet

Table 3: Industry vs. Polarcus Emission outline ** Cross comparison based on ~ 200 actual vessel months over a period of 2 years for seismic industry 6 - 12 streamer vessels vs. Polarcus actual statistics extrapolated to 24 months

In its first year of operations Polarcus has taken a conservative approach to how it has built its portfolio of projects. We started with a long term charter agreement for the first vessel at a given day-rate where several cost elements were capped. The second vessel was exposed to the regular market competing for the spot contracts that came out for tender. The third vessel took on Polarcus’ first turnkey project where risks are with the contractor, but where the risk is factored into the pricing model. This conservative portfolio approach was deliberately chosen as it was seen as prudent to provide some certainty for cash flow generation during the start-up phase of the company.

27

Board of Directors Report Seismic operations in general are split between contract seismic, where data is acquired exclusively for a customer, and multi-client, where Polarcus owns the data which is marketed to multiple customers on a non-exclusive basis. Polarcus took on contract seismic in 2010, rather than multi-client, since financing for the latter was not in place. Moving forward, the company has an overall objective of having 80% of the active vessel time used for contract seismic and 20% for multi-client surveys. In order to enter into multi-client projects, Polarcus in 2010 entered into a multi-client cooperation agreement with Searcher Seismic Pty. Ltd of Australia, to jointly develop and license marine 3D multi-client acquisition projects across Australia and Indonesia. The agreement is intended to see the development of highly financed multi-client projects to complement potential future contract operations in the strategic Asia-Pacific market. Searcher Seismic is a large and well known independent multiclient company in Australia with a reputation for delivering high quality multi-client projects. The agreement complements the existing cooperation agreement with Geo Partners covering northwest Europe and Africa. Polarcus saw contract prices remain stable throughout 2010, despite the disruptions seen post the Macondo tragedy in the Gulf of Mexico coinciding with new capacity entering the market. From Polarcus’ point of view, contributing factors to this price stability has been industry capacity reductions following scrapping of vessels grown old, and the increase in demand, driven by higher E&P spending by all the oil-companies, nationals, supermajors and independents. Historically, demand not supply has been the cycle creator and destroyer. This was last shown in the upturn from 2004-2008 when prices increased around 140% to the peak level at the same time as capacity doubled.

4. Financial results for 2010 2010 marks Polarcus first year of production, hence comparisons against 2009 numbers are to a large extent irrelevant and left out in the following review of the results. Polarcus generated revenues of USD 122.7 million for the year ended 31 December 2010. Revenues include other income of USD 3.5 million which was related to insurance claims on seismic equipment less deductibles. Vessel operating expenses amounted to USD 67.1 million and sales, general and administrative costs were USD 25.1 million. Depreciation came to USD 26.8 million of which USD 3.8 million was related to damaged seismic equipment. An impairment loss of USD 1.0 million was recorded due to waived slot reservations as a different shipyard was chosen for building vessels 7 and 8. Total operating profit for the year was USD 2.6 million.

28

Net Finance costs were USD 32.0 million in total which is less USD 18.7 million in interest expenses capitalized to vessels under construction. USD 3.5 million of finance costs are related to currency exchange and other financial losses. Net finance income was USD 4.6 million which is mainly related to currency exchange gains. A non-cash loss of USD 3.6 million is related to revaluation of fair value of liabilities on warrants issued. The total net loss for 2010 amounted to USD 28.3 million. In 2009 Polarcus discontinued a foreign currency hedge program related to the vessel building by buying NOK to cover the cost of Norwegian equipment to be delivered to the vessels. As a result of cash flow hedges Polarcus booked a net gain of USD 4.6 million in 2009. This was booked directly against the balance sheet and was shown in the total comprehensive loss for 2009. For 2010 Polarcus has continued to have foreign currency positions but not accounted for this as cash flow hedges.

5. Cash flows and financing For 2010 net cash flow provided by operating activities was USD 11.7 million. The amount increased throughout the year as the company became more profitable as more vessels have become operational. Cash and cash equivalents as of 31 December 2010 were USD 86.8 million. Due to global economic conditions at the time, the Company in July 2009 carried out a restructuring of Polarcus. Under the restructuring the Company sold two of its vessel owning subsidiaries, Polarcus 4 owning the vessel POLARCUS SELMA and Polarcus 6 owning the vessel POLARCUS ALIMA to Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) for a consideration of USD 1 each per vessel. After this transaction, ZL carried all financial obligations related to Polarcus 4 and Polarcus 6, while Polarcus had an option to repurchase each of POLARCUS SELMA and POLARCUS ALIMA or the corresponding vessel owning companies at a price equal to the remaining cost of completing each vessel. In October 2010, Polarcus exercised the option to repurchase POLARCUS ALIMA after raising USD 200 million in new capital comprising USD 65 million in equity, placed at NOK 5.15 (USD 0.90), a USD 80 million bond with a coupon of 12.50% and a USD 55 million bank loan facility with an average interest rate of approximately 5%. Furthermore, in November 2010 Polarcus signed shipbuilding contracts for two additional high-end 3D seismic vessels for delivery in the first half of 2012. To partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel the company raised USD 65 million of equity at NOK 5.30 (USD 0.93) in a private placement. Polarcus has also received a proposal from Eksportfinans ASA for 12 years financing for the two vessels of an amount up to 80% of the total project capital expenditure. The Eksportfinans facility is subject to ap-

proval by the Norwegian Guarantee Institute for Export Credits (“GIEK”). The total cash requirement for completing Polarcus’ seven vessels was at the end of 2010 estimated at USD 1,282 million, of which expenditure for seismic vessels and equipment was estimated at a total of USD 1,087 million and other expenditure at USD 195 million. Other expenditure includes financing costs, SG&A, working capital and buyback option costs for POLARCUS SELMA. As of 31 December 2010, Polarcus had secured the following financing totaling USD 1,022 million: Equity Senior secured bond Convertible bond Sale & lease-back (on first 2 vessels) Vendor financing Loan facility Loan facility 2nd lien bond

USD 467 million USD 55 million USD 35 million USD 180 million USD 70 million USD 80 million USD 55 million USD 80 million

Polarcus retains its option to buy back POLARCUS SELMA. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subsequently replaced with a right of first refusal to purchase the vessel from ZL. If the POLARCUS SELMA option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If Polarcus chooses not to exercise the option, USD 20 million will be written-off as an impairment loss.

6. New build program After Polarcus took delivery of its first vessel, POLARCUS NADIA on 14 December 2009, two more vessels followed in 2010. On the 24 February 2010 POLARCUS NAILA was delivered with a total capital expenditure of USD 137 million including 10 x 6,000 meter streamers. She is a sister ship to POLARCUS NADIA, and both are built to the SX-124 design capable of towing 12 streamers. POLARCUS ASIMA, built to the SX-134 design, and also capable of towing 12 streamers was delivered 31 August 2010 with a total capital expenditure of USD 149 million including 12 x 6,000 meter streamers. In September the Company announced the upgrading of their SX-133 designs from an original 6 streamer arrangement to an 8 streamer configuration. The upgrade will enable POLARCUS SAMUR to improve her flexibility to be tendered on a larger number of contracts. This will have a positive effect on the vessel’s revenue generating capabilities with a limited increase in capital expenditure. The vessel was delivered on 2 March 2011 with a total capital expenditure of USD 126 million including 6 x 6000 meter streamers.

POALRCUS ALIMA, a sister ship to POLARCUS ASIMA, was reacquired in October after a successful fundraising and was delivered 21 March 2011 with a total capital expenditure of USD 169 million including 12 x 6,000 meter streamers. In November Polarcus signed shipbuilding contracts for two additional high-end 12-14 streamer 3D seismic vessels for delivery in the first half of 2012. The new vessels POLARCUS AMANI and POLARCUS ADIRA will be built to the SX-134 design and have a total estimated project capital expenditure of USD 168 million per vessel including 12 x 6,000 meter streamers. POLARCUS SELMA, a sister ship to POLARCUS SAMUR, which Polarcus has an option to repurchase, is scheduled for delivery in Q3 2011.

7. Organization Polarcus’ headquarters are in Dubai, United Arab Emirates and by the year end the company had marketing offices in Houston, London and Singapore. At the end of the year Polarcus had 373 employees with over 40 different nationalities of which 281 were seismic & maritime crew on the vessels. 10% of the workforce is female (30% in the office and 3% field). Of the 9 Directors of the Board 2 are female. Based on the 92 office employees, number of sick days was 144 days which represent a sick rate of 0.9% in 2010. Polarcus field crew has been assisting with final preparations for vessel completion and operational readiness. Polarcus is committed to being the employer of choice in the marine seismic business and is committed to maintaining a human resource system that is open and fair. Polarcus aims to be a workplace with equal opportunities and has included in its policies regulations to prevent gender discrimination regarding salary, promotion and recruiting. Polarcus is working actively within our business to promote gender equality, ensure equal opportunities and rights, and to prevent discrimination due to ethnicity, national origin, descent, skin colour, language, religion and faith.

8. Risk 8.1. Financial risk factors Access to financial funding The Group may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of opportunities for acquisitions, joint ventures, exercise of options or other business opportunities that may be presented to it. Any negative development in sales, gross margins or sales processes may lead to a strained liquidity position and the potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.

29

Board of Directors Report Future contract awards As is customary in the industry, contracts for Polarcus’ services are occasionally modified by mutual consent and in certain instances they may be cancelled by the customer at short notice without penalty. Consequently, Polarcus’ backlog as of any particular date may not be indicative of actual operating results for any succeeding period.

Financial leverage and breach of covenants The financial leverage of the Group or any breach of covenants (or other circumstances which entail loans falling due prior to their final maturity date) may have several adverse consequences, including the need to refinance, restructure, or dispose of certain parts of the Group’s businesses in order to fulfill the Group’s financial obligations.

Fluctuations in Exchange rates and currency risks The Group’s costs are primarily in USD and to a lesser extent NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD. Long term financing of the Group is in USD. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, which is USD. The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

8.2. Other Risks Polarcus is also exposed to other risks including but not limited to operational risk, vessel construction risk, liquidity risk and credit risk. Please see the risk chapter in the notes to the Financial Statements for further description of these risk factors.

9. Internal Control Polarcus management monitors the company’s financial status on a daily basis, leading into a monthly management report including factors relating to financial covenants, cash flow, comparison to budget and other key figures. The quarterly financial statements are presented and approved by the BoD with a detailed comparison to budget. Polarcus has also implemented an electronic invoice control system, a detailed authority matrix for financial dispositions, and payment routines and weekly monitoring. The company’s costs are monitored monthly and necessary accruals are made. The company has furthermore expanded its organization with per30

sonnel with the responsibility of ensuring compliance with international, national and local tax, fees and filing requirements.

10. Board work and committees (Ref. Corporate Governance Commitments) The Board of Directors (“BoD”) has issued separate Terms of Reference that in detail set out the authorities, responsibilities and duties of the BoD, the chairman, the deputy chairman, a director, the company secretary and board committees. Furthermore, job descriptions have been prepared for the CEO and all members of the executive management team. In accordance with the Terms of Reference, the BoD has established a plan for its work for 2011 and has carried out an evaluation of its performance and expertise in 2010. The BoD has appointed Mr. Tore Karlsson as deputy chairman and he would normally chair agenda items in which the chairman of the BoD has been actively involved. The BoD has held 5 physical meetings, 5 phone meetings and executed 6 written resolutions in 2010. The attendance at board meetings in 2010 by the various directors is reflected in the table below: No. of Physical No. of Phone Meetings Meetings Peter Rigg 5 5 Tore Karlsson 5 5 Geoffrey Taylor 2 2 Kitty Hall 4 4 Carl Gustav Zickerman 4 5 Alan Locker 5 5 Carl Peter Zickerman 5 5 Hege Sjo 4 4 Jogeir Romestrand 5 5

Board Member

The BoD has established three board committees, (i) combined corporate governance and remuneration committee, (ii) nomination committee and (iii) audit committee. Directors are paid USD 1500 per committee meeting they attend.

Corporate Governance and Remuneration Committee The current corporate governance and remuneration committee consists of Mr. Tore Karlsson, Mrs. Hege Sjo and Mrs. Katherine Hall. Mr. Alan Locker resigned from the corporate governance and remuneration committee at the end of January 2011. The Committee is mandated to regularly review and update the Company’s governance commitments and structure and to review proposals from the executive management on bonus schemes and other benefits as well as general principles for salary and allowance increases.

Nomination Committee The current nomination committee consists of Mrs. Hege Sjo and Mr. Thomas Raaschou. Mr. Alan Locker resigned from the nomination committee in the end of January 2011. Mrs. Sjo was appointed as committee chair on 10 November 2009 and later appointed Mr. Locker and Mr. Raaschou as members. Mrs. Sjo is currently a director of the Company. The current members of the nomination committee and the Terms of Reference for the committee’s work were approved by the 2010 Annual General Meeting.

Dubai, 29 March 2011 Board of Directors

Peter Rigg

Alan Locker

Geoffrey Taylor

Kitty Hall

Carl-Gustaf Zickerman

Jogeir Romestrand

Tore Karlsson

Hege Sjo

Audit Committee The Audit Committee consists of Mr. Romestrand, Mrs. Sjo and Mr. Rigg. The committee is mandated to regularly review the Company’s proposal for quarterly accounts and various issues related to the accounts, introduction of new and change of existing accounting principles, high-level supervision of the budget process, the review and evaluation of the Company’s internal financial control and on behalf of the BoD liaise with the Company’s auditor.

11. Outlook Polarcus believes that the underlying industry fundamentals remain solid due to the continuing need for oil companies to replace reserves and address declining production rates in maturing fields. This is further supported through various announcements that both national and international oil companies are further increasing their E&P budgets for 2011. As the correlation between oil price and demand for seismic activity is strong, the continued high oil price may further strengthen the demand for seismic contract work in general, and specifically for work in new frontier areas. With the expanded Polarcus technology offering and the growing industry recognition of the company’s capabilities, the Board believe Polarcus is well positioned in a seismic sector expected to recover.

12. Allocation of the parent company’s loss for 2010 The Board confirms that the 2010 financial statements have been prepared based on the assumption of going concern and that the assumption of going concern is appropriate.

Carl-Peter Zickerman

The financial statements of Polarcus Limited are prepared in accordance with International Financial Reporting Standards. Loss for the period was USD 6.7 million for 2010 compared to a profit of USD 2.8 million in 2009. The Board proposes to allocate the 2010 loss for the period to retained earnings/loss. Terms of certain of the financing agreements include restrictions on dividend payments from the Company resulting in no equity currently being available for distribution.

31

Share information Shares in Polarcus are listed on the Oslo Axess under the ticker symbol ‘PLCS’. During the year of 2010, a total of 409 million Polarcus shares were traded at a value of NOK 2.2 billion. This means that 138 percent of the total number of shares outstanding in Polarcus were traded during the period and more than 20,000 share transactions were completed in Polarcus shares. At the end of the year 2010, Polarcus had a market capitalization of NOK 2.5 billion.

Polarcus shareholders At year-end 2010 Polarcus had 865 shareholders. The company’s largest shareholder is Drydocks-World LLC with 9.15 percent. The 20 largest shareholders at year end 2010 held 62.05 percent of the shares in Polarcus.

Share capital Following the Company’s Initial Public Offering on 27 September 2009 the issued share capital of Polarcus amounts to USD 5,263,496.40 divided into 263,174,820 shares of par value USD 0.02 each. All shares are of the same class and carry equal rights in all respects and each share carries one vote.

Name

Holding

%

DRYDOCKS WORLD LLC

37,500,000

9.15%

ZICKERMAN HOLDING LTD

37,451,616

9.14%

AWILCO INVEST AS

33,604,400

8.20%

ZICKERMAN GROUP LTD

22,840,201

5.57%

JPMORGAN CHASE BANK NA

18,000,000

4.39%

VARMA MUTUAL PENSION INSURANCE

14,593,733

3.56%

THE NORTHERN TRUST CO.

11,617,600

2.84%

SABARO INVESTMENT LTD

8,656,225

2.11%

RBC DEXIA INVESTOR SERVICES BANK

7,599,932

1.86%

STATOIL PENSJON

7,378,745

1.80%

BNP PARIBAS SECS SERVICES PARIS

7,163,046

1.75%

DNB NOR BANK ASA

7,121,961

1.74%

MORGAN STANLEY & CO INC. NEW YORK

6,546,507

1.60%

BNP PARIBAS SECS SERVICES PARIS

6,022,000

1.47%

BANK OF NEW YORK MELLON

5,045,000

1.23%

BROWN BROTHERS HARRIMAN & CO

5,036,600

1.23%

BANK OF NEW YORK MELLON SA/NV

4,778,228

1.17%

JPMORGAN CHASE BANK

4,591,239

1.12%

STATE STREET BANK AND TRUST CO.

4,500,000

1.10%

BNP PARIBAS SECS SERVICES PARIS

32

4,160,000

1.02%

Top 20 Shareholders

254,207,033

62.05%

Other

155,489,146

37.95%

Total

409,696,179

100.00%

Trade volume (NOK â&#x20AC;&#x2DC;000) 12,000

10,000

8,000

6,000

4,000

2,000

0

Share price (NOK) 7.50

7.00

6.50

6.00

5.50

5.00

4.50

4.00

3.50

Corporate governance commitments The Board of Directors of Polarcus adopted the Company’s current set of corporate governance commitments on 15 February 2011. The commitments are founded on the recommendations of the Norwegian Corporate Governance Code (the “Code”), as applicable at all times. A summary of Polarcus corporate governance commitments, Polarcus’ compliance with its commitments and the Code are provided below. Polarcus Articles of Association (the “Articles”), Corporate Governance Document and Terms of Reference for the various bodies of the Board are available on the Polarcus web site, www. polarcus.com.

Code Recommendation 1: Implementation and reporting on Corporate Governance Polarcus believes that focus on corporate governance and corporate social responsibility (“CSR”) is critical to its success and long-term growth. Polarcus is committed to maintaining high standards of corporate governance and CSR. The governance structure of Polarcus is designed to be appropriate to shareholders’ expectations, to the size, business and the history of the Polarcus Group. It also is designed to adhere to the Code, Cayman Islands law and practice and the Memorandum and Articles of Association of Polarcus. The Company implements its corporate governance and CSR through a comprehensive and efficient framework of commitments, procedures, checklists and audits and the promotion of a responsible corporate culture throughout the Polarcus Group. The Board of Directors will annually review and evaluate its corporate and CSR commitments and the need for any amendments as a consequence of the development of the business of the Company or changes in applicable legislation or in the Code. The Board of Directors will furthermore review, evaluate, explain and report on the Company’s compliance or non-compliance of the individual corporate governance commitments and the applicable corporate governance recommendations of the Code, such report to be included in each Annual Report of the Company. The Company’s vision and core values are presented on page 8 of this Annual Report. The “core values” of the Company are implemented through a set of commitments and procedures. The most important commitments are posted on the Company’s web site www.polarcus.com.

Code Recommendation 2: Business The goals and strategies of Polarcus are presented on page 8 of this Annual Report. The Company’s business is defined in the Articles clause 3: “The objects for which the Company is established are to carry on, undertake, engage or invest, directly or indirectly, by itself or through subsidiaries or part-owned companies, partnerships or other forms of entities, on a worldwide basis, in any commercial activity within the international oil and oil services business, 34

including oil and gas exploration, production and participation, seismic data services and general offshore energy related business, and whatever else may be considered incidental or conductive thereto, including without limitation the acquisition, construction, equipment, leasing, chartering, operation, agency and manning of any kind of vessels and everything incidental thereto, and the Company shall have full power and authority to carry out any other object not prohibited by the Companies Law of the Cayman Islands (as amended) (the “Law”).”

Code Recommendation 3: Equity and Dividends Polarcus is committed to having an equity capital at a level appropriate to its objectives, strategy and risk profile. The Company has a 60/40 debt to equity ratio which the Company believes is appropriate to its current operation. Polarcus is committed to maximizing the shareholder value including, where appropriate, declaring dividends to the shareholders from its profits. Polarcus is under certain of its financing arrangements restricted from declaring dividends to its shareholders until November 2015. Due to these restrictions and the current phase of the Company, Polarcus will not propose any dividend for the fiscal year 2010. The Board of Directors has the authority to distribute authorized but not yet issued or reserved shares, currently amounting to 104,001,352 shares of USD 0.02 par value. The purposes for which the issued share capital may be increased is by the Annual General Meeting defined as to provide for any share issues needed to finance the Company’s re-acquisition of the vessels sold under the group restructuring that took place in 2009, to finance other viable business opportunities and for general working capital purposes. Due to the system under Cayman law, it will not be possible to time-limit the actual authorization. The Company will at the 2011 Annual General Meeting ask for an increase in the authorized share capital to ensure that the Company has sufficient authorized capital for its future needs. The purposes for the increased authorized share capital will be defined and, if necessary, divided into separate mandates in the request for consideration by the Annual General Meeting. In accordance with its Articles, Polarcus may only acquire its own shares if and in so far as approved by the General Meeting through an ordinary resolution, such mandate to be for a specific number of shares and for a specific period of time. The Company does not currently hold any mandate to acquire its own shares.

Code Recommendation 4: Equal treatment of shareholders and transactions with close associates Polarcus has one class of shares. Polarcus is committed to equal treatment of all shareholders. The Articles of Polarcus do not prescribe any pre-emption rights for

shareholders of the Company. In the event that the Company considers it to be in the best interest of shareholders or necessary to perform a share offering, the Company is committed to limiting the level of dilution. The Company will in connection with a share issue carefully consider the purpose and need for new equity, the urgency of such equity, the strategic positioning between the Company and the new shareholders the offering is directed towards, the offer price, the financial market conditions and the need for compensating existing shareholders. The Company will in connection with any share capital increase disclose whether the issue will be a pre-emption issue or not and if its not a pre-emption issue, the reason for this. Polarcus has during 2010 made two equity placements, the first placement of USD 60 million to partly finance the reacquisition of vessel 6 sold during the group restructuring in 2009 and the second placement of USD 65 million to partly finance the payment of the first installment related to vessels 7 and 8 contracted by the Polarcus Group in November 2010. Both equity placements were made through overnight bookbuilding processes and the minimum individual subscription was fixed to EUR 50,000. A majority of the shareholders of the then issued share capital were contacted and offered to participate and received allocation in the overnight placements. In order to compensate the shareholders that were not offered to participate in the overnight equity placements, the Company did a repair issue at the end of 2010 under which these shareholders were guaranteed allocation equal to 10% of their shareholdings at the date of the first equity placement and at the same price as in the first placement. The equity placements were made through overnight book-building processes in order to reduce the execution and market risks associated with placements of the magnitude they were and to secure the needed capital within the required timeframe. The expected and achieved discounts to the prevailing market price were within an  acceptable range to prohibit dilution of  shareholders values. The Board considers the method chosen to be in the best interest of the shareholders. Should the Company find it beneficial to shareholders that Polarcus performs a stock repurchase, the Company will comply with best practice and regulations. Polarcus has developed procedures to handle potential conflicts of interest. The executive management of the Company and each Director has a duty to notify the CEO and the Board of Directors respectively if it becomes known to any of them that he or she or a related party has any direct or indirect interest in a not immaterial transaction to be entered into by the Company. Any Director with such interest shall refrain from voting in respect of such transaction. The executive management shall also inform the Company of any financial interest each of them might have in any other company. In the event of a non-material transaction between the Company and a shareholder or shareholders, Directors, members of

executive management or close associates of any such parties, the Board shall arrange for a valuation from an independent third party unless the Board of Directors decides to ask the General Meeting to resolve on the matter. Under the restructuring of the Polarcus Group that took place in July 2009 with the sale of two vessel-owning companies, the Company was granted an option to repurchase the vessels or their vessel-owning companies. The Company exercised the option to repurchase the shares in Polarcus 6 Ltd., owning the right to the vessel 6 in October 2010, at the previously agreed price equal to the cost of completing the vessel minus the amounts the Company had already invested in the vessel. The total cost of completing the vessel equipped with 12 x 6,000m streamers is estimated to USD 170,000,000 less the USD 21 million already invested in the vessel by Polarcus. The exercise of the option constituted a transaction with related parties. The Company had in August 2010 taken delivery of vessel 6’s sister ship, POLARCUS ASIMA, owning 10 x 6,000m streamers. In connection with this delivery, two independent valuations of the vessel were obtained who both concluded that the vessel had a market value in the region of USD 155 million. Furthermore, the Company was during the same time negotiating new shipbuilding contracts for identical vessels as vessel 6 where the total capital expenditure was budgeted to USD 168 million per vessel. The valuations and the price of the new shipbuilding contracts supported a cost price for vessel 6 of USD 170 million. The exercise of the option did not require the approval of the General Meeting. Representatives of the sellers, Zickerman Holding Limited and Zickerman Group Limited, being Directors of the Board of Polarcus, abstained from the Board of Director’s vote on the resolution concerning exercise of the option for the shares in Polarcus 6 Ltd. There have been several transactions carried out between companies within the Polarcus Group during 2010. The companies have all been directly or indirectly 100% owned by Polarcus. Where Norwegian companies have been involved, statements pursuant to paragraph 3-8 of the Public Companies Act have been prepared and filed. All transactions have been subject to approval from the General Meeting of the various Polarcus Group subsidiaries.

Code Recommendation 5: Freely negotiable shares The Company’s Articles provide that upon listing of the shares at a regulated investment market, the shares shall be freely transferable. Notwithstanding this, the Directors may pursuant to the Articles decline to register the transfer of a share where such transfer would, in the opinion of the Directors, be likely to result in 50 per cent or more of the aggregate issued share capital of the Company, being held or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or the Company otherwise being deemed a controlled foreign company (CFC). The Company’s shares were listed on the Oslo Axess on 30 Sep35

Corporate governance commitments tember 2009. The Board of Directors does not envisage having to use the CFC-provision of the Articles.

Code Recommendation 6: General Meetings Notice of General Meeting In accordance with the Code, the Company will make the notice of a General Meeting and the supporting information available on the Company’s website at least 21 days in advance of the meeting. The Company will furthermore distribute the notice to all individual shareholders with known addresses. The notice of a General Meeting shall always include: Date, time and place of the General Meeting; The agenda, a description of or supplemental information on the matters to be discussed with sufficient details and content to enable the shareholders to form a view on all matters to be considered at the meeting, any recommendation of a Nomination Committee and, where applicable, proposal for resolutions; If necessary, the method and deadline for shareholders to give notice of their intention to attend and vote at the meeting, such notice to be given either by letter, e-mail or fax and the deadline to be earliest the day before the date of the meeting; A form of instrument of proxy that may be used at the shareholders’ discretion and which allows separate voting instructions for each matter to be considered by the meeting and for each board candidate nominated for election, guidelines for completing the proxy and information on who the shareholder can appoint as proxy; At which address an instrument of proxy shall be deposited either in original or in copy by fax or e-mail latest at the time the meeting starts;

The Chairman of the meeting shall invite the shareholders to participate in discussions of the different issues at the General Meeting; The General Meeting shall vote separately on each candidate nominated for election to the Board of Directors. The members of the Board of Directors, the CEO, the CFO and the company secretary shall be present at any General Meeting. Furthermore, the members of the Nomination Committee will be present at the Annual General Meeting. The auditor shall be present at each General Meeting where such presence is practical or necessary due to the nature of the business to be transacted at the meeting. Proceedings at General Meetings In order for a General Meeting to proceed, shareholders representing not less than 10% of voting rights of the Company must be represented either in person or by proxy. For practical reasons as well as cost considerations, the Chairman of the Board of Directors will chair the General Meeting, provided the Chairman is independent of any major shareholder of the Company. If the Chairman of the Board of Directors is prevented from or unable to act as Chairman of the General Meeting, another independent Director elected by the other members of the Board of Directors shall chair the meeting. If no member of the Board of Directors is willing or able to act as Chairman, the shareholders present at the meeting shall by ordinary resolution choose one of their number to be the Chairman of the meeting.

To whom any proposals or comments to the notice, the agenda for the meeting and any proposal for resolutions can be directed;

Minutes from the General Meeting shall be posted on the Company’s website latest three days after the date of the General Meeting.

The web-pages on which the notice and the supporting documents, including the form of instrument of proxy are made available.

Code Recommendation 7: Nomination Committee

The Annual General Meeting of the Company on 27 April 2010 was called for in full compliance with Polarcus’ commitment and the Code.

The Company shall have a Nomination Committee.

The Company will ensure that as many shareholders as possible may exercise their rights as shareholders by participating in a General Meeting and that the General Meeting works as an effective forum for the views of the shareholders, hereunder by implementation of the following measures:

The Nomination Committee shall comprise of one of the independent Directors who shall be appointed by the Board of Directors. This independent Director shall appoint up to three additional individuals as members of the Committee among the largest shareholders. All members shall be independent of the executive management and at least one member must be independent of the Board of Directors. Furthermore, the Committee should never comprise of more than two members of the current Board of Directors. The Chairman of the Board of Directors shall not be part of the Committee. The members of the Committee should be selected to take into account the interests of all shareholders.

Any deadline for shareholders to give notice of attendance shall be fixed to earliest the day before the date of the meeting;

The members of the Nomination Committee are elected for a period of one year and shall be approved by the General Meeting.

The auditor was physically present at the Annual General Meeting 2010. No Extraordinary General Meetings were called for during 2010. Participation in a General Meeting

36

Shareholders shall be able to vote by proxy on each matter to be considered at the meeting. The notice of the General Meeting will specify at which address the proxy shall be deposited and the deadline for the deposit of the proxy;

The current Nomination Committee consists of Mrs. Hege Sjo and Mr. Thomas Raaschou. Mr. Locker resigned from the nomination committee in the end of January 2011. Mrs. Sjo is current Director of the Company. The composition of the Committee was approved by the Company’s Annual General Meeting in 2010. The Board of Directors has requested that Mrs. Sjo continues to be a member of the Nomination Committee and that she appoints up to three other members representing the largest shareholders. The 2011 Annual General Meeting will be asked to approve the appointment of the new Nomination Committee. The Company’s procedures for appointment and composition of the Nomination Committee do not fully comply with the recommendations in the Code, however the appointed members of the Nomination Committee are approved by the Annual General Meeting for the following one year term. The Board believes that the current procedure well serves its purpose in the Company’s current phase, but does not rule out appointing a committee consisting only of external members in the future. The Nomination Committee’s mandate is to evaluate and provide a proposal for candidates for Directorships. The Nomination Committee shall also present a proposal for remuneration of the Board of Directors to the General Meeting. The current Nomination Committee will make a recommendation for the board positions up for election at the 2011 Annual General Meeting and a proposal for board remuneration.

Code Recommendation 8: Board of Directors: Composition and independence Pursuant to the Articles, the Board of Directors may consist of 2 to 10 Directors. The current Board of Directors are presented on page 22-23 of the Annual Report. The members of the Board of Directors and the Chairman of the Board of Directors shall be elected by the Annual General Meeting by ordinary resolution. Each Director shall serve for a term of two years which expires at the conclusion of the Annual General Meeting in the year in which the period of office expires. A Director is eligible for re-election after the two-year period. Mr. Romestrand and Mr. Carl Gustav Zickerman are up for re-election at the 2011 Annual General Meeting. Furthermore, Mr. Geoffrey Taylor and Mr. Alan Locker have notified the Company that they resign as Directors with effect from the 2011 Annual General Meeting. The positions of the remaining Directors are up for re-election at the 2012 Annual General Meeting. The Board of Directors shall together have qualities, experience and expertise that the Company needs in order for it to develop into a recognized provider of geophysical seismic services worldwide including, but not limited to, geophysical seismic expertise, corporate, financial and investor relation experience and experience within investment banking. The Directors shall furthermore have the ability to work efficiently as a team and have sufficient capacity to carry out his/her duties.

The Board of Directors shall attend to the common interest of all shareholders and operate independently of any special interests and have a balanced combination of Directors representing major shareholders and Directors that are independent of any shareholder or shareholder groups. Under no circumstance shall the independent Directors count less than two Directors. The Company shall furthermore ensure that the majority of the Directors are independent of the Company’s executive management and material business contacts. The composition of the current Board of Directors complies with the Company’s corporate governance commitments and provides diversified and valuable expertise and experience to the Company. Four of the Directors are independent of major shareholders. The Company feels the Board of Directors reserves sufficient time to carry out their duties as Directors of Polarcus. None of the Directors holds such a number of board positions in other companies that such other positions would compromise the time needed to act as Directors of Polarcus. The Directors’ attendance at the board meetings is reflected in the record set out on page 30 of the Annual Report. Mr. Carl-Peter Zickerman is part of the Company’s executive management, serving as EVP & Head of Strategic Investment. Mr. Zickerman is furthermore one of the major shareholders and a founding shareholder of the Company. The Board of Directors finds it advantageous that he holds office as Director as well as attending to critical strategic processes on a daily basis. The Directors are encouraged to and all current Directors own shares in the Company. No Director shall be entitled to stock options in their capacity as Director.

Code Recommendation 9: The work of the Board of Directors The Board of Directors has issued separate Terms of Reference documents that in detail set out the authorities, responsibilities and duties of the Board of Directors, the Chairman, the deputy Chairman, a Director, the company secretary and board Committees. The Terms of Reference are available on the Polarcus web site, www.polarcus.com. The Board of Directors and each Director shall comply and carry out its responsibilities in accordance with at any time applicable instructions and guidelines. The Board of Directors shall regularly consider the appointment of board Committees in order to enhance and ensure independent and efficient preparation and consideration of matters. Only Directors independent of the executive management team can be members of such Committees. A description of the current corporate governance and Remuneration Committee, the Nomination Committee and the Audit Committee and their mandates are included on page 31 of this Annual Report. The Board of Directors has established a plan for its work for 2011 and has carried out an evaluation of its performance and expertise in 2010. The Board of Directors has held 5 physical meetings, 5 phone meetings and executed 6 written resolutions in 2010. 37

Corporate governance commitments Code Recommendation 10: Risk management and internal control Good risk management and quality processes are at the core of the Company’s business. The Company will ensure sound internal control of its business and compliance with all relevant laws, regulations, and market requirements i.a. through its company management system. The management system contains Polarcus commitments (policy statements covering all aspects of the Company���s corporate responsibility profile), manuals, corporate identity, risk control, contingency planning and EHSQ covering blanket requirements such as document control, reporting incident investigation, journey management and management of change. The commitments, manuals and planning documents are supported by procedures. The procedures provide the necessary reference, standards and instruction for responsibly carrying out the daily tasks of the Group, in many situations aided by checklists that help ensure that the task is carried out as prescribed in the procedure. The management system ensures a well-functioning operation and compliance with clients’ requirements, the Company’s corporate governance and corporate social responsibility commitments. The Company will regularly carry out internal cross department audits in accordance with detailed procedures and audit plan in order to ensure sufficient regular monitoring and review of the content of and the compliance with the Group’s management system. The result of these audits are presented and considered by the Board of Directors. As part of the company management system and culture, the employees are required to report near-misses, incidents and non-conformances. Compliance with all aspects of the Polarcus management system shall be one element measured for each employee in their yearly assessment. The executive management and each department of the Polarcus Group shall in its decision-making identify the risk involved and possible mitigation measures available. A standard risk matrix has been developed by the Company for this purpose and the personnel have been trained in the use of such matrix. Furthermore, the executive personnel shall at least once a year review its operation and any risk attached to the operation. The result of such review shall at least annually be presented to the Board of Directors for discussion and consideration. The management system has been subject to audits from and been approved by several prospective clients of the Polarcus Group. Furthermore, the Polarcus Group including its vessel has in September 2010 been certified under ISO 9001, ISO 14001 and OHSAS 18001, becoming the only seismic player in the industry to achieve such full accreditation both onshore and offshore for its total vessel fleet. The various departments of the Company have throughout 2010 audited their procedures in order to ensure quality and that actual performance of the tasks in question correspond with the 38

procedures. Audit procedures and audit plans for internal crossdepartmental audits have been developed, audit teams have been trained and audits will be carried out throughout 2011 to ensure sufficient regular monitoring and review of the Group’s compliance with the management system, including suppliers and subcontractors. The audit results will be presented to the Board of Directors by the end of 2011. In addition, the executive personnel will carry out its review of the main risks attached to the operation of the Polarcus Group and present the results to the Board of Directors during the first half of 2011 and its report on CSR compliance at the end of 2011. The Group in 2010 transferred from a project phase into an operational phase and has established appropriate internal controls to cater for the operation of the Company. Polarcus management follows up its financial status on a daily basis leading into a formal monthly management report including critical factors relating to financial covenants, cash flow, comparison to budget and other key figures. The quarterly financial statements are presented and approved by the Board with a detailed comparison to budget. The Company has implemented an electronic invoice control system, a detailed authority matrix for financial dispositions and payment routines and weekly monitoring are in place. The Company’s costs are monitored monthly and necessary accruals are made. The Company has furthermore expanded its organization with personnel with the responsibility of ensuring compliance with international, national and local tax, fees and filing requirements. Also as a measure to assist in the internal control of the Group, the executive management is required to report to the Board of Directors regularly on (i) safety, (ii) financial accounts, hereunder monthly management reporting, (iii) vessels operation status, (iv) sales/marketing measures and status of employment back-log for the vessels, (v) vessels construction progress and (vi) status of recruitment.

Code Recommendation 11: Remuneration of the board of Directors The remuneration of the Board of Directors shall reflect the Board of Directors’ responsibility, expertise, time commitment and the complexity of the Company’s activities from year to year. The remuneration shall not be linked to the Company’s performance. The Company requires considerable input and assistance from the Directors. The Annual General Meeting in 2010 approved an annual remuneration of each Director of USD 45,000 and USD 100,000 for the Chairman. No additional payment is received by Directors. Committee work is subject to a compensation of USD 1,500 per Committee meeting. The Nomination Committee will make the proposal for board remuneration for 2011 and present its proposal to the 2011 Annual General Meeting. The Company will not establish options scheme for its Directors. However, Mr. Carl-Peter Zickerman owns options in the Company in his capacity as a member of the executive management. All Directors, directly or indirectly own shares in the Company.

As a general principle, the Directors or the Director’s companies shall not take on specific assignments for the Company. If a Director’s particular expertise is needed by the Company for a period of time, the framework of such assignment as well as the remuneration shall in advance be approved by the Board of Directors.

Code Recommendation 12: Remuneration of the executive personnel The corporate governance and Remuneration Committee shall annually review, and propose to the Board of Directors the updated guidelines for the remuneration and benefits package of the members of the executive management, including the CEO. The Committee shall, when preparing the guidelines, take into account the location of the management, the level of remuneration normal within the business of the Group, the phase of the Group’s business and special characteristics of the different positions within the executive management. The guidelines shall include a summary of the characteristics of employee option schemes and bonus schemes applicable to the Group. The guidelines shall be presented to the Annual General Meeting for approval. A summary of the updated remuneration guidelines for 2011 will be presented for approval to the 2011 Annual General Meeting. Information on the remuneration of the executive management and the general principles behind the various elements are presented on page 79 and 80 of this Annual Report. Proposals for employee option schemes and arrangements to award shares to employees shall be approved in advance by a General Meeting. The current employee options schemes of the Company have been approved by the General Meeting of the Company. The 2008 scheme was designed to align employees with shareholder value creation and to attract competent persons in the recruitment phase to a wide range of positions within the Group and to retain employees until the Group is well into its operational phase. The exercise price under the scheme is fixed to the average share price in the 30-days period prior to an employee accepting an offer for employment and the options may be exercised in full after three years of employment. There is no requirement for a minimum period of ownership of the shares. The scheme deviates somewhat from the recommendations of the Code, but the characteristics of the scheme are considered beneficial in the current phase of the Company. The 2010 scheme has an exercise price for each option set to the volume weighted average price for which the shares have been traded on Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10% for options exercisable after one year, plus 20% for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan.

Code Recommendation 13: Information and communications The reporting of financial and other information from the Company shall be based on openness and equal treatment of all participants in the securities market. The Company will comply with detailed reporting requirements applicable for companies whose shares are listed on Oslo Axess. The Company has established investor relations and external communication procedures. Legal disclosure obligations and regulations for financial reporting will be strictly followed. All information sent to the shareholders or the market shall simultaneously be published on the Company’s web site www.polarcus. com. The Company shall in the beginning of each year publish a calendar setting out the announcement of financial reports, the date of the Annual General Meeting and other major events. The financial calendar for 2011 is presented on the Polarcus web site, www.polarcus.com. Representatives of the management of the Company visit major shareholders of the Company on a regular basis in order to facilitate a good dialogue and enable shareholders to communicate their particular concerns related to the Company.

Code Recommendation 14: Take-overs The Company has established detailed guiding principles for how the Board of Directors and executive management shall act in the event of a take-over bid. The guiding principles comply with applicable laws and the Code. The guiding principles describe the various phases of a take-over process, include procedures to ensure that sufficient information and time are made available to the shareholders to evaluate the offer of such takeover. Encompassed in the guidelines are principles for the Board of Directors’ evaluation of the offer and the arrangement of fairness opinions. The principles give guidance as to when a General Meeting should be called and include which actions the Board of Directors has to take or refrain from taking. Actions and authorizations of the Board differ dependent on whether the takeover situation is a result of an invitation to the Company or is a general offer to shareholders. Under the guidelines, the Board shall not exercise mandates or pass any resolutions with the intention of obstructing the takeover bid unless this is approved by a General Meeting following announcement of such bid. The principles authorize the Board of Directors to continue the completion of any transactions it or the management has entered into for commercial purposes prior to obtaining knowledge of the take-over bid, independent of these transactions were made public or not. An exception is the intention to dispose of a majority of its activities, which will be subject to a resolution by a General Meeting as long as the Company is subject to a take-over bid. The current authorization approved by the General Meeting includes a right for the Board of Directors to issue shares with a takeover situation in mind. It is the view 39

Corporate governance commitments of the Board of Directors that such authorization should only be used if it is clear that this will be beneficial to all shareholders. The Company has not be subject to any take-over or similar situations in 2010.

Code Recommendation 15: Auditor The Company’s auditors are Ernst & Young AS, Oslo, Norway. The Company’s Audit Committee shall annually request an audit plan from the auditor concerning the audit of the Company’s consolidated financial statements. The Company received in April 2010 audit plan from the auditor for the 2010 audit. The Board of Directors shall request and accommodate that the auditor can participates in board meetings that deal with annual accounts. The auditor shall in such meetings review any material changes in the Company’s accounting principles, comment on any material estimated accounting figures and report on all material matters on which there has been disagreement between the auditor and the executive management of the Company. The Board of Directors shall in combination with such review meet with the auditor without the presence of the CEO or any other member of the executive management. The auditor shall at least once a year discuss the Company’s internal control procedures with the Audit Committee, including identified weaknesses and proposals for improvement. The Company has established guidelines as to when it is acceptable to use the Company’s auditor for services other than the audit. This in order to ensure the auditor’s continued independence. In principle, global tax and transfer pricing services may be obtained from the auditor. The executive management shall furthermore carefully evaluate, when instructing consultants, whether any of such consultants can be linked to the auditor and therefore put the independence of the auditor at risk. The Company has during 2010 received advice on tax issues and transfer pricing procedures from Ernst & Young. The Company is confident that these services have not compromised the independence of the auditor. The Board of Directors shall report the remuneration paid to the auditor at the Annual General Meeting, including details of the fee paid for audit work and any fees paid for other specific assignments. Summary of remuneration to the auditor for services rendered during 2010 is presented in Note 32.2.5 to the Consolidated Financial Statement on page 80 of this Annual Report.

40

Polarcus Limited and Subsidiaries

Consolidated financial statements For the year ended 31 December 2010

Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements

42

Consolidated Statement of Comprehensive Income (In thousands of USD) Operating revenue Revenues Other income Total revenues

Notes 5

1 January - 31 December 2010 2009 119,256 3,478 122,734

-

(67,134) (25,141) (26,849) (1,000) (120,124) 2,610

(805) (18,553) (718) (5,148) (25,224) (25,224)

(31,983) 4,594 (3,561) (30,950)

(4,946) 3,408 7,728 6,190

Profit/(Loss) for the period before tax Income tax expense

(28,341) -

(19,034) -

Net profit/(loss) for the period

(28,341)

(19,034)

Other comprehensive income Net gain/(loss) on cash flow hedges Other comprehensive income/(loss) for the period Total comprehensive income/(loss)

(28,341)

4,589 4,589 (14,445)

(0.100) (0.100)

(0.089) (0.114)

Operating expenses Vessel operating expenses Sales, general and administrative costs Depreciation and amortization Impairment of vessels under construction Total operating expenses Operating profit/(loss)

26 30 7

Financial expenses Finance costs Finance income Changes in fair value of financial instruments Net financial income/(expenses)

27 28 29

Profit/(Loss) per share for loss attributable to the equity holders during the period (In USD) - Basic - Diluted

31 31

43

Consolidated Balance Sheet (In thousands of USD)

Notes

31-Dec-10

31-Dec-09

Assets Non Current Assets Property, plant and equipment Vessels under construction Vessel buyback options Vessel prepayments Intangible assets Restricted cash - Long term Total Non Current Assets Current Assets Prepaid expenses Other current assets Accounts receivable Restricted cash - short term Cash and cash equivalents Total Current Assets

6 7 8 7 9 10

478,544 200,531 19,907 28,060 2,633 -

160,158 266,019 40,831 4,279 1,362

729,675

472,649

2,440 26,052 18,357 110,749 86,836 244,435

13,264 2,179 35,163 115,324 165,930

974,110

638,579

14 14 16

8,194 423,822 9,308 (49,762) 391,563

5,264 303,583 7,255 (21,422) 294,680

17 18 19 20 21 14, 29

130,850 31,269 194,407 72,953 6,768 292 436,540

53,496 30,131 67,745 100,836 7,250 3,207 933 263,598

22 23 24 25, 32 20 21

8,766 6,586 7,166 59,874 22,388 10,936 30,291 146,008

5,306 2,293 3,862 29,138 9,123 4,327 26,252 80,301

974,110

638,579

11 12 10 13

Total Assets Equity and Liabilities Equity Issued share capital Share premium Other reserves Retained earnings/(loss) Total Equity Non Current Liabilities Senior Secured Bonds Convertible Bonds Advance from sale lease-back fund Long-term finance lease Other long-term debt Liability for warrants Employee pension accrual Total Non Current Liabilities Current Liabilities Interest payable Employee accruals and payables Other accrued expenses Deferred payments to vendors Long-term finance lease current portion Other long-term debt current portion Accounts payable Total Current Liabilities Total Equity and Liabilities 44

Consolidated Statement of Cash Flows (In thousands of USD) Cash flows from operating activities Profit/(loss) for the period before tax Adjustment for: Depreciation Impairment of vessels under construction Finance costs Changes in fair value of financial instruments Stock Options compensation provision Interest expense Interest income Working capital adjustments: Decrease/(Increase) in current assets Increase in trade and other payables and accruals Net cash flows from operating activities Cash flows from investing activities Decrease/(Increase) in restricted cash Purchases of property, plant and equipment Payments for vessels buyback options Payments to acquire intangible assets Interest income received Net cash flows used in investing activities Cash flows from financing activities Proceeds from the issuance of ordinary shares Transaction costs on issue of shares Proceeds from the issuance of senior secured bonds Receipt from sale lease-back fund Receipt from loans Repayment of lease liabilities Repayment of other long-term debt Interest paid Interest income received Net cash flows from financing activities Hedged gain/(loss) on revaluation of restricted cash (Other Reserves) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

Notes

30 7 29 14

8

14 14 17 19 21 20

1 January - 31 December 2010 2009 (28,341)

(19,034)

26,849 1,000 3,561 2,053 26,844 (157)

718 5,148 353 (7,728) 1,351 1,445 (414)

(31,406) 11,337 11,741

(14,600) 12,660 (20,102)

(74,224) (207,621) (443) 10 (282,278)

47,794 (241,559) (40,831) (295) (234,892)

129,672 (6,503) 76,929 22,255 76,081 (14,904) (3,981) (37,660) 157 242,049 -

124,625 (6,456) 157,745 (15,855) 414 260,474 4,589

(28,488) 115,323 86,836

10,070 105,254 115,324

45

Consolidated Statement of Changes in Equity Number of Shares (In thousands of USD except for number of shares)

Issued Share capital (Note 14)

Share Premium (Note 14)

Other Retained Reserves Earnings/ (Note 16) (Loss)

17 December 2007 at USD 1.00 per share

1

-

-

-

Balance as at 1 January 2008

1

-

-

-

-

-

-

-

-

(6,977)

(6,977)

Total comprehensive loss for the period

-

Total Equity

-

Issue of share capital 9 February 2008

at USD 1.00 per share

49,999,999

500

49,500

-

-

50,000

18 March 2008

at USD 1.00 per share

3,786,855

38

3,749

-

-

3,787

19 May 2008

at USD 1.00 per share

85,000,000

850

84,150

-

-

85,000

21 May 2008

at USD 1.00 per share

20,000,000

200

19,800

-

-

20,000

29 June 2008

at USD 1.00 per share

2,785,000

28

2,757

-

-

2,785

2 July 2008

at USD 1.20 per share

42,000,000

420

49,980

-

-

50,400

Transaction costs on issue of shares

-

(2,578)

-

-

(2,578)

Issue of warrants to shareholders

-

(18,716)

-

-

(18,716)

Issue of convertible bonds

-

-

5,024

-

5,024

Employee stock options provision

-

-

880

-

880

2,036

188,641

5,904

(6,977)

189,605

-

-

-

(14,445)

(14,445)

(101,785,928)

-

-

-

-

-

17 September 2009 to avoid fractional shares after consolidation

3.50

-

-

-

-

-

29 September 2009 at NOK 4.50 (USD 0.77) per share

161,388,889

3,228

121,397

-

-

124,625

Transaction costs on issue of shares

-

(6,456)

-

-

(6,456)

Employee stock options provision

-

-

1,351

-

1,351

5,264

303,583

7,255

(21,422)

294,680

Total comprehensive loss for the period

-

-

-

(28,340)

(28,340)

Employee stock options provision

-

-

2,053

-

2,053

-

-

60,411

Balance as at 1 January 2009

203,571,855

Total comprehensive loss for the period Consolidation of share capital 11 September 2009 (at 2:1 from USD 0.01 to USD 0.02 per share) Issue of share capital

Balance as at 1 January 2010

263,174,820

Issue of share capital 19 October 2010 at NOK 5.15 (USD 0.90) per share

67,421,359

1,348

59,063

24 November 2010 at NOK 5.30 (USD 0.93) per share

73,400,000

1,468

62,876

-

-

64,344

21 December 2010 at NOK 5.15 (USD 0.86) per share

5,700,000

114

4,803

-

-

4,917

-

(6,503)

-

-

(6,503)

8,194

423,822

9,308

(49,762)

391,563

Transaction costs on issue of shares Balance as at 31 December 2010

409,696,179

The accompanying notes are an integral part of the consolidated financial statements.

46

Notes to the Consolidated Financial Statements 1. General information The consolidated financial statements of Polarcus Limited (the “Company”) and its subsidiaries (together the “Group”) for the period ended 31 December 2010 were authorized for issue in accordance with a resolution of the Board of Directors on 29 March 2011. Polarcus Limited is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole. Polarcus Limited was incorporated on 17 December 2007 in the Cayman Islands with its registered office at Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands. The Group has its main administration office in Dubai, United Arab Emirates which is the domicile of the Group. The Group has five 3D seismic vessels that are currently operational. The fourth and fifth vessels, POLARCUS SAMUR and POLARCUS ALIMA were both delivered in Q1 2011. Furthermore, the Group has an option to buy back POLARCUS SELMA up to its date of delivery expected to be Q3 2011. Shipbuilding contracts are signed for vessels seven and eight, with expected delivery first half of 2012.

1.1 Financing Due to global economic conditions at the time, in July 2009 the Company carried out a restructuring of the Group. Under the restructuring the Company sold two of its vessel owning subsidiaries, Polarcus 4, which owned the vessel POLARCUS SELMA, and Polarcus 6, which owned the vessel POLARCUS ALIMA, to Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) for a consideration of USD 1 each per vessel. According to the terms of the contract, ZL became liable for all financial obligations related to Polarcus 4 and Polarcus 6 and the Group held options to re-purchase the vessels at a later date. In October 2010, Polarcus exercised the option to repurchase POLARCUS ALIMA after raising USD 200 million in new capital, which comprised of USD 65 million in equity, placed at NOK 5.15 (USD 0.90), a USD 80 million bond with a coupon of 12.50% and a USD 55 million bank loan facility with an average interest rate of approximately 5%. Polarcus retains its option to buy back POLARCUS SELMA. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subsequently replaced with a right of first refusal to purchase the vessel from ZL. If the Polarcus Selma option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If Polarcus chooses not to exercise the option, USD 20 million will be written-off as an impairment loss. In November 2010, Polarcus signed shipbuilding contracts for two additional high-end 3D seismic vessels for delivery in the first half of 2012. To partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel the company raised USD 65 million of equity at NOK 5.30 (USD 0.93) in a private placement. Polarcus has received a proposal from Eksportfinans ASA for 12 years financing for the two vessels of an amount up to 80% of the total project capital expenditure at a favorable interest rate. The Eksportfinans facility is subject to approval by the Norwegian Guarantee Institute for Export Credits (“GIEK”). The Group has ordered a total of seven vessels, three of which were delivered and in operation by the yearend (refer to Note 6) and four which are still under construction at the yearend (refer to Note 7). The total cash requirement for completing the seven vessels is estimated at USD 1,282 million, of which expenditures for seismic vessels and equipment is estimated at a total of USD 1,087 million and other expenditures at USD 195 million. Other expenditures include financing costs, SG&A, working capital and buyback option costs for Polarcus Selma. As of 31 December 2010 the Group has secured the following financing totaling USD 1,022 million:

Equity USD 467 million Senior secured bond USD 55 million Convertible bond USD 35 million Sale & lease-back (on first two vessels) USD 180 million Vendor financing USD 70 million Loan facility USD 80 million Loan facility USD 55 million USD 80 million 2nd lien bond

47

2. Summary of significant accounting policies The principle accounting policies applied in the preparation of these consolidated financial statements are set out below.

2.1 Basis of preparation These consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value and financial liabilities measured at amortized cost. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand (USD 000) except when otherwise indicated.

2.2 Statement of compliance The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

2.3 Changes in accounting policies 2.3.1 Current changes in accounting policies and disclosures The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2010: •

IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS 7, IAS 21, IAS 28, IAS 31 and IAS 39

IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items effective 1 July 2009

IFRIC 17 Distributions of Non-cash Assets to Owners effective 1 July 2009

Improvements to IFRSs (April 2009)

The adoption of the standards and interpretations listed above had no significant impact on the financial statements or performance of the Group.

2.3.2 Future changes in accounting policies and disclosures Certain new standards, amendments and interpretations of existing standards have been published that are mandatory for the Group’s accounting period beginning on 1 January 2011 or later periods but which the Group has not early adopted. The new standards, amendments and interpretations are not expected to have any material impact on the financial position or performance of the Group, except as listed below: IFRS 9 Financial Instruments: Classification and Measurement effective 1 January 2013. IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and de-recognition. The completion of this project is expected in 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

2.4 Consolidation 2.4.1 Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. 48

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs incurred are expensed and included as sales, general and administrative costs. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated but considered as an impairment indicator of the asset transferred.

2.5 Foreign currency translation 2.5.1 Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in USD, (the presentation currency). The parent and all the subsidiaries have USD as their functional currency.

2.5.2 Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges. Translation differences on non-monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss.

2.6 Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable for the sale of services in the ordinary course of the Group’s activities. Revenue is presented net of discounts, rebates, returns and sales taxes or duty. The Group defers the unearned component of payments received from customers for which the revenue recognition requirements have not been met. The Group’s revenue recognition policy on different types of revenue is described below;

2.6.1 Sales of Multi-Client library data Pre-funding arrangements The Group obtains funding from a limited number of customers before a seismic project is commenced. In return for the pre-funding, the customer typically gains the ability to direct or influence the project specifications and access data as it is being acquired at discounted prices. The Group recognizes pre-funding revenue as the services are performed on a proportional performance basis. Progress is measured in a manner generally consistent with the physical progress on the project, and revenue is recognized based on the ratio of the project’s progress to date, provided that all other revenue recognition criteria are satisfied.

Late sales The Group grants a license to a customer, which entitles the customer to have access to a specifically defined portion of the multi-client data library. The customer’s license payment is fixed and determinable and typically is required at the time that the license is granted. The Company recognizes revenue for late sales when the customer executes a valid license agreement and has received the underlying data or has the right to access the licensed portion of the data and collection is reasonably assured. During the year 2010 the Group has not acquired any multi-client library data and hence no pre-funding was obtained and no late sales revenue recognized.

49

2.6.2 Proprietary sales/contract sales The Company performs seismic services under contract for a specific customer, whereby the seismic data is owned by that customer. The Company recognizes proprietary/contract revenue as the services are performed and become chargeable to the customer on a proportionate performance basis over the term of each contract. Progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project’s progress to date, provided that all other revenue recognition criteria are satisfied.

2.6.3 Other services Revenue from other services is recognized as the services are performed, provided all other recognition criteria are satisfied.

2.7 Property, Plant and Equipment Property, Plant and Equipment are stated at cost less accumulated depreciation and impairment charges. Cost includes expenditure that is directly attributable to the acquisition, construction or installation of the items, including borrowing costs capitalized according to the Group’s policy which is described further below.

2.7.1 Useful life and depreciation Depreciation is calculated on a straight-line basis over the useful life of the asset once the asset is ready for use. The estimated useful life of major assets is as follows: Seismic vessels

30 Years

Seismic equipment

3-30 Years

Maritime equipment

5-30 Years

Furniture and fixtures

3-5 Years

Office IT equipment

3-5 Years

Each component of the vessels with a cost significant to the total cost is separately identified and depreciated on a straight-line basis over that component’s economic life. Subsequent expenditures and major renovations and inspections are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Dry-docking and classification costs for vessels are capitalized and depreciated over the period until the next expected dry-docking, normally 30 months. When vessels are acquired or constructed a proportion of the acquisition cost is capitalized as dry-docking and depreciated over the period until next expected dry-docking. The assets’ residual values and useful lives are reviewed and adjusted if appropriate at least every balance sheet date. Adjustments, where applicable, are made on a prospective basis. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are presented net in the income statement.

2.7.2 Vessels under construction Vessels under construction are carried at cost, less any impairment loss. Cost includes project related overheads capitalized and for qualifying assets, the borrowing costs capitalized in accordance with the Group’s accounting policy as described below. Depreciation of these vessels commences when the vessels are ready for their intended use.

2.8 Leases The determination whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date and whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

2.8.1 Group as a lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased asset, are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of minimum lease payments. 50

Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and lease term. Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term.

2.9 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement or capitalized in accordance with the accounting policy for borrowing costs as mentioned below, over the period of the borrowings using the effective interest method. Interest payable on borrowings is classified as a current liability unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.9.1 Convertible bonds Convertible bonds are separated into a debt liability and an equity component based on the terms of the contract. On issuance of the convertible bonds, the fair value of the debt liability excluding conversion option is measured at the fair value of expected cash flows at inception and is recorded under Non-Current Liabilities in the balance sheet. The debt liability component is amortized to the redemption value over the bond life, accruing interest at the effective rate. The rest of the convertible bond issue proceeds are recorded as equity. Transaction costs are apportioned between the debt liability and equity components of the convertible bonds based on the allocation of the proceeds of the debt liability and equity components when the instruments are initially recognized.

2.10 Borrowing costs Borrowing costs are recognized as an expense in the period in which they are incurred, except for borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred from the borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining qualifying assets, the amount of borrowing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on those assets. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period does not exceed the amount of borrowing costs incurred during that period.

2.11 Transit costs Transit costs are costs related to moving a vessel from one location to another.. The transit costs related to multi-client survey are capitalized as part of the multi-client library. Transit costs on exclusive surveys are deferred and charged to expense based upon the percentage of completion of the project. Both for multi-client and exclusive projects, the estimated probable future economic inflows which are documented at inception should cover the costs that are capitalized or deferred. If the projects are not able to cover all of the costs which could be capitalized or deferred, only the costs that are recoverable are capitalized or deferred.

2.11.1 Intangible assets Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets. 51

Computer software development costs recognized as assets are amortized over their estimated useful lives once the individual asset is available for use (not exceeding three years). Computer software not yet available for use is tested annually for impairment.

2.12 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents that are restricted for the Group’s use are disclosed separately in the consolidated balance sheets and are classified as current or non-current depending on the nature of the restrictions. For the purpose of the cash flow statements, changes in restricted cash are disclosed as part of the “Investing activities”.

2.13 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

2.14 Trade payables Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

2.15 Provisions A provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable (i.e. more likely than not) that there is an outflow of resources embodying economic benefits and a reliable estimate can be made of the amount of the obligation.

2.16 Employee benefits 2.16.1 Pension Plan The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%. For employees who are not enrolled in to the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee.

2.16.2 Bonus plans The Group recognizes a provision for bonuses where bonuses are a contractual obligation or where there is a past practice that has created a constructive obligation. The Group recognizes a liability and an expense for bonuses prescribed in the employment contracts.

2.16.3 Share-based compensation The Group has a share option plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted measured at grant date. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 52

2.17 Derivative financial instruments and hedging The Group uses derivative financial instruments to reduce risk exposure related to fluctuations in foreign currency rates and interest rates. Such derivative financial instruments are initially recognized in the consolidated balance sheet at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and any ineffective hedges are taken directly to the income statement. The Group applies either fair value or cash flow hedge accounting when a transaction meets the specified criteria. To qualify for hedge accounting, the instrument should be designated as a hedge at inception of a hedge relationship. At the time a financial instrument is designated as a hedge, the Group documents the relationship between the hedging instrument and the hedged item. Documentation includes risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. Accordingly, the Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been â&#x20AC;&#x153;highly effectiveâ&#x20AC;? in offsetting changes in the fair value or cash flows of the hedged item. Hedge accounting will be discontinued when (a) the Company determines that a derivative is not, or has ceased to be, highly effective as a hedge, (b) the derivative expires, or is sold, terminated or exercised, (c) the hedged item matures or is sold or repaid, or (d) a forecast transaction is no longer deemed highly probable.

2.17.1 Fair value hedges The Group applies fair value hedges whilst hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk). The change in fair value of the hedging instrument is recognized in the consolidated income statement. The change in fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the consolidated income statement. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement.

2.17.2 Cash flow hedges Cash flow hedging is applied to hedge the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment. The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income (OCI), while any ineffective portion is recognized immediately in the consolidated income statement. Amounts recorded in OCI are transferred to the consolidated income statement when the hedged transaction affects profit or loss. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken into OCI are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in OCI are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in OCI remain in OCI until the forecast transaction or firm commitment occurs.

2.18 Financial assets and liabilities Financial assets and liabilities are recognized when the Group becomes party to the contractual obligations of the instrument and are initially recognized at fair value. Financial assets and liabilities are classified as per below.

2.18.1 Financial assets and liabilities measured at fair value through consolidated income statement This includes the financial assets and liabilities held for trading and financial assets and liabilities measured at fair value upon initial recognition with change in fair value recognized through the consolidated income statement. Subsequent to initial recognition, financial assets and liabilities in this category are measured at fair value at the end of each reporting period with unrealized gains and losses being recognized through the consolidated income statement. Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near future. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on financial assets held for trading are recognized in the consolidated statements of operations.

53

2.18.2 Financial assets and liabilities measured at amortized cost This category includes loans and receivables and other non-derivative financial assets and liabilities with fixed or determinable payments that are not quoted in an active market. Financial assets and liabilities in this category are initially recognized at fair value, with addition for directly attributable transaction costs. After initial measurement financial assets and liabilities in this category are subsequently carried at amortized cost using the effective interest method less any allowance for impairment.

2.18.3 Financial assets and liabilities measured at fair value through equity This category includes financial assets and liabilities that are non-derivatives and are either designated as available-for-sale or not classified in any of the other categories. After initial measurement, financial assets and liabilities in this category are measured at fair value with unrealized gains or losses being recognized directly in share holders’ equity. When the asset or liability is disposed of, the cumulative gain or loss previously recorded in shareholders’ equity is recognized in the consolidated income statement. The fair values of quoted financial assets and financial liabilities are based on current bid/ask prices. If the market for a financial instrument is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and option pricing models. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments designated as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is considered as an indicator that the instrument is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit and loss – is removed from shareholders’ equity and recognized in the consolidated income statement. Impairment losses recognized in the consolidated income statement on equity instruments are not reversed through the consolidated income statement. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through the consolidated income statement.

2.19 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or Cash Generating Unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. When the carrying amount of an asset does not yet include all the cash outflows to be incurred before it is ready for use or sale, the estimate of future cash outflows includes an estimate of any further cash outflow that is expected to be incurred before the asset is ready for use or sale. This is the case for the vessels under construction.

2.20 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For diluted earnings per share, diluted potential ordinary shares are determined independently for each period presented. When the number of ordinary shares outstanding changes (e.g. share split) the weighted average number of ordinary shares outstanding during all periods presented is adjusted retrospectively.

2.21 Consolidated statement of cash flows The Company’s consolidated statement of cash flows is prepared using the indirect method. Cash flows from operating activities are incorporated as a part of the cash flow statement and the cash flows are divided into operating activities, investing activities and financing activities.

54

2.22 Accounts receivable Receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment if any. A provision for impairment of accounts receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. The amount of such provision is the difference between accounts receivable’s carrying amount and the present value of estimated future cash inflows, discounted at the effective interest rate. The carrying amount of the accounts receivable is reduced through a loss being recognized in the income statement. If an accounts receivable becomes uncollectible, it is written off through the income statement. Subsequent recoveries of amounts previously written off are credited to the income statement.

2.23 Taxation Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. Deferred tax is provided using the liability method and temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The Norwegian subsidiaries are taxed in compliance with the tonnage tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on dividends from companies within the scheme. Tonnage tax paid under the tonnage tax regime is classified as an operational expense. Net finance income for companies taxed under the tonnage tax regime is adjusted in accordance with the regime regulations and taxed at a rate of 28%.

3. Financial risk management 3.1 Financial risk factors The Group is exposed to but not limited to a variety of financial market risks, operational risks and construction risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

3.1.1 Financial market risk Access to financial funding The Group may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of opportunities for acquisitions, joint ventures, exercise of options or other business opportunities that may be presented to it. Any negative development in sales, gross margins or sales processes may lead to a strained liquidity position and the potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.

Future contract awards As is customary in the industry, contracts for Polarcus’ services are occasionally modified by mutual consent and in certain instances they may be cancelled by the customer at short notice without penalty. Consequently, Polarcus’ backlog as of any particular date may not be indicative of actual operating results for any succeeding period.

Financial leverage and breach of covenants The financial leverage of the Group or any breach of covenants (or other circumstances which entail loans falling due prior to their final maturity date) may have several adverse consequences, including the need to refinance, restructure, or dispose of certain parts of the Group’s businesses in order to fulfill the Group’s financial obligations.

55

Fluctuations in Exchange rates and currency risks The Group’s costs are primarily in USD, though there are also some smaller costs in foreign currencies, particularly NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD. However, the impact of a reasonably possible change in the USD exchange rate, with all other variables held constant, on the Group’s financial performance and financial position are not expected to be significant. Long term financing of the Group is in USD. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, which is USD. The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

Cash flow and fair value interest rate risk The Group has significant interest-bearing assets which results in the Group’s income and operating cash flows being dependent on changes in market interest rates. The interest-bearing assets with variable interest rates expose the Group to cash flow interest rate risk. Interest earned and received on these balances fluctuates with changes in market interest rates. During the period, the Group’s financial assets at variable rates were denominated in USD and NOK. The Group is subject to interest rate risk on debt, including capital leases. The risk is managed using a combination of fixed and variable rate debt. As of 31 December 2010 the Group has USD 523 million interest bearing debt of which only USD 80 million (around 15%) is with variable interest rate. As the portion of the overall debt that is subject to a variable interest rate is small the Group’s exposure to interest rate risk is reduced and any reasonably possible change to the variable interest rate are not expected to have a significant impact on the Group’s financial performance or position. The interest rate and maturity analysis of the Group’s borrowings as per the reporting date are shown in the table below: Years ended

Effective interest rate (%)

Maturity

Deferred payments for vessel 5 to the shipyard

LIBOR +3.00

01-Jun-10

-

29,138

Deferred payments for vessel 6 to the shipyard

7%

21-Mar-11

59,874

-

59,874

29,138

(In thousands of USD)

31-Dec-10

31-Dec-09

Current

Non-current 13% Senior Secured Bonds (refer to Note 17)

14.49

30-Jul-13

53,846

53,496

12.5% Senior Secured Bonds (refer to Note 17)

13.93

15-Oct-15

77,004

-

8.5% Convertible Bond (refer to Note 18)

13.39

30-Jul-13

31,269

30,131

Other long term loans (refer to Note 21)

8.16

31-Aug-22

52,431

-

Other long term loans (refer to Note 21)

6.99

31-Aug-15

23,861

-

238,412

83,627

Shifts in market interest rates will impact the fair value of the warrants to shareholders and hence impact the Group’s income statement. The susceptibility of the value of warrants to a possible shift in the risk-free market interest rate is disclosed in Note 4.1.3 Warrants.

3.1.2 Operational risks Variability of operating results The Company’s revenue may vary from month to month and year on year due to changes in oil companies’ exploration and production spending. There is no guarantee that Polarcus will be able to secure contracts at profitable rates. In addition, the Group may experience significant off-hires on transit periods between charters. 56

Supply and Demand risks Demand for offshore geophysical services depends on the demand / supply balance for oil and gas and on the investments by oil and gas companies in exploration and development projects. Low demand or oversupply of oil and gas can lead to reduced capital expenditures by oil and gas companies that in turn may reduce the demand for the Group’s products and services. Other factors that may reduce the demand for the Group’s products and services include, but are not limited to, fluctuations in productions levels and disappointing exploration results.

Operating and financial history The Company was formed in 2008 and has a limited period of operating history and limited historical financial information for clients and investors to evaluate prior or future performance.

Access to personnel The Group’s development and business success are largely dependent upon the continued services and performance of its senior management and other key personnel. Securing and retaining qualified crews are also of significant importance. There is no guarantee that the Group will be able to attract and retain personnel required for a successful operation, which might have negative effects on the Group’s operating results and financial condition.

Dependence on few assets If the Group fails to obtain short or long term contracts for one or more of the vessels, it could incur financial losses due to less operating vessels to allocate fixed costs to.  

Insurance protection Although Polarcus has insurance coverage normal for its line of business, such insurance arrangement will not carry full coverage of all its operating risks. An incident involving any of the Group’s assets could result in loss of earnings, fines or penalties, higher insurance costs and damage to the reputation of the Group. The Group has established a loss of income insurance. However the loss, or lasting unavailability, of a vessel could have an adverse effect on the Group as the loss of income insurance will have a significant deductible and limited time span and will not cover all eventualities.

3.1.3 Risk factors particular to the vessels construction project Construction risk The Company has an option to acquire the vessel POLARCUS SELMA built at Drydocks World Dubai LLC. In addition the Company has entered into two shipbuilding contracts with Ulstein Verft AS for the construction of POLARCUS AMANI and POLARCUS ADIRA. Any material delays related to the construction contracts for the last vessels or other contracts of importance for the construction and equipment of the remaining vessels might have a material adverse effect on the Company and its financial position. Furthermore, cost overruns and technical problems might be experienced during construction and testing of the vessels which might impact the expected delivery time of the vessels as well as the expected financial performance. A potential default or delay by any of the two shipyards or other counterparties will have an adverse effect on the Company and its financial position. The Group is dependent on the ability of sub-contractors to provide key seismic equipment which meets the specifications, quality standards and delivery schedules of the Company. Failure to meet these requirements might have a material adverse impact on the Company’s operating results and financial position.

3.1.4 Credit risk Credit risk is managed on a Group basis. The Group’s credit risk arises mainly from trade receivables, cash and cash equivalents deposited with banks and financial institutions and from advance payments made to the suppliers. The Group provides its services only to recognized, credit worthy clients who are primarily multinational oil and gas companies, including companies owned in whole or in part by governments. It is Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. 57

For banks and financial institutions, only independently rated parties with a minimum rating of investment grade or higher are accepted by the Group. The Group’s maximum exposure to credit risk for the components of the balance sheet is shown in the table below: Years ended (In thousands of USD)

31-Dec-10

31-Dec-09

Financial assets Non-Current restricted cash Cash and short-term deposits

-

1,362

197,804

150,560

Accounts receivable

18,357

-

Vessel prepayments

28,060

-

244,221

151,922

Total

3.1.5 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and having availability of funding through an adequate amount of committed credit facilities. Management constantly manages the forecast of the group’s liquidity reserve on the basis of expected cash flows. The Group will have to secure additional funding in order to finance the construction of POLARCUS AMANI and POLARCUS ADIRA. The table below analyses the Group’s financial liabilities broken into different maturity groups based on the remaining period from 31 December 2010 to the date of contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows.

(In thousands of USD) Bond loan borrowings (refer to Note 17 and 18)

Less than 1 Year

Between

Between

1 - 2 Years

2 - 5 Years

Over 5 Years

Total

-

-

170,000

-

170,000

Interest payment on bond loan borrowings

20,125

36,031

18,333

-

74,489

Finance lease liabilities (refer to Note 20)

22,388

34,141

21,672

138,594

216,796

Interest payment on finance lease liabilities

23,798

41,714

55,048

42,701

163,261

Other long term liabilities (refer to Note 21)

4,686

2,911

25,000

-

32,596

Interest payments on other long term liabilities

5,388

8,750

8,766

5,558

28,463

88,217

-

-

-

88,217

164,603

123,547

298,819

186,853

773,822

Trade and Other payables Total

As of 31 December 2010 the Group had three vessels under operation. Two additional vessels, POLARCUS SAMUR and POLARCUS ALIMA were delivered in Q1 2011. The vessels are expected to generate revenues to support the Group’s operations and service the debts.

3.2 Capital management Capital includes equity attributable to the equity holders of the parent company. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to maximize shareholder value and maintain an optimal capital structure in order to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may (i) adjust the amount of dividends paid to shareholders, (ii) return capital to shareholders, (iii) issue new shares or (iv) sell assets to reduce debt. The Company is subject to dividend restrictions under certain of its financing arrangements. Due to these dividend restrictions and the current phase of the Company, Polarcus will not propose any dividends to the shareholders for the fiscal year 2010. The Group aims to have equity capital of a level appropriate to its objectives, strategy and risk profile. The Group monitors its capital

structure on the basis of total equity to total assets ratio. As of 31 December 2010 the Group has a book equity ratio of 40%. It is the Group’s policy that the said ratio shall be approximately 40% during its current early growth stage.

58

4. Critical accounting estimates, assumptions and judgments The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in the Group’s future operating plans and the inherent imprecision associated with estimates. Certain amounts included in or affecting the financial statements and related disclosure must be estimated, requiring the Group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. A ‘‘critical accounting estimate’’ is one which is both important to the portrayal of the Group’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The management evaluates such estimates on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods considered reasonable in the particular circumstances, as well as forecasts as to how these might change in the future. The following is a summary of which estimates and judgments could have a material effect on the accounts.

4.1 Impairment The Group assesses long-lived assets for possible impairment upon the occurrence of indicators. Events that can trigger assessments for possible impairments include, but are not limited to (a) significant decreases in the market value of an asset, (b) significant changes in the extent or manner of use of an asset, and (c) a physical change in the asset. Estimating undiscounted future cash flows requires the management to make judgments about long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain as they require assumptions about demand for our products and services, future market conditions and future technological developments. Significant and unanticipated changes in these assumptions could require a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and specific times, the management cannot reasonably quantify the impact of changes in these assumptions.

4.2. Fair value of financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The primary assumptions used in the valuations are interest rates, share price, expected life of instruments, volatility and likelihood of certain events happening. The employee stock options are priced using a Black Scholes formula for equity options. For the simulation of “Change of Control”, the events are drawn from a uniform distribution in the simulations. Financial instruments carried at fair value include warrants issued to founding shareholders. Assumptions used in the calculations of fair value of the financial instrument that are more sensitive are the following:

-

Market price of the Company’s shares (warrants)

-

Volatility of the share price (warrants)

-

Probability of change of control event (warrants)

4.3. Warrants The Group has issued 21,250,000 warrants where the strike price might vary dependent upon circumstances outside of the control of the Group. The warrants are classified as a liability and measured at fair value through profit or loss. No cash outflows will arise in relation to the warrants. As of 31 December 2010, the value of the warrants was calculated to be USD 6.77 million using 59% volatility and a share price of USD 1.03 (NOK 6.06 at USD exchange rate of 5.89). The table on the following page presents a calculation of the sensitivities related to the valuation of warrants. The table shows the effect on net income based on 10% change (plus or minus) in volatility, share price and risk-free market interest rate. The fair value of the warrants, and consequently the liability relating to the change of control clause, is strongly dependent on the value and the volatility in the shares. 59

(In thousands of USD except for share price) Volatility used at 31-Dec-2010 59%

Effect of

Share Price used at 31.12.2010

-10%

10%

1,382

(1,177)

$1.03

Effect of -10%

10%

1,407

(1,592)

Interest Rate used at 31.12.2010 0.59%

Effect of -10%

10%

12

(12)

The effect of change in fair value of the warrant liability on net income is not linear to changes in the share price. The table below shows the effect on net income based on increased share price in NOK 3 increments. (In thousands of USD except for share price) Share price used at 31-Dec-2010

Effect of share price being NOK 9

NOK 6.06 ($1.03)

(8,140)

NOK 12 (17,697)

NOK 15 (27,534)

4.4. Depreciation of vessels The useful life of different components of the vessels is based on management estimates of the expected useful lives and expected residual values of the assets. These estimates may change due to future changes in market conditions.

4.5. Lease arrangements For the purpose of applying the Companyâ&#x20AC;&#x2122;s accounting policies, management is required to exercise a judgment as to whether lease arrangements should be considered an operating or finance lease. Current lease arrangement for vessels and seismic equipment are determined to be financial leases.

60

5. Segment information The Group provides its marine towed streamer seismic data acquisition services to customers worldwide. All the activities of the Group are conducted and monitored as one business segment, thus in accordance with IFRS 8, no further operating segment information has been disclosed in these consolidated financial statements.

5.1 Geographic information The Group’s revenue is earned from external customers worldwide are grouped as per below based on the territory of services provided; Years ended (In thousands of USD) Africa

31-Dec-10 42,421

South America Europe Total revenue

31-Dec-09 -

6,226

-

70,610

-

119,256

-

At the period end date the vessels under construction and property, plant and equipment were geographically located as per below: (In thousands of USD) Africa

31-Dec-10

31-Dec-09

134,566

136,671

South America

282,993

-

Middle East

261,516

289,506

Total

679,075

426,177

The Group had three vessels in operation during the year ended 31 December 2010 and included in the property, plant and equipment as at 31 December 2010. All three vessels were located in different jurisdictions due to the location of the contracts. Other Non-Current assets included in the property, plant and equipment are furniture and fixtures, office equipment and were all located at the Group’s office in Dubai. The two vessels under construction at the period end were located at the shipyard in Dubai.

5.2 Revenues from key customers During the year ended 31 December 2010, the Group provided its services to 10 different customers worldwide. Revenue earned from 2 of these customers each amounted to more than 10% of the Group’s total revenue earned during the year: Years ended (In thousands of USD)

31-Dec-10

31-Dec-09

Customer 1

43,173

-

Customer 2

24,656

-

Other customers

51,427

Total revenue

119,256

-

Full amount of Group’s revenue earned during the year ended 31 December 2010 was from contract sales.

61

6. Property, Plant and Equipment (In thousands of USD) Seismic vessels Furniture and and fixtures equipment

Office equipment under construction

Office and IT equipment

Total

Year ended 31 December 2009 Costs Balance at 1 January 2009 Additional capital expenditures Assets under finance leases Disposals Balance as at 31 December 2009 Depreciation and impairment losses Balance at 1 January 2009 Depreciation for the period Disposals Balance as at 31 December 2009 Carrying amounts As at 1 January 2009 As at 31 December 2009 Of which carrying amounts held under finance lease as at 31 December 2009 Year ended 31 December 2010 Costs Balance as of 1 January 2010 Additional capital expenditures Assets under finance leases Disposals Balance as of 31 December 2010 Depreciation and impairment losses Balance as of 1 January 2010 Depreciation for the period Disposals Balance as of 31 December 2010 Carrying amounts As of 1 January 2010 As of 31 December 2010 Of which carrying amounts held under finance lease as of 31 December 2010

22,632 137,060 159,692

529 22 551

482 165 647

142 142 -

1,153 22,819 137,060 142 160,890

417 417

41 108 149

47 118 165

-

88 644 732

159,275

488 402

435 482

142 -

1,065 160,158

136,783

-

-

-

136,783

159,692 185,539 157,353 (2,968) 499,616

551 1,170 (85) 1,636

647 61 708

-

160,890 186,770 157,353 (3,053) 501,960

417 22,475 (158) 22,734

149 255 (28) 376

165 141 306

-

731 22,871 (186) 23,416

159,275 476,882

402 1,260

482 402

-

160,159 478,544

274,822

-

-

-

274,822

In February 2010 the Group took delivery of its second vessel, POLARCUS NAILA. The cost of the vessel incurred up to delivery was USD 114.9 million. POLARCUS NAILA is subject to a sale and lease-back financing arrangement. Also refer to Note 20 Long-term Finance Lease. In August 2010 the Group took delivery of its third vessel, POLARCUS ASIMA. The cost of the vessel incurred up to delivery was USD 152.9 million. POLARCUS ASIMA has been pledged as security for a facility agreement entered into with Eksportfinans ASA and DVB Bank SE for a USD 80 million loan. The Eksportfinans tranche of the facility (USD 55 million) relates to financing of Norwegian equipment on-board the vessels POLARCUS SAMUR and POLARCUS ASIMA. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel POLARCUS ASIMA. Also, refer to Note 21 Other Long-term Debt. 62

7. Vessels under construction (In thousands of USD) Vessel Name Vessel Type

Polarcus Naila SX 124

Polarcus Samur SX 133

Polarcus Selma SX 133

Polarcus Asima SX 134

Polarcus Alima SX 134

Polarcus Amani SX 134

Polarcus Adira SX 134

33,645

25,483

23,339

24,861

24,857

3,450

3,450

139,085

57,805 2,335 248 -

37,560 1,492 7,455 -

20,055 621 963 (44,978)

62,733 1,519 3,345 -

25,146 395 1,003 (51,401)

319 -

319 -

203,937 6,362 13,014 (96,379)

94,033

71,990

-

92,458

-

3,769

3,769

266,019

16,674 561 3,598 -

21,555 3,416 8,010 -

-

54,362 2,933 3,125 -

84,442 1,252 9,866 -

10,760 (500)

10,760 (500)

198,555 8,162 24,598 (1,000)

(114,866)

-

- (152,878)

-

-

-

-

-

-

-

(14,029)

(14,029)

(28,059)

-

104,971

-

-

95,560

-

-

200,531

Total

Year ended 31 December 2009 Balance as at 1 January 2009 Additions in the year: Vessel and equipment Project Overheads Project Financing costs Disposals WIP value per vessel as of 31 December 2009 Year ended 31 December 2010 Additions in the year: Vessel and equipment Project Overheads Project Financing costs Disposals Transfers to property, plant & equipment Payments treated as advance to suppliers WIP value per vessel as of 31 December 2010

- (267,744)

The vessel POLARCUS NAILA was delivered on 24 February 2010. Refer to Note 6 Property, Plant and Equipment for further details. The vessel POLARCUS ASIMA was delivered on 31 August 2010. Refer to Note 6 Property, Plant and Equipment for further details. The vessel POLARCUS SAMUR is pledged as security for a 13% interest bearing senior secured bond and interest accrued thereon. Refer to Note 17 Senior Secured Bonds for further details on this financing arrangement. Total commitments for capital expenditure related to the construction of POLARCUS SAMUR as of 31 December 2010 is USD 125.8 million, of which USD 20.8 million is outstanding as of the reporting date. All of these commitments are due within one year from 31 December 2010. On 20 October 2010 the Company exercised the option of repurchasing POLARCUS ALIMA from ZL. As at the date of repurchase the Group had already invested USD 21 million. Subsequent to the repurchase, an additional investment of USD 74.6 million was made during the period ended 31 December 2010. Also refer to Note 8 Vessel Buyback Options. The vessel POLARCUS ALIMA is pledged as security for a 12.5% interest bearing senior secured bond and interest accrued thereon. Refer to Note 17 Senior Secured Bonds for further details on this financing arrangement. Total commitments for capital expenditure related to the construction of POLARCUS ALIMA as of 31 December 2010 is USD 169.7 million, of which USD 74.1 million is outstanding as of the reporting date. All of these commitments are due within one year from 31 December 2010. The payments made for vessels 7 and 8 as shown above represents the advance payments made to the shipyard for construction of these vessels. The remaining commitment, excluding commitment related to seismic equipment of USD 94.5 million per vessel is not payable before Q1 2012 and Q2 2012 respectively. The impairment of USD 1 million represent the slot reservation fee paid to another shipyard for these vessels.

63

8. Vessel buyback options On 30 July 2009 the Group sold two of its vessel owning entities Polarcus 4, owning the rights to vessel POLARCUS SELMA, and Polarcus 6, owning the rights to vessel POLARCUS ALIMA, to its main founders Zickerman Holding Limited and Zickerman Group Limited (together â&#x20AC;&#x153;ZLâ&#x20AC;?). After raising additional new financing of USD 195 million in October 2010, the Group exercised its option to repurchase POLARCUS ALIMA from ZL. The Group had already invested USD 21 million in the vessel at the date of sale. ZL will complete the maritime work on POLARCUS SELMA and include all fixed equipment that is required in order to constitute the vessel as a fully prepared seismic vessel. An impairment loss of USD 5 million relating to prepaid seismic equipment that was cancelled, capitalized internal interest costs and expenses, was recorded as impairment of vessels under construction at the time of the first transaction. The Group retains its option to buy back Polarcus Selma. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subsequently replaced with a right of first refusal to purchase the vessel from ZL.The option is exercisable until actual delivery of the vessel, and subsequently is replaced with a right of first refusal to purchase the vessel. If the Polarcus Selma option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If the Group chooses not to exercise the option, USD 20 million will be written-off as an impairment loss. In addition, if the Group chooses not to, or is unable to, exercise the buyback option on POLARCUS SELMA, USD 1.7 million incurred and capitalized as intangible assets (refer to Note 9) for the cost of supervision of the vessel construction, will be written-off as an impairment loss. The balance sheet value of vessel buyback options are made up as per below; (In thousands of USD) Polarcus Selma

Total

Total amount invested by the Group as of 30 July 2009 (the date of sale)

22,060

23,919

45,979

Impairment loss booked

(2,153)

(2,995)

(5,148)

Balance as of 31 December 2009

19,907

20,924

40,831

-

(20,924)

(20,924)

19,907

-

19,907

Buyback option exercised on 20 October 2010 Balance as of 31 December 2010

64

Polarcus Alima

9. Intangible assets (In thousands of USD) Industry specific applications

Industry specific applications under development

Consideration for vessel buyback options

-

-

584

-

584

344

-

369

3,400

4,113

ERP System

Total

Year ended 31 December 2009 Costs Balance as at 1 January 2009 Additions Capitalized during the year Balance as at 31 December 2009

-

-

(344)

-

(344)

344

-

609

3,400

4,353

-

-

-

-

-

74

-

-

-

74

-

-

-

-

-

74

-

-

-

74

Amortization and impairment losses Balance as at 1 January 2009 Amortization for the period Disposals Balance as at 31 December 2009 Carrying amounts As at 1 January 2009

-

-

584

-

584

270

-

609

3,400

4,279

Balance as at 1 January 2010

344

-

609

3,400

4,353

Additions

199

743

170

As at 31 December 2009 Year ended 31 December 2010 Costs

Buyback option exercised Capitalized during the year

-

1,111

(1,700)

(1,700)

-

-

(743)

-

(743)

543

743

36

1,700

3,021

Balance as at 1 January 2010

74

-

-

-

74

Amortization for the period

134

180

-

-

314

-

-

-

-

-

208

180

-

-

388

As at 1 January 2010

270

-

609

3,400

4,279

As at 31 December 2010

334

563

36

1,700

2,633

Balance as at 31 December 2010 Amortization and impairment losses

Disposals Balance as at 31 December 2010 Carrying amounts

65

The useful lives of ERP system and industry specific applications are considered to be finite and these assets are amortized over three years from the date when these assets are ready for its intended use. Further details of Consideration for vessel buyback options are available in Note 8 Vessel Buyback Options.

10. Restricted cash 10.1 Long-term (In thousands of USD)

31-Dec-10

31-Dec-09

Cash margin deposits for bank guarantees - in United Arab Emirates Dirham (AED) In equivalent USD

-

5,000

-

1,362

10.2 Short-term (In thousands of USD)

31-Dec-10

Letter of credit Escrow account to secure payment to suppliers

31-Dec-09 344

284

Senior secured bond loan escrow account

91,550

22,849

Other short term deposits

18,856

12,030

110,749

35,163

Total

11. Prepaid expenses (In thousands of USD)

31-Dec-10

Prepaid rent

31-Dec-09 295

418

1,787

79

357

188

Prepaid charter hire under finance lease arrangement

-

4,305

Prepaid expenses related to restructuring

-

8,274

2,440

13,264

Prepaid insurance Other prepaid miscellaneous expenses

Total

12. Other current assets (In thousands of USD)

31-Dec-09

Inventories onboard the vessels

5,668

1,053

Amortized transit cost

3,292

-

Insurance claims

4,106

-

Accrued revenue

6,387

-

218

74

1,130

796

Deposits Advance to employees VAT claimable

9

-

Advance to suppliers

4,713

-

Investment in shares

529

256

26,052

2,179

Total

66

31-Dec-10

13. Cash and cash equivalents Cash and cash equivalents include cash-in hand, deposits held at call with banks, other short-term highly liquid investments. (In thousands of equivalent USD)

31-Dec-10

31-Dec-09

USD

56,357

103,525

EUR

4,585

353

NOK

10,300

10,667

GBP

361

598

RUB

14,907

-

326

181

86,836

115,324

Other currencies Total

14. Share capital, share options and warrants 14.1 Share capital The Companyâ&#x20AC;&#x2122;s authorized share capital is USD 11,190,000 divided into 559,500,000 shares at par value of USD 0.02. The total issued share capital of the Company as of 31 December 2010 is USD 8,193,924 divided into 409,696,179 shares at par value of USD 0.02. All issued shares have been paid in as of 31 December 2010. As of 31 December 2009 the Company had issued and paid-in share capital of USD 5,263,497 divided into 263,174,820 shares at par value of USD 0.02. On 13 October 2010, subsequent to a private placement, the Board of Directors of the Company resolved to issue 67,421,359 new shares at par value of USD 0.02. These shares were fully paid in on 19 October 2010. On 18 November 2010, subsequent to a private placement, the Board of Directors of the Company resolved to issue 73,400,000 new shares at par value of USD 0.02. These shares were fully paid in on 24 November 2010. On 10 December 2010, the Company completed a subsequent offering with preferred allocation to the Eligible Shareholders as of 13 October 2010. As a result, Company issued 5,700,000 new shares at par value of USD 0.02. These shares were fully paid in on 21 December 2010. (In thousands of USD except for number of shares)

Proceeds from shares issued Transaction cost of share issue Warrants to founding shareholders Balance as at 31 December 2008 Consolidation of share capital (on 11 September 2009 at 2:1 from USD 0.01 to USD 0.02 per share) Shares issued to avoid fractional shares after consolidation Proceeds from shares issued Transaction cost of share issue Balance as at 31 December 2009 Proceeds from shares issued on 19 October 2010 Proceeds from shares issued on 24 November 2010 Proceeds from shares issued on 21 December 2010 Transaction cost of share issue Balance as at 31 December 2010

Number of Issued share shares capital 203,571,855 2,036 203,571,855 2,036 (101,785,928) 3.50 161,388,889 263,174,820 67,421,359 73,400,000 5,700,000 409,696,179

3,228 5,264 1,348 1,468 114 8,194

Share premium 209,936 (2,578) (18,716) 188,642 121,397 (6,456) 303,583 59,063 62,876 4,803 (6,503) 423,822

Total 211,972 (2,578) (18,716) 190,678 124,625 (6,456) 308,847 60,411 64,344 4,917 (6,503) 432,016

Assuming full conversion of convertible bond loan, warrants and share options, the total number of Shares issued would increase by 45,802,469 Shares. 67

Dilutive Instrument

Number of equivalent shares

Shares associated with convertible debt

10,802,469

Shares associated with the warrants

21,250,000

Shares associated with the stock options

13,750,000

Total

45,802,469

Apart from potential shares that could be issued under the terms of the share warrants, stock option plan or convertible bonds, the board of directors have no restrictions on issuing remaining authorized share capital. The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restriction.

14.2 Warrants The Group has issued 21,250,000 warrants to the founding shareholders, each giving the right to subscribe for one new ordinary share. All the warrants were issued on 14 March 2008 and no further warrants were issued during the year ended 31 December 2010. The warrants are exercisable at a price of USD 0.02 on or before 31 December 2012 and can only be exercised if the shares of the Company being traded on an internationally recognized marketplace or stock exchange at a volume weighted average price per share of at least NOK 22.00 (or equivalent) for more than 30 trading days. In the event of a change of control of the Company prior to the warrant expiration date, the shareholders may, regardless of whether or not the previous conditions are met, exercise the warrants at a price per share of; -

NOK 11 if the shares trade at an average price of less than NOK 22.00 for the 10 consecutive business days following such change of control or if the validity period of the offer is less than 10 trading days.

-

USD 0.02 if the shares trade at an average share price of above NOK 22.00 for the 10 consecutive business days following such change in control.

The warrants have been determined to be a liability because they fail to meet the IAS 32 classification requirements for equity instruments as they are not exchangeable for a fixed amount of cash or fixed amount of the Companyâ&#x20AC;&#x2122;s own shares. Consequently, the fair value of the warrants at the issue date of USD 18.7 million has been recorded as a distribution to shareholders directly in Equity. Subsequent to issuance, the liability is recorded at fair value at each balance sheet date and the resulting change in fair value is recognized in the income statement within changes in fair value of financial instruments â&#x20AC;&#x201C; net. A loss of USD 3.6 million has been recorded during the year ended 31 December 2010. During the year 2009 a gain of USD 7.7 million was recorded. Also refer to Note 29 Changes in fair value of financial instruments. As of 31 December 2010 no warrants were exercisable.

14.3 Stock options The Company implemented in 2008 an employee share option scheme under which 6,250,000 shares may be issued to employees of companies within the Group. As of 31 December 2010 the Group has issued 5,585,000 options under this scheme of which 1,060,000 were issued during the year ended 31 December 2010. The exercise price of options is based on the weighted average price of the shares for the 30 days prior to acceptance of employment offer. The options cliff vest three years after grant date and can be exercised up to five years after the grant date. The exercise of the options is conditional on the employee completing three years of service (the vesting period) and being an employee of the Group at the exercise date. The options are only available for settlement in equity. The total fair value of options granted up to 31 December 2010 under the 2008 scheme is USD 4.47 million calculated using the BlackScholes model, assuming all options will be exercised. As of 31 December 2010 none of the options under this scheme were exercisable. The following table shows the number, weighted average exercise price of and movements in the share options under 2008 scheme; 2008 Stock option plan

2010 WAEP (USD)

Number Outstanding at 1 January

WAEP (USD)

Number

4,525,000

1.86

7,710,000

1.00

-

-

(3,855,000)

1.00

Granted during the year

1,245,000

0.92

825,000

1.19

Forfeited during the year

(185,000)

Outstanding at 31 December

5,585,000

1.65

4,525,000

1.86

-

-

-

-

Reduction due to share capital consolidation

Exercisable as at 31 December

68

2009

(155,000)

The range of exercise prices for options outstanding under 2008 Scheme as of 31 December 2010 is USD 0.61 – USD 2.60. The weighted average remaining contractual life is 2.95 years. The following table lists the inputs to the models used for the valuation of 2008 share option plan;  

31-Dec-10

Dividend yield (%)

31-Dec-09 -

-

Expected volatility (%)

60.7

58

Risk-free interest rate (%)

2.67

2.95

5

5

Expected life of option (years) Weighted average share price

$

0.87

$

1.16

In the 2010 annual general meeting, a new employee share option scheme was approved under which a total of 7,500,000 shares may be issued to employees within the Polarcus Group. The program has a 6-year duration with part exercise possibility at the first, second and third anniversary after the grant of the options. The exercise price for each option is set to the volume weighted average price for which the shares have been traded at Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10%for options exercisable after one year, plus 20%for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan. The options are exercisable upon a change of control event (above 50%). As of 31 December 2010 the Group has issued 5,211,400 options under this plan. The total fair value of options granted up to 31 December 2010 under the 2010 scheme is USD 16.72 million calculated using the BlackScholes model, assuming all options will be exercised. As of 31 December 2010 none of the options under this scheme were exercisable. 2010 Stock option plan

WAEP (NOK)

Number

Granted during the year ended 31 December 2010

5,211,400

7.29

Outstanding as at 31 December 2010

5,211,400

7.29

-

-

Exercisable as at 31 December 2010

The range of exercise prices for options outstanding under the 2010 Scheme as of 31 December 2010 is USD 1.13 – USD 1.34. The weighted average remaining contractual life is 4.32 years. The following table lists the inputs to the models used for the valuation of 2008 share option plan; 31-Dec-10 Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life of option (years) Weighted average share price (NOK)

31-Dec-09 -

-

59%

-

3.98%

-

6

-

6.73

-

The value of the options under both 2008 and 2010 plans is estimated by a tree implementation of the Black Scholes formula for the pricing of equity call options. The expected life of the options is based on the maturity date and is not necessarily indicative of exercise patterns that may occur. The expected volatility is based on the historical volatility of the share price since the Company shares were available for public purchase and reflects the assumption that historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome. For the year ended 31 December 2010, the Group has expensed USD 2.05 million (2009 – USD 1.35 million) towards stock options granted as employee compensation.

69

15. Other financial assets and liabilities 15.1 Financial assets and liabilities at fair value and amortized cost Financial assets measured at amortized cost are as per below; (in thousands of USD) Vessels prepayments Accounts receivables Total assets measured at amortized cost

31-Dec-10 28,060 18,357 46,417

31-Dec-09

31-Dec-10 6,768 6,768

31-Dec-09 3,207 3,207

31-Dec-10 53,846 77,004 130,850 31,269   52,431 23,861 7,597 83,889 216,796 59,874 30,291 552,969

31-Dec-09 53,496 53,496 30,131

-

Financial liabilities measured at fair value through profit or loss are as per below; (in thousands of USD) Liability for warrants (refer to Note 29) Total financial liabilities at fair value through profit and loss Financial liabilities measured at amortized cost are as per below; (in thousands of USD) 13% Senior Secured Bonds (refer to Note 17) 12.5% Senior Secured Bonds (refer to Note 17) Total senior secured bonds 8.5% Convertible Bonds (refer to Note 18) Other long-term debt Eksportfinans loan - USD 55 million (refer to Note 21) DVB Bank loan - USD 25 million (refer to Note 21) Other debt for streamer systems (refer to Note 21) Total other long-term debt Finance lease liabilities (refer to Note 20) Deferred payments to vendors (refer to Note 25 and Note 32) Accounts Payable Total financial liabilities measured at amortized cost

16,373 16,373 109,959 29,138 26,252 265,350

15.2 Fair values (in thousands of USD) Financial assets Cash and deposits Vessel prepayments Accounts receivables Total Financial liabilities Accounts payable Liability for warrants 13% Senior secured bonds 12.5% Senior secured bonds 8.5% Convertible bonds Finance lease liabilities Other long-term debt Deferred payments to vendors Total

31-Dec-10 Carrying Amount Fair value

31-Dec-09 Carrying Amount Fair value

197,586 28,060 18,357 244,003

197,586 28,060 18,357 244,003

151,848 151,848

151,848 151,848

30,291 6,768 53,846 77,004 31,269 216,796 83,889 59,874 559,737

30,291 6,768 59,675 81,800 31,325 216,796 83,889 59,874 570,418

26,252 3,207 53,496 30,131 109,959 7,250 29,138 259,433

26,252 3,207 51,150 24,325 109,959 7,250 29,138 251,281

Cash and deposits, accounts receivables and payable, prepayments and deferred payments to vendors approximate their carrying amounts 70

largely due to the short-term maturities of these instruments. The fair values of senior secured and convertible bonds are measured at a rate prescribed by The Norwegian Securities Dealers Association based upon the secondary market prices of the respective securities. The carrying value of the liability for warrants is measured at fair value, see Note 14.2 for more information. The fair value of finance lease liabilities and other long-term debt approximates their carrying amounts as these relate to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. As of 31 December 2010, the Group held the following financial instruments measured at fair value: (in thousands of USD)

31-Dec-10

31-Dec-09

Financial liabilities at fair value through profit & loss: Warrants (Refer to Note 14.2) Level 1

-

-

Level 2

-

-

Level 3

6,768

3,207

6,768

3,207

Total

During the reporting period ending 31 December 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. Reconciliation of opening and closing balances of Level 3 financial items; (in thousands of USD)

Level 3 Financial assets 31-Dec-10

Level 3 financial liabilities

31-Dec-09

31-Dec-10

31-Dec-09

Balance at 1 January

-

(4,589)

(3,207)

(10,934)

Value of warrants recognized in equity on recognition

-

-

-

-

Recorded in profit and loss in the year

-

4,589

(3,561)

7,728

Balance at 31 December

-

-

(6,768)

(3,207)

16. Other reserves (In thousands of USD)

31-Dec-10

31-Dec-09

Issue of convertible bonds - fair value of equity component (refer to Note 18)

5,024

5,024

Employee stock options provision (refer to Note 14.3)

4,284

2,231

Total

9,308

7,255

71

17. Senior secured bonds On 30 July 2008, the Company had issued 550 senior secured callable bonds at par value of USD 100,000 each, totaling USD 55 million, bearing interest of 13% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel POLARCUS SAMUR through the vessel owning company POLARCUS SAMUR Ltd (formerly known as Polarcus 3). The interest for this loan is payable semi-annually in arrears on 30 January and 30 July each year. The bonds will mature five years from the date of issue at their nominal value. The bonds, including accrued interest and expenses, are secured by the vessel to be owned by Polarcus 3, a 100% owned subsidiary of Polarcus Limited. During the vessel construction phase, the loan is secured with a pledge of the shares in Polarcus 3, on-demand upstream guarantee from Polarcus 3, floating charges concerning all equipment related to the vessel POLARCUS SAMUR and any intra-group loans, assignment of the shipbuilding contract and the major equipment contracts, the refund guarantees granted and to be granted under the shipbuilding contract and a pledge over the bank account in which all funds at any time not disbursed under the loan are credited. From the delivery date of the vessel, the loan will be secured by a first priority mortgage on the vessel, an assignment of insurances related to the vessel, the pledge of shares in Polarcus 3 as well as the up-stream guarantee form Polarcus 3. Drawing of funds from the loan is subject to evidence that capital subordinated to the loan in an amount equal to or larger than the amount released from the loan, from time to time, has been or is employed in accordance with the purpose of the loan. On the date of issue, net proceeds of USD 53,075,000 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below; Years ended (In thousands of USD) Issue costs amortized

31-Dec-10

Total as at

31-Dec-09

349

31-Dec-10

305

31-Dec-09

771

421

Interest payable accrued

7,150

7,150

17,279

10,129

Actual interest paid

7,150

7,150

14,300

7,150

As of 31 December 2010 the Group complies with the covenants set out in this loan agreement. On 27 October 2010, the Group issued 800 senior secured callable bonds at par value of USD 100,000 each, totaling USD 80 million, bearing an interest of 12.5% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel POLARCUS ALIMA through the vessel owning company Polarcus 6. The interest for this loan is payable semi-annually in arrears on 29 April and 29 October each year. The bonds will mature five years from the date of issue at their nominal value. On the date of issue, net proceeds of USD 77,200,000 were booked under Non-Current Liabilities. The bonds will prior to delivery of POLARCUS ALIMA be secured by a second priority mortgage over POLARCUS ASIMA. Postdelivery of POLARCUS ALIMA the Bonds will be secured by a second priority cross collateralized mortgage over POLARCUS ASIMA and POLARCUS ALIMA. Further security including inter alia: (i) a pledge over the escrow account, (ii) an assignment of the construction contract and any refund guarantees related to POLARCUS ALIMA, (iii) a pledge over the bond retention account, (iv) share pledges over all the shares in the Polarcus Alima AS, the Polarcus Asima AS, and Polarcus 6, (v) a floating charge over all relevant equipment related to Polarcus Alima AS and Polarcus Asima AS, (vi) a pledge over the earnings account, (vii) an assignment of insurance proceeds, (viii) a factoring agreement granted by Polarcus Alima AS and Polarcus Asima AS, (ix) an assignment of earnings and (x) a pledge over intercompany loans. The security (i) to (iii), and (iv) for Polarcus 6, for the bonds shall rank on first priority. The security (iv) to (x) shall rank on second priority, only behind the other senior facilities. On the date of issue, net proceeds of USD 76,929,481 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below; Years ended (In thousands of USD) Issue costs amortized Interest payable accrued Actual interest paid

31-Dec-10

Total as at

31-Dec-09

31-Dec-10

75

-

75

-

1,667

-

1,667

-

-

-

-

-

As of 31 December 2010 the Group complies with the covenants set out in this loan agreement.

72

31-Dec-09

The balance sheet value the above two loans are as below; (In thousands of USD)

31-Dec-10

31-Dec-09

13% Senior secured callable bonds

53,846

53,496

12.5% Senior secured callable bonds

77,004

-

130,850

53,496

Total

18. Convertible bonds On 30 July 2008 the Company had issued 350 subordinated unsecured callable convertible bonds at a par value of USD 100,000 each totaling USD 35 million, bearing 8.5% interest per annum. The interest is payable semi-annually in arrears on 30 January and 30 July each year. The bonds mature five years from issue date at their nominal value of USD 35 million or can be converted into a total of 10,802,470 shares at the holders’ option at a conversion price of USD 3.24 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers. The convertible bond has been accounted for in separate components – the value of the debt liability component has been recognized at its fair value and the remaining part as equity. In measuring fair value of the debt liability component an estimated market rate (estimated to be 13%) for a similar debt without a conversion right has been used in discounting the cash flow under the loan agreement. The estimated market rate was based on valuations of the interest rate for a non-convertible bond at the date of drawing the loan. There will be no re-measuring of the fair value of the liability and equity components. At issue date the following amounts were recognized for the convertible bond in the financial statements: Fair Value of debt liability component USD 28,750,623 Fair Value of equity component USD 5,024,377 USD 33,775,000 Issue costs amortized and interest accrued for the convertible bond loan are as per below; Years ended (In thousands of USD)

31-Dec-10

Total as at

31-Dec-09

31-Dec-10

31-Dec-09

Issue costs amortized

1,139

999

2,519

1,380

Interest payable accrued

2,975

2,975

7,190

4,215

Actual interest paid

2,975

2,975

5,950

2,975

19. Sale and lease-back arrangement The Group had, on 30 June 2008, entered into a sale and lease-back financing arrangement for its first two vessels, POLARCUS NADIA and POLARCUS NAILA. The arrangement was subsequently amended on 29 July 2009. The total cash inflow from this arrangement was USD 180 million (i.e. USD 90 million per vessel). Under the terms of this arrangement, GSH 2 Seismic Carrier I AS (the ‘lessor’) purchased the vessels (excluding the in-sea streamer equipment) at a price of USD 90 million each upon the delivery of the vessels from the shipyard. Immediately upon such transfer of ownership, the Group (as a ‘charterer’) leased back the vessels from the lessor at a fixed daily charter rate, payable monthly in arrears throughout the duration of the charter period. The Group as a charterer has the option to purchase the vessels from the lessor any time after three years from the date of delivery. The purchase price of USD 90 million per vessel was paid by the lessor to the Group in installments throughout the vessel construction period, subject to the agreed payment schedule and conditions attached thereto. The charter period for POLARCUS NADIA commenced in October 2009 and in November 2009 for POLARCUS NAILA, and subject to the Group’s purchase option as per above will continue until the date falling a minimum of 10 years from the delivery date. The charter payments for each vessel are secured by a parent company guarantee from Polarcus Limited, assignment of the vessel earnings and the vessels’ contracts with a duration of more than 6 months, assignment of intra-group loans and assignment of insurances. Furthermore, the Group has established an escrow account with a deposit of USD 12 million that has been pledged in favor of DVB Bank SE and Eksportfinans ASA as financial lenders under the sale-leaseback arrangement. This account pledge will also serve as security for the principal amount and interest under the USD 80 million loan facility described in Note 21 Other long-term debt. The above arrangement falls under the category of finance lease as described under IAS 17. (Also refer to Note 2.8 on Leases and Note 20 Long-term finance lease).

73

20. Long-term finance lease Upon delivery from the shipyard, the vessels POLARCUS NADIA and POLARCUS NAILA were sold to GSH2 Seismic Carrier I AS (the ‘lessor’) according to the sale and lease-back financing arrangement entered into on 30 June 2008 as amended on 29 July 2009. The purchase price of USD 90 million each per vessel (total USD 180 million) is fully paid by the lessor to the Group in installments throughout the vessel construction period. Immediately upon the sale of the vessels, the Group leased back the vessels from the lessor at a fixed charter rate of USD 35,000 per day, payable in arrears throughout the duration of the charter period. This arrangement falls under the category of finance lease as described under IAS 17. Accordingly at the inception of the lease USD 180 million has been recorded as a liability. Also refer to Note 19 Sale and Lease-back arrangement. The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2010, streamer systems worth USD 54,647,604 were leased under this arrangement. Payments made towards these lease arrangements during the year ended 31 December 2010 as follows; (In thousands of USD)

Year ended 31-Dec-10 Principal

Interest

Year ended 31-Dec-09

Total

Principal

Interest

Total

Lease payments made for vessel Polarcus Nadia

1,967

10,808

12,775

459

2,761

3,220

Lease payments made for vessel Polarcus Naila

1,947

10,828

12,775

303

1,832

2,135

Lease payments made for streamer systems

10,990

2,511

13,502

2,185

411

2,596

Total

14,904

24,147

39,052

2,947

5,004

7,951

The outstanding liability under the above mentioned arrangements are disclosed in the Group’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below; (In thousands of USD) Lease payments due after 12 months from the balance sheet date Lease payments due within 12 months from the balance sheet date Total

31-Dec-10

31-Dec-09

194,407

100,836

22,388

9,123

216,796

109,959

21. Other long-term debt The Group on 14 September 2009 had entered into a facility agreement with Eksportfinans ASA and DVB Bank SE for a USD 80 million loan facility. The Eksportfinans tranche of the facility (USD 55 million) related to financing of Norwegian equipment on-board the vessels POLARCUS SAMUR and POLARCUS ASIMA. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel POLARCUS ASIMA. The vessel POLARCUS ASIMA has been pledged as security for this loan facility. The facility was drawn on 31 August 2010 post delivery of the vessel POLARCUS ASIMA from the shipyard. As of 31 December 2010 no repayment has been made against this liability. The Company has acquired some of the streamer systems from Sercel Inc, Houston by way of a 40% down payment. The remaining 60% of the purchase price is payable through 36 monthly installments including interest at 8% per annum. The affected streamer system has been pledged as security for this arrangement. The total value of equipment acquired under this arrangement is USD 22,631,523. As of 31 December 2010, the Company has paid USD 15,035,171 against its liability under this arrangement. The outstanding liability under the above mentioned arrangements is disclosed in the Group’s balance sheet as ‘Other long-term debt’ which is further classified in to long-term and short-term portions as per below; (In thousands of USD)

74

31-Dec-10

31-Dec-09

Installments due after 12 months from the balance sheet date

72,953

7,250

Installments due within 12 months from the balance sheet date

10,936

4,327

Total

83,889

11,577

22. Interest payable Interest payable under current liabilities includes; (In thousands of USD)

31-Dec-10

31-Dec-09

Interest accrued on senior secured bonds (refer to Note 17)

4,645

2,979

Interest accrued on convertible bonds (refer to Note 18)

1,240

1,240

Interest accrued on other long term debt (refer to Note 21)

1,731

-

Interest accrued on deferred payments to the shipyard (refer to Note 25)

1,151

1,087

Total

8,768

5,306

23. Employee accruals and payables (In thousands of USD)

31-Dec-10

31-Dec-09

Accrued salaries

1,136

116

Accrued bonuses

5,401

2,169

49

8

6,586

2,293

Unused balance of crew welfare fund Total

24. Other accrued expenses (In thousands of USD)

31-Dec-10

31-Dec-09

Accrued vessel operating expenses

3,560

-

Accrued miscellaneous expenses

1,906

462

Consideration for vessel buyback options

1,700

3,400

Total

7,166

3,862

For details of Consideration for vessel buyback options refer to Note 8 Vessel Buyback Options and Note 9 Intangible Assets.

25. Deferred payments to vendors The Group has, through an amendment to the shipbuilding contract for POLARCUS ALIMA, entered into a deferred payment arrangement with the shipyard under which all installments due under the original shipbuilding contract are deferred from the scheduled milestone payment dates to the actual delivery date of the vessel. The total value of the deferred installments as of 31 December 2010 amounts to USD 59,874,291. An interest rate of 7% per annum applies on each deferred installment from the time such installment would have been paid under the original shipbuilding contract to the date of actual delivery of the vessel.

26. Sales, general and administrative costs Sales, general and administrative costs consist of the following; Years ended (In thousands of USD) Salaries and other employee benefits Other general and administrative expenses Total

31-Dec-10

31-Dec-09

17,558

12,263

7,583

6,290

25,141

18,553 75

26.1 Salaries and other employee benefits The Group offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades. Refer to Note 32.2.3 for key management compensation. The Group has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade. In addition, the Group has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2010. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations. All employees of the Group are offered a comprehensive employee health protection plan. The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options. The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2010 the Group has contributed USD 1.73 million to the pension scheme, the full amount of which is expensed as employee benefits. There were no contributions made to the pension scheme during year 2009. For employees who are not enrolled in the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2010 the Group has recognized a liability of USD 0.29 million towards such pension payable. Subsequent to the reporting period, as payment under the performance-related bonus scheme, a bonus equivalent to 90% of the maximum bonus entitlement (prorated according to the date of joining) for the year ended 31 December 2010 was paid out to all employees who joined the Company on or before 30 September 2010.

27. Finance costs Year ended (In thousands of USD)

31-Dec-09

Interest expenses on senior secured bond

9,235

7,455

Interest expenses on convertible bond

4,114

3,974

Interest expenses on deferred payments to the shipyard

3,773

588

22,629

1,198

7,348

-

(18,651)

(10,737)

28,447

2,478

Realized currency exchange loss

1,373

1,251

Unrealized currency exchange loss

1,587

864

576

353

31,983

4,946

Interest expenses on lease arrangements Other interest expenses Interest expenses capitalized to vessels under construction Net interest expenses

Other financial losses Total

76

31-Dec-10

28. Finance income Year ended (In thousands of USD)

31-Dec-10

31-Dec-09

Interest income from deposit with banks

167

414

Interest income offset against capitalized interest expenses

(10)

-

Net interest income

157

414

Realized exchange gain

2,669

556

Unrealized exchange gain

1,768

2,438

Total

4,594

3,408

The realized currency gain or loss represents the effect of foreign currency payments made and the unrealized currency gain or loss represents the effect of revaluation of foreign currency financial assets other than those treated as cash flow hedging instruments.

29. Changes in fair value of financial instruments The changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants. The fair value of the warrant liability at each balance sheet date and the profit or loss on revaluation for the periods reported are as per below; (In thousands of USD)

31-Dec-10

31-Dec-09

Warrants Liability at 1 January

3,207

10,935

Net loss/(gain) on financial liabilities at fair value through profit and loss

3,561

(7,728)

Liability for warrants at 31.12 (refer to Note 14.2)

6,768

3,207

30. Depreciation and amortization Year ended (In thousands of USD) Depreciation of seismic vessels and equipment (refer to Note 6)

31-Dec-10

31-Dec-09

22,317

417

Depreciation of office equipment (refer to Note 6)

368

227

Amortization of intangible assets (refer to Note 9)

314

74

Loss on disposal of office equipment Loss on disposal of seismic equipment

57

-

3,793

-

26,849

718

31. Earnings per Share 31.1 Basic Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares issued during the period. Years ended (In USD)

31-Dec-10

31-Dec-09

Loss attributable to equity holders of the Company

(28,339,889)

(19,034,022)

Weighted average number of ordinary shares issued

284,657,233

214,180,944

(0.100)

(0.089)

Basic earnings per share

77

31.2 Diluted Years ended (In USD)

31-Dec-10

Loss attributable to equity holders of the Company Loss/(Gain) related to warrants issued Net loss attributable to potential equity holders of the Company Weighted average number of ordinary shares issued Share with dilutive effect for warrants issued Weighted average number of diluted ordinary shares Diluted earnings per share

31-Dec-09

(28,339,889)

(19,034,022)

3,561,315

(7,727,863)

(24,778,574)

(26,761,885)

284,657,233

214,180,944

20,795,341

20,704,625

305,452,573

234,885,569

(0.081)

(0.114)

The share options that have been granted to selected employees as of the end of reporting period (refer to Note 14.3) and the convertible bonds giving the bond holders a right to convert the bonds to equity shares (refer to Note 18) have not been included in the calculation of diluted EPS as they have an anti-dilutive effect for the reporting period. There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements. For the year ended 31 December 2010 the diluted EPS is the same as the basic EPS as there are no potential ordinary shares that have a dilutive effect. The employee share options, warrants and convertible bonds all have an anti-dilutive effect.

32. Related-party transactions 32.1 Subsidiaries This set of consolidated financial statements includes the financial statements of Polarcus Limited and the subsidiaries listed in the following table; Name of the Subsidiary

Country of Incorporation

Equity interest as at 31-Dec-2010

UAE

100%

Polarcus 1 Ltd

Cayman Islands

100%

Polarcus 2 Ltd

Cayman Islands

100%

Polarcus Samur Ltd

Cayman Islands

100%

Polarcus 5

Cayman Islands

100%

Polarcus 6 Ltd

Cayman Islands

100%

Polarcus Seismic Limited

Cayman Islands

100%

Cyprus

100%

United Kingdom

100%

Egypt

100%

Polarcus Nadia AS

Norway

100%

Polarcus Asima AS

Norway

100%

Polarcus Naila AS

Norway

100%

Polarcus Alima AS

Norway

100%

Brazil

100%

Polarcus DMCC

Polarcus Multi-Client (CY) Limited Polarcus UK Limited Polarcus Egypt

Polarcus do Brazil Ltda

78

32.2 Transactions with related parties 32.2.1 Buyback of Polarcus Alima Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) hold 14.71% of the paid-in share capital of the Company as of 31 December 2010 and are companies controlled by Board members Carl-Gustav Zickerman and Carl Peter Zickerman. In October 2010, the Company exercised the option of repurchasing POLARCUS ALIMA from ZL. The Company paid USD 1.5 million to ZL towards the purchase price of shares in Polarcus 6, owning the rights to vessel POLARCUS ALIMA. Also refer to Note 1.1 Financing and Note 8 Vessel Buyback Options.

32.2.2 Other transactions with related parties Drydocks World Dubai (“DWD”) holds 9.15% of the paid-in share capital of the Company as of 31 December 2010. Below is a summary of major transactions between DWD and the Group during the year ended 31 December 2010; (In thousands of USD)

31-Dec-10

31-Dec-09

Payments made under ship building contracts

40,775

95,777

Payments made under the deferred payment arrangement

33,732

-

2,235

-

Total payments made during the year

76,742

95,777

Payments included in Accounts payable (due within 12 months)

13,737

13,802

Payable under the deferred payment arrangement (due within 12 months)*

59,874

29,138

Total payable

73,612

42,940

-

21,730

8,274

-

Payments received against the above during the year ended 31 December 2009

-

(13,456)

Payments received against the above during the year ended 31 December 2010

(8,274)

-

-

8,274

Financing costs paid

Equipment sold at cost by the Company during the restructuring (refer to Note 1.1) Balance receivable for equipment sold

Balance receivable

*Interest at the rate of 7% is payable on the balance payable under deferred payment arrangement. Also refer to Note 25 Deferred payments to vendors.

32.2.3 Key management compensation The salaries and other benefits paid and accrued as payable to key management personnel for the periods reported are shown in the table below; (In thousands of USD) Year ended 31-Dec-10 Salary Rolf Ronningen

Chief Executive Officer

400

Other Allowances 340

Pension 32

Share based payments

Total salary and allowances

167

939

Tom Henrik Sundby

Chief Financial Officer

300

249

24

101

674

Carl Peter Zickerman

EVP & Head of Strategic Investment

396

346

32

113

886

Other members of executive management

1,806

1,740

145

755

4,446

Total

2,902

2,674

232

1,136

6,945

79

(In thousands of USD) Year ended 31-Dec-09 Salary Rolf Ronningen

Chief Executive Officer

400

Other Allowances 165

Pension

Share based payments

Total salary and allowances

100

698

33

Tom Henrik Sundby

Chief Financial Officer

300

157

25

65

547

Carl Peter Zickerman

EVP & Head of Strategic Investment

396

217

33

65

711

Other members of executive management

1,755

1,261

147

505

3,668

Total

2,851

1,800

238

735

5,624

The members of the Group’s key management team have entered into agreements with the Company related to provision of benefits upon the Company’s termination of employment limited to three months’ severance payment, with the exception of the CEO who has been granted 18 months of severance payment and the right to maintain granted share options and the CFO and General Counsel who each have been granted 12 months of severance payment and the right to maintain granted share options.

32.2.4 Board remuneration The total remuneration paid by the Company to its Board of Directors for the periods reported is as per below; (In thousands of USD) Director since

Director until

Paid for the year 2010

Paid for the year 2009

Peter M. Rigg, Chairman

20-Jun-08

103

100

Carl-Gustav Zickerman

17-Dec-07

-

38

9-Feb-08

-

38

Geoffrey Taylor

19-May-08

-

38

Carl Peter Zickerman Dr. Rosli Khan

19-May-08

-

30

Alan Locker

20-Jun-08

31-Aug-09

51

45

Hege Sjo

20-Jun-08

54

45

Katherine J. Hall

20-Jun-08

51

45

Tore Karlsson

20-Jun-08

51

45

Jogeir Romestrand

12-Sep-09

48

14

358

438

Total

32.2.5 Remuneration of the auditors The total fee incurred by the Company to its auditors for the periods reported are as per below; (In thousands of USD) Audit fees

80

31-Dec-10

31-Dec-09 126

69

Audit related services

53

52

Tax advisory services

275

201

Total

454

322

33. Events after the balance sheet date 33.1 Polarcus Samur delivery Polarcus announced on 03 March 2011 that POLARCUS SAMUR Ltd, a member of the Polarcus Group, took delivery of POLARCUS SAMUR, the fourth 3D seismic vessel to date to join the Polarcus fleet. The vessel was built at Drydocks World - Dubai in the United Arab Emirates and is transiting directly to Namibia to commence a charter for HRT Participações em Petróleo S.A. and UNX Energy Corp.

33.2 Polarcus Alima delivery Polarcus announced on 22 March 2011 that Polarcus Alima AS, a member of the Polarcus Group, took delivery of POLARCUS ALIMA, the fifth 3D seismic vessel to date to join the Polarcus fleet. POLARCUS ALIMA is the sister ship to POLARCUS ASIMA, delivered to the Polarcus Group in August 2010. The vessel was built at Drydocks World - Dubai in the United Arab Emirates and following a short shakedown will transit to India to commence her first contract.

34. Authorization of financial statements The consolidated financial statements for the year ended 31 December 2010 were authorized for issue in accordance with a resolution of the directors on 29 March 2011.

Peter Rigg

Tore Karlsson

Alan Locker

Geoffrey Taylor

Carl-Peter Zickerman

Kitty Hall

Carl-Gustaf Zickerman

Hege Sjo

Jogeir Romestrand

81

Polarcus Limited

Parent company financial statements For the year ended 31 December 2010 Statement of Comprehensive Income Balance Sheet Statement of Cash Flows Statement of Changes in Equity Notes to the Financial Statements

82

Statement of Comprehensive Income (Unconsolidated Parent Company) 1 January â&#x20AC;&#x201C; 31 December (In thousands of USD) Revenues

Notes 2

2010

2009

38,336

4,938

(14,597)

-

Operating expenses Cost of sales Sales, general and administrative costs Depreciation and amortization Impairment of vessels under construction

14

(12,211)

(8,723)

3, 15

(9,595)

(140)

4

(1,000)

(5,148)

(37,403)

(14,011)

933

(9,073)

Total Operating expenses Operating profit/(loss) Financial expenses Finance costs

16

(16,937)

(13,530)

Finance income

17

12,848

17,688

Changes in fair value of financial instruments

18

(3,561)

7,728

Net financial income/(expenses)

(7,650)

11,886

Profit/(Loss) for the period before tax

(6,717)

2,813

-

-

(6,717)

2,813

Income tax expense Profit/(Loss) for the period/Comprehensive income/(loss)

83

Balance Sheet (Unconsolidated Parent Company) (In thousands of USD)

Notes

31-Dec-10

31-Dec-09

ASSETS Non-Current Assets Property, plant and equipment Vessels under construction Vessel buyback options Intangible assets Long-term loan to subsidiaries Investment in Subsidiaries Total Non-Current Assets Current Assets Prepaid expenses Other current assets Short-term loan to subsidiaries Receivable from subsidiaries Accounts Receivable Restricted cash Cash and bank Total Current Assets

3 4 1 5 19 6

54,819 19,907 1,716 273,467 54 349,963

45,096 7,545 40,831 3,400 91 96,963

42 3,399 28,200 132,851 30,709 28,351 23,274 246,826

8,380 6 195,126 260 35,133 114,358 353,263

596,789

450,226

1 1 1

8,194 423,822 9,307 (2,659) 438,664

5,264 303,582 7,255 4,058 320,159

1, 9 1, 9 10

53,846 31,269 23,503 6,768 150 115,536

53,496 30,131 13,263 7,250 3,207 368 107,715

4,219 4,001 2,905 17,969 8,867 4,628 42,589

4,219 1,782 3,490 7,156 4,327 1,378 22,352

596,789

450,226

7 19 19 19 8

TOTAL ASSETS EQUITY and LIABILITIES Equity Issued share capital Share Premium Other reserves Retained earnings/(loss) Total Equity Non-Current Liabilities Senior secured bonds Convertible bonds Long-term finance lease Other long-term debt Liability for warrants Employee pension accrual Total Non-Current Liabilities Current Liabilities Interest payable Employee accruals and payables Other accrued expenses Long-term finance lease current portion Other long-term debt current portion Payable to subsidiaries Accounts payable Total Current Liabilities TOTAL EQUITY and LIABILITIES 84

1, 9

11 12 13 10 19

Statement of Cash Flows (Unconsolidated Parent Company) (In thousands of USD) Cash flows from operating activities Profit/(loss) for the period before tax Adjustment for: Depreciation and amortization Impairment of vessels under construction Changes in fair value of financial instruments Stock Options compensation provision Finance costs Interest expense Interest income Working capital adjustments: Decrease/(Increase) in current assets Increase in trade and other payables and accruals Net cash flows from operating activities Cash flows from investing activities Decrease/(Increase) in restricted cash Purchases of property, plant and equipment Payments to acquire intangible assets Payments for vessels buyback options Investment in subsidiaries and changes in intercompany receivables Net cash flows used in investing activities Cash flows from financing activities Proceeds from the issuance of ordinary shares Transaction costs on issue of shares Interest paid Interest income Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

Notes

3, 15 4 18

5

1 1

1 January â&#x20AC;&#x201C; 31 December 2010 2009 (6,717)

2,813

9,595 1,000 3,561 2,053 1,488 5,075 (114)

140 5,148 (7,728) 1,351 1,304 905.74 (392)

(25,504) 6,366 (3,197)

(8,358) 3,026 (1,790)

6,782 (3,296) (16) (201,341) (197,871)

48,420 (17,672) (40,831) (86,010) (96,093)

129,672 (6,503) (13,300) 114 109,984

124,625 (6,456) (11,262) 392 107,299

(91,084) 114,358 23,274

9,415 104,943 114,358

85

Statement of Changes in Equity (Unconsolidated Parent Company) (In thousands of USD except for number of shares)

Number of Shares

17 December 2007 at USD 1.00 per share 1 Balance as at 1 January 2008 1 Total comprehensive income/(loss) for the period Issue of share capital 9 February 2008 at USD 1.00 per share 49,999,999 18 March 2008 at USD 1.00 per share 3,786,855 19 May 2008 at USD 1.00 per share 85,000,000 21 May 2008 at USD 1.00 per share 20,000,000 29 June 2008 at USD 1.00 per share 2,785,000 2 July 2008 at USD 1.20 per share 42,000,000 Transaction costs on issue of shares Issue of warrants to shareholders Issue of convertible bonds Employee stock options provision Balance as at 1 January 2009 203,571,855 Total comprehensive income/(loss) for the period Consolidation of share capital 11 September 2009 (at 2:1 from USD 0.01 to (101,785,928) USD 0.02 per share) Issue of share capital 17 September 2009 to avoid fractional shares 3.50 after consolidation 29 September 2009 at NOK 4.50 (USD 0.77) 161,388,889 per share Transaction costs on issue of shares Employee stock options provision Balance as at 31 December 2009 Total comprehensive income/(loss) for the period Issue of share capital 19 October 2010 at NOK 5.15 (USD 0.90) per share 24 November 2010 at NOK 5.30 (USD 0.93) per share 21 December 2010 at NOK 5.15 (USD 0.86) per share Transaction costs on issue of shares Employee stock options provision Balance as at 31 December 2010

263,174,820

Issued Share capital

Share Premium

Total Equity

-

-

-

-

-

-

-

-

1,245

1,245

500 38 850 200 28 420 2,036

49,500 3,749 84,150 19,800 2,757 49,980 (2,579) (18,716) 188,641

5,024 880 5,904

1,245

50,000 3,787 85,000 20,000 2,785 50,400 (2,579) (18,716) 5,024 880 197,826

-

-

-

2,813

2,813

-

-

-

-

-

-

-

-

-

-

3,228

121,397

-

-

124,625

-

(6,456)

-

-

(6,456)

-

-

1,351

-

1,351

5,264

303,582

7,255

4,058

320,159

-

-

-

(6,717)

(6,717) -

67,421,359

1,348

59,063

60,411

73,400,000

1,468

62,876

64,344

5,700,000

114

4,803

4,917

409,696,179

8,194

(6,503) 423,822

2,053 9,307

The accompanying notes are integral part of the consolidated financial statements.

86

Retained Earnings/ (Loss)

Other Reserves

(2,658)

(6,503) 2,053 438,665

Notes to the financial statements (Unconsolidated Parent Company)

1. General information and summary of significant accounting principles Polarcus Limited (the “Company”) is a holding company. In addition to owning the subsidiaries, the Company conducts a part of the external debt financing of the Group and provides loans to Group companies. The Company owns and rents in-sea equipment to its subsidiaries and also employs offshore personnel who work onboard the vessels owned by other Group companies. The Company’s accounting principles are consistent to the accounting principles of the Group, as described in Note 2 of the Group’s consolidated financial statements. The notes to the unconsolidated financial statements of the parent company that are substantially different from the notes to the Group’s consolidated financial statements are presented below. Additional reference should be made to the notes to the consolidated financial statements of the Group, particularly with reference to the notes in the consolidated financial statements on vessel buyback options (Note 8), issued share capital and share premium (both Note 14), other reserves (Note 16), senior secured bonds (Note 17), convertible bonds (Note 18) and the liability for warrants (Note 14). Shares in the subsidiaries and receivables from and loans provided to the subsidiaries are evaluated at the lower of cost and fair value. When the value of estimated future cash flows is lower than the carrying value in the subsidiaries, the Company recognizes impairment charges on investments in subsidiaries and intercompany receivables. If and when estimated recoverable amounts increase, impairment charges are reversed. There is no fixed plan for repayment of long-term intercompany receivables.

2. Revenues The Company’s revenues are earned mainly from leasing seismic equipment and provision of offshore employees’ services to other Group companies. Years ended (In thousands of USD)

31-Dec-10

31-Dec-09

Crewing services provided to Group companies

17,355

-

Seismic equipment leased to Group companies

12,290

-

8,691

4,938

38,336

4,938

Other income Total

87

3. Property, Plant and Equipment (In thousands of USD) Seismic equipment Year ended 31 December 2009 Costs Balance at 1 January 2009

-

Additional capital expenditures

22,632

Assets under finance leases

22,604

Disposals Balance as of 31 December 2009

45,235

Depreciation and impairment losses Balance at 1 January 2009 Depreciation for the period Disposals Balance as of 31 December 2009

140 140

Carrying amounts As of 1 January 2009

-

As of 31 December 2009

45,096

Carrying amounts held under finance leases as of 31 December 2009

22,604

Year ended 31 December 2010 Costs Balance at 1 January 2010 Additional capital expenditures Assets under finance leases Disposals Balance as of 31 December 2010

45,235 5,766 32,130 (24,094) 59,036

Depreciation and impairment losses Balance at 1 January 2010 Depreciation for the period Disposals Balance as of 31 December 2010

140 6,770 (2,692) 4,218

Carrying amounts

88

As of 1 January 2010

45,096

As of 31 December 2010

54,819

Carrying amounts held under finance leases as of 31 December 2010

49,053

4. Vessels under construction The movements in the carrying values of vessels under construction in the year are as follows:

Vessel Name

Other vessels

Vessel Type

Construction Option-1

Construction Option-2

SX 134

SX 134

Total

Year ended 31 December 2009 WIP value as of 1 January

1,360

3,450

3,450

8,260

-

323

322

645

(1,360)

-

-

(1,360)

-

3,773

3,772

7,545

WIP value as of 1 January

-

3,773

3,772

7,545

Additions in the year:

-

Disposals

-

(3,273)

(3,272)

(6,545)

Impairments

-

(500)

(500)

(1,000)

WIP value per vessel as of 31 December 2010

-

-

-

-

Additions in the year Disposals WIP value per vessel as of 31 December 2009 Year ended 31 December 2010

The impairment of USD 1 million represents the slot reservation fee paid to another shipyard for the construction options. The Company has no capital commitments.

89

5. Intangible assets The net book value of intangible assets is made up as follows; (In thousands of USD) Industry specific applications under development

Consideration for vessel buyback options

Total

Year ended 31 December 2009 Costs Balance at 1 January 2009

-

-

-

Additions

-

3,400

3,400

Balance as of 31 December 2009

-

3,400

3,400

Balance at 1 January 2009

-

-

-

Amortization for the period

-

-

-

Balance as of 31 December 2009

-

-

-

As of 1 January 2009

-

-

-

As of 31 December 2009

-

3,400

3,400

-

3,400

3,400

Additions

16

-

16

Disposals

-

-

-

16

3,400

3,416

Balance at 1 January 2010

-

-

-

Amortization for the period

-

-

-

Disposals

-

(1,700)

(1,700)

Balance as of 31 December 2010

-

(1,700)

(1,700)

-

3,400

3,400

16

1,700

1,716

Amortization and impairment losses

Carrying amounts

Year ended 31 December 2010 Costs Balance at 1 January 2010

Balance as of 31 December 2010 Amortization and impairment losses

Carrying amounts As of 1 January 2010 As of 31 December 2010

90

6. Investment in subsidiaries (In thousands of USD)

31-Dec-10

Unquoted equity shares at cost

31-Dec-09 54

91

The Companyâ&#x20AC;&#x2122;s direct investment in different subsidiaries as of 31 December 2010 is as per below; (In thousands of USD) Name of the Subsidiary

Country of Incorporation

Principal activities

Equity interest

Equity interest

Book value

Book value

as of

as of

as of

as of

31-Dec-10*

31-Dec-09*

31-Dec-10

31-Dec-09

Polarcus DMCC

UAE

Administrative services

100%

100%

54

54

Polarcus 1 Ltd

Cayman Islands

Seismic vessel operator

100%

100%

-

-

Polarcus 2 Ltd

Cayman Islands

Seismic vessel operator

100%

100%

-

-

Polarcus Samur Ltd

Cayman Islands

Seismic vessel operator

100%

-

-

-

Polarcus 5

Cayman Islands

Seismic vessel operator

100%

100%

-

-

Polarcus 6 Ltd

Cayman Islands

Seismic vessel operator

100%

-

-

-

Polarcus Seismic Limited Cayman Islands

Administrative services

100%

100%

-

-

Polarcus UK Limited

Seismic vessel operator

100%

100%

-

37

-

-

54

91

Polarcus Multi-Client (CY) Ltd

United Kingdom Cyprus

Administrative services

100%

-

Total

The Company is the ultimate parent company for the subsidiaries of directly owned subsidiaries. The non-direct subsidiaries as of 31 December 2010 is as per below; (In thousands of USD) Name of the Subsidiary

Country of Incorporation

Equity interest Principal activities

Equity interest

as of

as of

31-Dec-10*

31-Dec-09*

Polarcus Egypt

Egypt

Administrative services

100%

100%

Polarcus Nadia AS

Norway

Seismic vessel operator

100%

100%

Polarcus Asima AS

Norway

Seismic vessel operator

100%

-

Polarcus Naila AS

Norway

Seismic vessel operator

100%

-

Polarcus Alima AS

Norway

Seismic vessel operator

100%

-

Polarcus do Brazil Ltda

Brazil

Administrative services

100%

-

Polarcus 6 Ltd

Cayman Islands

Seismic vessel operator

100%

-

Total *Voting rights are equivalent to shareholding for all companies. Polarcus Asima AS, Polarcus Naila AS, Polarcus Alima AS, Polarcus do Brazil Ltda and Polarcus Multi-Client (CY) Ltd were all incorporated during the year 2010. For details of transactions and balances with subsidiaries see Note 19 Related parties.

91

7. Other current assets (In thousands of USD) Insurance claims

31-Dec-10 3,391

Deposits and advances Total

31-Dec-09 -

8

6

3,399

6

8. Restricted cash (In thousands of USD)

31-Dec-10

Letter of credit Escrow account to secure payment to suppliers

31-Dec-09 -

284

Senior secured bond loan escrow account

14,346

22,849

Other short term deposits

14,005

12,000

Total

28,351

35,133

9. Other financial assets and liabilities Financial liabilities measured at fair value through profit or loss are as per below; (in thousands of USD)

31-Dec-10

31-Dec-09

Liability for warrants (refer to Note 14 in the consolidated financial statements)

6,768

3,207

Total liabilities at fair value through profit and loss

6,768

3,207

Financial liabilities measured at amortized cost are as per below; (in thousands of USD)

92

31-Dec-10

31-Dec-09

13% Senior Secured Bonds (refer to Note 17 in the consolidated financial statements)

53,846

53,496

8.5% Convertible Bonds (refer to Note 18 in the consolidated financial statements)

31,269

30,131

Total financial liabilities measured at amortized cost

85,115

83,627

9.1 Fair values (in thousands of USD)

31-Dec-10 Carrying Amount

31-Dec-09 Carrying Amount

Fair value

Fair value

Financial assets Cash and deposits

51,625

51,625

149,491

149,491

Accounts receivable

30,709

30,709

-

-

Receivable from subsidiaries

132,851

132,851

195,386

195,386

Long-term loan to subsidiaries

273,467

273,467

-

-

Short-term loan to subsidiaries

28,200

28,200

-

-

516,853

516,853

344,877

344,877

Accounts payable

1,883

1,883

1,378

1,378

Liability for warrants

6,768

6,768

3,207

3,207

13% Senior secured bonds

53,846

59,675

53,496

51,150

8.5% Convertible bonds

31,269

31,325

30,131

24,325

Finance lease liabilities

41,472

41,472

20,419

20,419

Payable to subsidiaries

11,612

11,612

-

-

146,850

152,735

108,631

100,479

Total Financial liabilities

Total

Cash and deposits, accounts receivables and payable, and short-term payables, receivables and loans to subsidiaries approximate their carrying amounts largely due to the short-term maturities of these instruments. The fair value of long-term loans from subsidiaries approximate their carrying amounts as the interest rates charged on the loans are at floating rates based on the prevailing market rate. The fair values of senior secured and convertible bonds are measured at a rate prescribed by The Norwegian Securities Dealers Association based upon the secondary market prices of the respective securities. The carrying value of the liability for warrants is measured at fair value, see Note 14.2 in the consolidated financial statements for more information. The fair value of finance lease liabilities approximates their carrying amounts as this relates to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. As of 31 December 2010, the Company held the following financial instruments measured at fair value: (in thousands of USD)

31-Dec-10

31-Dec-09

Financial liabilities at fair value through profit & loss: Warrants (Refer to Note 18) Level 1

-

-

Level 2

-

-

Level 3 Total

6,768

3,207

6,768

3,207

93

During the year ended 31 December 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements. Reconciliation of opening and closing balances of Level 3 financial items is as per below: (in thousands of USD)

Level 3 Financial assets 31-Dec-10

Level 3 financial liabilities

31-Dec-09

31-Dec-10

31-Dec-09

Balance at 1 January

-

-

(3,207)

(10,934)

Value of warrants recognized in equity on recognition

-

-

-

-

Recorded in profit and loss in the year

-

-

(3,561)

7,728

Balance at 31 December

-

-

(6,768)

(3,207)

10. Long–term finance lease The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2010, streamer systems worth USD 54,647,604 were leased under this arrangement. The outstanding liability under the above mentioned arrangements are disclosed in the Company’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below; (In thousands of USD)

31-Dec-10

31-Dec-09

Lease payments due within 12 months from the balance sheet date

17,969

7,156

Lease payments due between 1 year and 5 years

23,503

13,263

Total

41,472

20,419

Payments made towards these lease arrangements during the year ended 31 December 2010 as follows; (In thousands of USD)

Year ended 31-Dec-10 Principal

Interest

Year ended 31-Dec-09 Total

Principal

Interest

Total

Lease payments made for streamer systems

10,990

2,511

13,502

2,185

411

2,596

Total

10,990

2,511

13,502

2,185

411

2,596

11. Interest payable (In thousands of USD)

31-Dec-10

31-Dec-09

Interest accrued on senior secured bonds

2,979

2,979

Interest accrued on convertible bonds

1,240

1,240

Total

4,219

4,219

Interest charged and accrued on the convertible and senior secured bonds is calculated using the amortized cost method.

12. Employee accruals and payables (In thousands f USD)

94

31-Dec-10

31-Dec-09

Accrued salaries

1,112

1,666

Accrued bonuses

2,889

116

Total

4,001

1,782

13. Other accrued expenses (In thousands of USD)

31-Dec-10

Accrued miscellaneous expenses

31-Dec-09

1,205

90

Consideration for vessel buyback options

1,700

3,400

Total

2,905

3,490

14. Sales, general and administrative costs Years ended (In thousands of USD)

31-Dec-10

31-Dec-09

Salaries and other employee benefits

6,593

6,914

Other general and administrative expenses

5,618

1,809

12,211

8,723

Total

14.1 Salaries and other employee benefits The Company offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades. The Company has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employeeâ&#x20AC;&#x2122;s grade. In addition, the Company has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2010. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations. All employees of the Company are offered a comprehensive employee health protection plan. The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 15.3 Stock options in the consolidated financial statements. The Company has set up a pension scheme for the majority of its employees under which the Company, on a monthly basis, contributes 8% of an employeeâ&#x20AC;&#x2122;s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2010 the Company has contributed USD 1.02 million to the pension scheme, full amount of which is expensed as employee benefits. There were no contributions made to the pension scheme during year 2009. For employees who are not enrolled in to the above pension scheme, the Company recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Company. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 monthâ&#x20AC;&#x2122;s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2010 the Company has recognized a liability of USD 0.15 million towards such pension payable. Subsequent to the reporting period, as payment under the performance-related bonus scheme, a bonus equivalent to 90% of the maximum bonus entitlement (prorated according to the date of joining) for the year ended 31 December 2010 was paid out to all employees who joined the Company on or before 30 September 2010.

95

15. Depreciation and amortization Year ended (In thousands of USD)

31-Dec-10

31-Dec-09

Depreciation of seismic equipment

6,770

140

Disposal of seismic equipment

2,825

-

Total

9,595

140

16. Finance costs Year ended (In thousands of USD)

31-Dec-10

31-Dec-09

Interest expenses on senior secured bond

7,499

7,455

Interest expenses on convertible bond

4,114

3,974

Interest expenses on lease arrangements

2,759

658

Other interest expenses

664

-

Realized currency exchange loss

362

92

Unrealized currency exchange loss

963

1,351

Other financial losses

576

-

16,937

13,530

Total

17. Finance income Year ended (In thousands of USD) Interest income from deposit with banks

31-Dec-10

31-Dec-09 114

393

9,547

10,150

247

-

Realized exchange gain

1,448

236

Unrealized exchange gain

1,492

6,909

12,848

17,688

Interest income from subsidiaries Other financial gains

Total

The realized currency gain or loss represents the effect of foreign currency payments made and the unrealized currency gain or loss represents the effect of revaluation of foreign currency financial assets other than those treated as cash flow hedging instruments. Interest income from subsidiaries is interest expenses of the Company charged to the subsidiaries and relates to the borrowings of the Company for the specific purpose of financing the vessel construction projects of the subsidiaries.

96

18. Changes in fair value of financial instruments The changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants. The fair value of the warrant liability at each balance sheet date and the profit or loss on revaluation for the periods reported are as per below; (In thousands of USD)

31-Dec-10

31-Dec-09

Warrants Liability at 1 January

3,207

10,935

Net loss/(gain) on financial liabilities at fair value through profit and loss

3,561

(7,728)

Liability for warrants at 31.12

6,768

3,207

19. Related-parties 19.1 Receivable from subsidiaries (In thousands of USD)

31-Dec-10

Polarcus 1 Ltd

31-Dec-09 -

8,754

Polarcus 2 Ltd

-

25,539

Polarcus Samur Ltd

-

69,794

Polarcus 5

-

42,971

20,994

-

135

-

9,722

-

14

31

-

-

119

37

8,057

1,369

93,810

46,630

132,851

195,126

Polarcus 6 Ltd Polarcus Do Brazil Ltda Polarcus Naila AS Polarcus Uk Limited Polarcus Alima AS Polarcus Seismic Ltd Polarcus Nadia AS Polarcus DMCC Total

The above receivables are mainly for vendor payments made by the Company on behalf of its subsidiaries which are receivable within 12 months from 31 December 2010.

19.2 Loans to subsidiaries (In thousands of USD)

31-Dec-10

31-Dec-09

Polarcus 1 Ltd

14,030

-

Polarcus 2 Ltd

14,030

-

Polarcus Samur Ltd

89,298

-

Polarcus Nadia AS

33,083

-

Polarcus Naila AS

21,296

-

Polarcus Alima AS

30,230

-

Polarcus Asima AS

71,500

-

Polarcus UK Limited

28,200

-

301,667

-

Total

The loan to Polarcus UK Limited is repayable on demand but not later than 31 December 2015 hence reported as classified as short-term in the Companyâ&#x20AC;&#x2122;s balance sheet. All other loans are repayable to the Company after 12 months period from 31 December 2010. The interest rate on loans to subsidiaries is LIBOR + 4%, apart from the loan to Polarcus UK Ltd, which is interest free.

97

19.3 Accounts receivable (In thousands of USD)

31-Dec-10

31-Dec-09

Polarcus Nadia AS

12,772

260

Polarcus Naila AS

11,422

-

586

-

Polarcus Asima AS

4,652

-

Polarcus Seismic Ltd

1,277

-

30,709

260

Polarcus UK Limited

Total

19.4 Payable to subsidiaries (In thousands of USD)

31-Dec-10

31-Dec-09

Polarcus 5

1,846

-

Polarcus Asima AS

7,021

-

Polarcus DMCC (included in Accounts payable) Total

2,745

-

11,612

-

Payable to Polarcus 5 and Polarcus Asima AS are towards payments made by these subsidiaries on behalf of the Company. Payable Polarcus DMCC included in accounts payable is towards invoices received for administrative services.

19.5 Transactions with subsidiaries The Company is a holding company for the Polarcus Group and also earns revenues from leasing seismic equipment and providing offshore employee services to its subsidiaries. See Note 2 for information regarding revenues earned from subsidiaries. Additionally, during the year a streamer system that had a net book value of USD 19.8 million was sold to Polarcus Nadia AS at net book value. Also, a total amount of USD 6.5 million that was capitalized as vessels under construction, which related to prepayments to certain suppliers for construction option 1 and 2, were sold to Polarcus 1 Ltd and Polarcus 2 Ltd in the year for a consideration equal to the book value (refer to Note 4 Vessels under construction).

20. Authorization of financial statement The unconsolidated financial statements of the parent company Polarcus Limited for the year ended 31 December 2010 were authorized for issue in accordance with a resolution of the directors on 29 March 2011.

98

Peter Rigg

Tore Karlsson

Alan Locker

Geoffrey Taylor

Carl-Peter Zickerman

Kitty Hall

Carl-Gustaf Zickerman

Hege Sjo

Jogeir Romestrand

99

Statement pursuant to Section 5-5 of the Securities Trading Act We confirm that, to the best of our knowledge, the separate financial statements for the parent company and the consolidated financial statements for the Group, for the year ended 31 December 2010, have been prepared in accordance with IFRS and give a true and fair view of the Company’s and the Group’s assets, liabilities, financial position and results of operations, and that the Board of Director’s report gives a true and fair review of the development, performance and financial position of the Company and the Group, and includes a description of the principal risks and uncertainties that they face. Dubai, 29 March 2011 The Board of Directors of Polarcus Limited

100

Peter Rigg

Tore Karlsson

Alan Locker

Geoffrey Taylor

Carl-Peter Zickerman

Kitty Hall

Carl-Gustaf Zickerman

Hege Sjo

Jogeir Romestrand

Rolf Ronningen CEO Polarcus

Tom-Henrik Sundby CFO Polarcus

Statsautoriserte revisorer Ernst & Young AS

To the Annual Shareholders’ Meeting of Polarcus Limited

Dronning Eufemias gate 6, NO-0191 Oslo Oslo Atrium, P.O.Box 20, NO-0051 Oslo Foretaksregisteret: NO 976 389 387 MVA Tlf.: +47 24 00 24 00 Fax: +47 24 00 24 01 www.ey.no Medlemmer av Den norske Revisorforening

AUDITOR’S REPORT We have audited the accompanying financial statements of Polarcus Limited, comprising the financial statements of the Parent Company and the Group. The financial statements of the Parent Company and the Group comprise the balance sheets as at December 31, 2010, the statements of comprehensive income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors’ and Chief Executive Officer’s Responsibility for the Financial Statements The Board of Directors and Chief Executive Officer are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements of Polarcus Limited present fairly, in all material respects, the financial position of the Parent Company and the Group as of December 31, 2010, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

Oslo, 29 March 2011 ERNST & YOUNG AS

Anders Gøbel State Authorised Public Accountant (Norway)

A member firm of Ernst & Young Global Limited

101

102

Addresses Polarcus Limited

Polarcus Naila AS

Polarcus 1 Ltd

Reg. No: WK 201867 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Reg. No: 995 097 893 C/O Wikborg, Rein & Co P.O.Box 1513 Vika 0117 Oslo Norway

Reg. No: WK- 204062 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Polarcus DMCC

Polarcus Asima AS

Polarcus 2 Ltd

License No: 30852 Almas Tower, Level 32 Jumeirah Lakes Towers Dubai, U.A.E. Correspondence Address: P.O.Box 283373, Dubai U.A.E.

Reg. No: 995 542 846 C/O Wikborg, Rein & Co P.O.Box 1513 Vika 0117 Oslo Norway

Reg No: WK- 203939 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Polarcus Alima AS

Polarcus 6 Ltd

Polarcus Seismic Ltd

Reg. No: 995 963 426 C/O Wikborg, Rein & Co P.O.Box 1513 Vika 0117 Oslo Norway

Reg. No: WK- 203972 Registered Address: Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Reg. No: WK- 213496 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Polarcus MC Ltd Reg. No: WK-204065 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Polarcus Samur Ltd. Reg. No: WK- 204064 Walker House, 87 Mary Street George Town Grand Cayman KYI – 9001 Cayman Islands

Polarcus Nadia AS Reg. No: 994 063 901 C/O Wikborg, Rein & Co P.O.Box 1513 Vika 0117 Oslo Norway

Polarcus UK Ltd Reg. No: 7068161 St. James House 13 Kensington Square London W8 5HD U.K.

Polarcus Egypt Ltd Reg. No: 41735 Cairo 10 Abdel Azim Ashmawy Street Al-Nozha Cairo, Egypt

Polarcus do Brasil Ltda Reg. No: 11.428.425/0001-12 Matriz 1 Andar – Bloco Pao de Acucar Praia de Botafogo 501 Centro Empresarial Mourisco Botafogo, Rio de Janiero Brasil

Polarcus Multi-Client (CY) Ltd Reg. No: HE 267816 C/O Ernst & Young Spyrou Kyprianou, 27, Ernst & Young House, P.C. 4001, Limassol Cyprus

POLARCUS LIMITED c/o Polarcus DMCC Almas Tower, Level 32, Jumeirah Lakes Towers, PO Box 283373, Dubai, United Arab Emirates 104


Polarcus 2010 Annual Report