Annual report 2006 - prosafe.com Filer/Annual reports/AR 2006.pdf · Caledonia and Safe Lancia) is founded and listed on the Oslo Stock Exchange. 8 PROSAFE SE Arne Austreid, president

Annual report 2006

2

The group

5 The Prosafe group

8 Corporate management

9 The year 2006

10 Key financial figures

12 Vision, strategy and prospects

13 Letter from president and CEO

Directors’ report

17 Report

21 Board of directors

Corporate governance

23 Corporate governance in Prosafe

Business divisions

31 Floating Production

36 Offshore Support Services

Financial information

43 Risk management and sensitivities

48 Shareholder information

52 Analytical information

Society and HSEQA

55 Society and people

59 Steadily improving HSE results

Accounts

65 Consolidated accounts

86 Prosafe SE accounts

92 Auditor’s report

93 Articles of association for Prosafe SE

94 Glossary

95 Financial calendar

3

Strength innumbers

Prosafe has at present two strong business units:Offshore Support Services and Floating Production,both with leading positions in global markets.

With 34 years of operational experience, a highquality fleet of 23 vessels, cost-efficient in-housetechnology, an order backlog of USD 2.4 billion, a strong financial capacity and 1 030 focused andmotivated employees, the company has the strength in numbers required for continuedsustainable growth.

34 years of operational experience

4

The group

5

At present, the Prosafe group comprises a parentcompany and two divisions: Offshore Support

Services and Floating Production and is representedin the world's largest offshore oil and gas provinces.

The company had revenues of USD 365.6 million in2006, and had 1 030 employees at 31 December.

The group

Prosafe ranks as the world's leading owner andoperator of semi-submersible accommodation/service rigs, and as a leading owner and operator of floating production and storage units. The company is represented in the world's largest offshore oil and gas provinces.

Prosafe's history is characterised by controlled andmarket-adapted growth over more than 34 years.The story starts in 1972, when the company, at that time named Morco Norge, was awarded thedrilling contract for the Ekofisk field, the first oilfield in the North Sea to be exploited. The yearswhich followed witnessed a series of mergers,acquisitions and name changes.

Today's Prosafe was formed in 1997 when the platform drilling and technical services divisionswere demerged from Transocean as a separatecompany, and was listed on the Oslo StockExchange as Procon Offshore ASA. This later merged with Safe Offshore ASA and changed itsname to Prosafe ASA.

Through the acquisition of Nortrans Offshore in 2001, Prosafe extended its activities to includethe conversion, chartering and operation of floatingproduction, storage and offloading (FPSO) vesselsand floating storage and offloading (FSO) vessels.Nortrans Offshore was established in Singapore in

1985, and performed its first FSO conversion in1985 and its first FPSO conversion in 1994. The in-house engineering department engineered andconstructed its first turret mooring system in 1991.

Prosafe refined its commercial portfolio in 2005with the sale of the Drilling Services division, thereby freeing up management resources andfinancial capacity in order to strengthen its commitment to Floating Production and Offshore Support Services.

In June 2006 the company acquired ConsafeOffshore AB, which owned three semi-submersibleaccommodation/service rigs and one accommodation/service jack-up. The acquisitionconfirmed Prosafe's strategy of consolidating themarket for semi-submersible accommodation/service rigs, and cemented Prosafe's leading position in this market.

At present, the Prosafe group comprises a parentcompany and two divisions: Offshore SupportServices and Floating Production and is representedin the world's largest offshore oil and gas provinces.The company had revenues of USD 365.6 million in2006, and had 1 030 employees at 31 December.

6

turret mooring systems capable of handling a significant numbers of risers, in both shallow anddeep waters worldwide.

Position in the value chain Prosafe's activities fall within the later part of an oilfield's life cycle. Accordingly, it operates in that segment of the value chain which is most robust in relation to oil price fluctuations. This strategyensures sustainable growth for the company and a high return on equity in relation to risk.

Shareholder and dividend policyThe main objective is to secure a competitive returnfor Prosafe's shareholders through a combination of share price appreciation and dividends. Prosafeaims to repay 30-50 per cent of its annual profit asdividend to its owners. In 2006, the company paidan ordinary dividend of NOK 5 per share for fiscal2005 as well as a special dividend of NOK 20 pershare (before the 1:5 share split).

The board will propose to the company's generalmeeting that a dividend of NOK 1.25 per share(after the 1:5 share split) be paid for fiscal 2006.

OwnershipProsafe is listed on the Oslo Stock Exchange withthe ticker code PRS. At 31 December, 70.1 per centof the shares were owned by foreigners.

Offshore Support Services is the world's leadingowner and operator of semi-submersible accommodation/service rigs and owns 11 of 16available units. In addition, the division owns onejack-up accommodation/service rig. OffshoreSupport Services has gradually upgraded its fleet in recent years and now owns six dynamically-positioned rigs. This has made the fleet more flexible and able to work in more geographical regions. The division has five units on long-termbareboat charters in the Gulf of Mexico until 2008.Its seven other rigs are marketed globally.

Floating Production is a leading owner and operatorof FPSOs and FSOs. It owns and/or operates a fleetof six units of this kind. The division's vessels areprimarily operated and marketed off west Africa,Brazil, south-east Asia and Australasia, which arethe fastest-growing markets for FPSO-based fielddevelopments. In mid-2007, the division will commence two new FPSO charters in Brazil andNew Zealand respectively. In addition, Prosafe hascommenced engineering and will convert two vessels to FPSOs that will start operations in 2008.

Floating Production's engineering departmentoffers innovative, custom FPSO designs, including

Value chain

Seismic surveys Exploration and development drilling Pre-engineering / Concept studies

The group

Fabrication / Installation Production and maintenance Abandonment

= Prosafe’s position in the value chain

7

Important events since the company'sfounding in 1997

2006Prosafe is awarded a nine-year charter to provideand operate a deepwater gas FPSO for Petrobras inBrazil.

Prosafe is awarded a letter of intent for an FPSO foran undisclosed customer.

Prosafe acquires Consafe Offshore AB, owning threesemi-submersible accommodation/service rigs andone accommodation/service jack-up.

Fleet utilisation of 92 per cent for Offshore SupportServices.

2005Prosafe secures a five-year charter to provide andoperate an FPSO on the Tui field off New Zealand.

Prosafe is awarded a seven-year charter to provideand operate an FPSO on Brazil’s Polvo field.

The Drilling Services division is sold to KCA Deutag.

2004Prosafe begins its first accommodation rig chartersoff west Africa and Tunisia.

2003Prosafe secures a five-year bareboat charter for fiveaccommodation/service rigs in the Gulf of Mexico.

2002Prosafe acquires the Safe Hibernia (formerlyPolyconcord) accommodation/service rig.

FPSO Espoir Ivoirien commences a 10-year charteroff the Ivory Coast for Canadian Natural Resources.

Prosafe is awarded an eight-year charter to provideand operate Abo FPSO on the Abo field off Nigeria.

2001Nortrans Offshore Ltd is acquired, and Prosafeenters the FPSO segment.

2000Prosafe acquires MSV Regalia.

1999The Safe Scandinavia (formerly Polycrown) accommodation/service rig is acquired.

1998Prosafe acquires Discoverer ASA, which owns theJasminia and Safe Regency accommodation/servicerigs.

1997Procon Offshore ASA and Safe Offshore ASA merge.

Procon Offshore ASA is founded through a demerger from Transocean, and listed on the OsloStock Exchange.

Safe Offshore ASA, which owns three accommodation/service rigs (Safe Britannia, SafeCaledonia and Safe Lancia) is founded and listed onthe Oslo Stock Exchange.

8

PROSAFE SE

Arne Austreid, president and CEO Mr Austreid (born 1956) has been president and CEO of Prosafe SE since 1999.

Educated as a petroleum engineer, he also holds an MBA from the University of Aberdeen. Mr Austreid joined Prosafe in 1998 as vice president, marketing and business development. From 1982-98, he held a number of positions in Transocean ASA, both on land

and offshore, and was president at his departure.

Shares in Prosafe: 62 500 Synthetic share options: 150 000

Bjørn Henriksen, executive vicepresident and CFOMr Henriksen (born 1961) has been executive vice president and CFO of Prosafe SE since March 2005.

He graduated as chartered publicaccountant from the Norwegian School ofEconomics and Business Administration in Bergen.Mr Henriksen joined Transocean in 1992 and hasheld a number of positions there and in Prosafe,including president of Offshore Support Servicesand Floating Production.

Shares in Prosafe: 700Synthetic share options: 125 000

Roy Hallås, executive vice president business development Mr Hallås (born 1965) has been executive vice president, business development since February 2006.

With an engineering degree fromthe Norwegian University of Science andTechnology in Trondheim, he joined Prosafe in1997 and has held a number of positions there.These include president of Prosafe Drilling Servicesand executive vice president, corporate relations.Prior to joining Prosafe, he held various posts inTransocean, the Norwegian Petroleum Directorateand Norsk Hydro.


Robin Laird, presidentMr Laird (born 1963) has been president of Offshore Support Services since March 2005.

He holds a BSc from Edinburgh University and is a chartered public accountant in Scotland.

Mr Laird was appointed vice president, finance forOffshore Support Services in 1995. Before that, heworked as controller at the Ben Line Group inEdinburgh.


Hugh Parry, presidentMr Parry (born 1948) has been president of Floating Production since July 2005.

He qualified as a chartered publicaccountant and has an HDip Tax from the University of Natal in

South Africa. Mr Parry was appointed vice president, finance, for Floating Production in 1998.Before that, he worked as CFO for Grinrod Limitedand as a partner in London accountant MooreStephens.

Shares in Prosafe: 187 785Synthetic share options: 125 000

OFFSHORE SUPPORT SERVICES FLOATING PRODUCTION

The group

9

The year 2006

Key figures- Operating revenues of USD 365.6 million.- Operating profit before depreciation of

USD 207.7 million.- Operating profit of USD 150 million.

The share- The Prosafe share price at 31 December 2006 was

NOK 88.50 and its market capitalisation stood at NOK 20.3 billion, an increase of 55 per cent from 31 December 2005 before adjustment for dividend.

- Prosafe paid an ordinary dividend of NOK 5.5 per share for fiscal 2005, as well as a special dividend of NOK 20 per share (before 1:5 share split).

- The board of directors has proposed an ordinary dividend of NOK 1.25 (after 1:5 share split) per share for fiscal 2006.

Order backlog- Prosafe had a total order backlog of USD 2.4 billion

at 31 December 2006, an increase of USD 1.3 billion from the year before.

Health, safety and the environment - Lost-time injury frequency of 1.4 and an injury

frequency of 4.6.- Sickness absence was low, and stood at 1.1

per cent.

Operations- Floating Production's FPSOs had an operating

regularity of 99.9 per cent.- Offshore Support Services' rig utilisation was

92 per cent.

New contracts / important eventsQ1 2006- The Safe Scandinavia accommodation/service rig

was awarded a four-month charter starting in the second quarter of 2007 and a six-month charter commencing at the end of the first quarter of 2008, both for Statoil on the Norwegiancontinental shelf.

- The contract for operation and maintenance of FPSO Al Zaafarana was extended by five years.

- The contract for Safe Scandinavia at the Mars field in the US sector of the Gulf of Mexico was extended by two months.

- Safe Scandinavia's firm period at the Britannia platform was extended from 16 to 23 weeks.

- The Safe Caledonia accommodation/service rig was awarded a one-year contract with a one-year option in the British sector of the North Sea.

Q2 2006- The firm period for Safe Caledonia in the British

sector of the North Sea was extended from one to two years.

- Prosafe acquired Consafe Offshore AB, owning three semi-submersible accommodation/service rigs and one jack-up service rig.

Q3 2006- All five one-month options for use of MSV Regalia

off Angola in 2007 were exercised.

Q4 2006- Floating Production was awarded a letter of intent

for the conversion and operation of an FPSO. The charter has a firm period of seven years and options to extend the contract to up to 15 years.

- MSV Regalia was awarded a 90-day extension of the contract off Angola.

- Floating Production was contracted to deliver and operate a gas FPSO for Petrobras in Brazil. The charter runs for nine years, with a maximum of six one-year options.

- Prosafe was converted from a Norwegian Public Limited Company (ASA) to a European Public Company (SE company).

Q1 2007- Safe Scandinavia was awarded a four-month

contract with a one-month option in the British sector of the North Sea, with start up in October 2007.

- The board of directors resolved to propose to the annual general meeting on 3 May 2007 that Prosafe’s headquarters be relocated from Norway to Cyprus.

10

Key financial figures

Notes to key figures on page 111 Figures for 2006, 2005 and 2004 are based on IFRS, whereas figures for 2003 are based on Norwegian GAAP. Figuresfor 2005 and 2004 exclude discontinued operations, whereas figures for 2003 include discontinued operations.Previously reported share figures have been adjusted to reflect the 5-for-1 share split effective 27 December 2006. 2 Operating profit before depreciation. 3 Net profit adjusted for deferred tax relating to the departure from theNorwegian tonnage tax scheme and discontinued operations. 4 Net profit / Average no of outstanding and potentialshares. 5 Net profit adjusted / Average no of outstanding and potential shares. 6 Cash flow from operating activities. 7 Cash flow from operating activities / Average no of outstanding and potential shares. 8 Interest-bearing debt - Cashand deposits. 9 Net interest-bearing debt / Book equity. 10 EBITDA / Interest expenses 11 [Operating profit + Interestincome] / [Average total assets - Average interest-free debt]. 12 Net profit adjusted / Average book equity. 13 Bookequity / Total assets. 14 Ordinary dividend per share / Earnings per share. 15 Ordinary and special dividend per share /Earnings per share. 16 Market capitalisation + Net interest-bearing debt. 17 Book equity / Number of shares.

2003

ProfitUSD million

2004 2005 2006

EBITDA margin Return on capital employmentReturn on equity

2003

Key figuresPer cent

2004 2005 2006

200

150

100

50

0

60

50

40

30

20

10

0

EBITDA Operating profit Net profit adjusted

The group

11

Note 2006 2005 2004 2003ProfitOperating revenues USD million 365.6 295.3 257.6 413.0EBITDA USD million 2 207.7 150.9 135.6 119.0Operating profit USD million 150.0 103.6 84.5 56.5Net profit USD million 128.1 46.4 70.2 21.2Net profit adjusted USD million 3 128.1 79.9 70.2 21.2Earnings per share USD 4 0.64 0.27 0.41 0.63Earnings per share adjusted USD 5 0.64 0.47 0.41 0.13Ordinary dividend per share NOK 1.25 1.10 1.00 0.80Special dividend per share NOK - 4.00 1.20 1.20

Cash flowCapital expenditure USD million 1 023.2 48.6 15.9 85.6Cash flow USD million 6 232.8 146.7 116.6 66.4Cash flow per share USD 7 1.16 0.86 0.69 0.39

Balance sheetTotal assets USD million 2 145.9 1 060.7 981.4 975.1Working capital USD million 57.8 272.5 117.2 87.6Cash and deposits USD million 147.2 303.6 121.6 101.2Interest-bearing debt USD million 638.9 390.9 410.2 410.6Net interest-bearing debt USD million 8 491.7 87.3 288.6 309.4Book equity USD million 1 089.7 435.0 448.6 418.7Gearing 9 0.45 0.20 0.64 0.74Interest cover 10 6.47 8.57 7.49 6.47USD/NOK exchange rate 6.26 6.77 6.04 6.68

Key figuresEBITDA margin % 56.8 51.1 52.6 28.8Operating margin % 41.0 35.1 32.8 13.7Return on capital employed % 11 12.4 13.1 10.5 7.2Return on equity % 12 16.8 18.1 16.2 5.0Equity ratio % 13 50.8 41.0 45.7 42.9Dividend yield, ordinary % 14 31.2 59.7 40.2 19.0Dividend yield, incl special % 15 - 277.0 88.4 47.5Number of shares 1 000 shares 229 937 170 490 170 220 169 790Average no of outstanding and potential shares 1 000 shares 201 295 170 340 170 105 169 615

ValuationMarket capitalisation USD million 3 250.7 1 443.0 924.4 681.2Enterprise value USD million 16 3 742 1 530 1 213 991Share price NOK 88.50 57.30 32.80 26.80Book equity per share NOK 17 29.67 17.27 15.92 16.47Market value / EBITDA 15.7 9.6 6.8 5.7Market value / Operating profit 21.7 13.9 10.9 12.1Market value / Net profit 25.4 31.1 13.2 32.1Market value / Cash flow 14.0 9.8 7.9 10.3Market value / Book equity 3.0 3.3 2.1 1.6

12

Vision, strategy and outlook

Prosafe's vision is to be a leading and innovativeprovider of technology and services in selectedniches of the global oil and gas industry.

CORPORATE STRAGEGYProsafe intends to continue to strengthen anddevelop its leading positions in Offshore SupportServices and Floating Production. In this context, itwill consider investments in businesses and assetswhich could increase the growth rate and earningspotential within its core business.

Over time, as the company continues to invest andwin long-term contracts, the company will increaseleverage, but still retain a strong financial positioncreating a combination of strategic flexibility combined with a competitive dividend policy.

OFFSHORE SUPPORT SERVICES - STRATEGYFollowing the acquisition of Consafe Offshoreduring 2006, the division has strengthened its position as the world's largest provider of flexiblesemi-submersible accommodation/service rigs. Sixof its 12 units are equipped with dynamic positioning. This means that Offshore SupportServices has six rigs which compete for assign-ments in deep water and in areas with extensiveseabed infrastructure. Six of the division's rigs canwork in the North Sea, and compete in this marketwith just two other units. Upgrading and invest-ment has provided Offshore Support Services withcompetitive advantages because the fleet is moreflexible and can be deployed in a larger numbergeographical areas than the rigs offered by competitors.

In the long term, Offshore Support Services wantsto protect its leading position in the most advancedmarket for accommodation/service rigs. At thesame time, it will seek to expand the fleet with new units where this can be achieved without weakening the balance between supply and demand.

OutlookOffshore Support Services continues to see increasing dayrates. Its most recent fixtures havebeen made at rates approximately 50 per cent

above earlier charters. At the same time, the division sees that buoyant activity is boostingdemand for flotel services. A particularly high level of activity is being witnessed in the North Sea,where the competitive position is less complex.Offshore Support Services has currently one rigavailable. In addition, one more unit will be available for work in deep water and/or the NorthSea as from autumn 2007. Overall, this provides the basis for an optimistic view of the division's prospects for the next few years.

FLOATING PRODUCTION - STRATEGY In this division, the company aims to be the leadingplayer in the segment for owning, converting andoperating FPSO units worldwide. Prosafe will be the best FPSO player over time in terms of safe, efficient and profitable operations. During 2006,the company has continued to win market shares.Through winning new projects and focusing onincreasing its engineering capacity and technology base, Prosafe is positioned in the topsegment of the FPSO market where competition is moderate and barriers of entry high. Currentlythere are only three focused players in this market:Prosafe, SBM Offshore and Modec. All these companies possess significant engineering resources as well as proprietary technology.

The division's geographical priority areas are westAfrica, south-east Asia and Brazil. At the same time,its long-term ambition is to create supplementaryvolume from the sale of technology developed in-house.

OutlookAll the major players in the FPSO segment built up substantial order backlogs during 2006.Approximately 15 new projects are expected to beawarded in 2007. A further increase in the level ofactivity is likely in 2008-09 on the basis of today'sactive drilling programmes.

Prosafe accordingly expects strong growth in thissegment. Its goal is to win two new projects during2007.

The group

13

Positioned for continued sustainable growth

The year 2006 has been a busy, exciting and successful year. Prosafe has performed very well,both financially and operationally. In addition, thecompany has reached several important milestonesthat strengthen its position as a leading and innovative provider of FPSOs and accommodation/service rigs.

Since its founding, the company has seen controlledand market-adapted growth. Prosafe continued thistrend in 2006 and fortified its position as a globaloffshore service company. With an excellent uptimerecord, solid financial performance, first-class safetyresults and the ability to offer innovative in-housetechnology and cost-efficient solutions, Prosafe haspositioned itself as a provider of high quality services.

Best-ever financial resultIn 2006 we delivered our best-ever financial result.We had revenues of USD 365.6 million and increased our operating profit by 50 percent fromlast year to USD 150 million. In addition, at 31December Prosafe had secured an all-time highorder backlog of USD 2.4 billion. This indicates thatin the years to come, growth will continue at aneven higher pace.

World-leading positionIn response to the tightening market for accommodation/service rigs, Prosafe acquired thecompany Consafe Offshore in 2006. OffshoreSupport Services' rig fleet was thereby increased byfour rigs to a total of 12 units. This acquisition wasan important step in our strategy of consolidatingthe market for semi-submersible accommodation/service rigs, and has cemented our leading positionin this business segment. We have now a qualityfleet with broad operational versatility, inclusiveoperations in harsh environments. The fleet's sizefacilitates an effective geographical distribution of the units, which has significantly increased ourcapacity to serve the growing demand in a cost-efficient manner.

Offshore Support Services has also this year demonstrated a very high level of rig utilisation.With a solid order backlog for 2007 and strongdemand moving forward, we remain very optimisticon the outlook for this business division. Currentmarket activity supports the view that dayrates willcontinue to rise when new contracts are enteredinto for the vessels.

Prosafe has at present two strong business units with leading positions in global markets. With ourportfolio of contracts, a very good market outlook

and high bidding activity, we are uniquely positioned for sustainable growth.

Arne AustreidPresident and CEO

14

Fortifying our position in the top segmentThe Floating Production division showed strongorganic growth, and was from late 2005 to the endof 2006 awarded four FPSO projects within a 15-month period.

The conversions of the FPSO Polvo and the FPSOUmuroa that commenced in the beginning of 2006were completed according to plan, and both FPSOsleft the yard in the beginning of 2007. This was amajor achievement, taking into account a tight market for the delivery of equipment and extraordinary weather conditions.

Prosafe was late 2006 awarded two new FPSO projects: a contract for a gas FPSO for Petrobrasoffshore Brazil, and a contract for an FPSO for anundisclosed customer. These awards are anacknowledgement of our long operational experience, in-house technology and project experience.

Floating Production has earned a reputation fordelivering safe, reliable and cost-efficient operations. Also in 2006, the FPSO operations were characterised by excellent operating uptime, which stood at 99.9 per cent.

The outlook for the market is positive. A high number of field developments are being planned,and the number of projects suitable for FPSOs continues to climb. Prosafe is now strongly positioned in the top segment of the FPSO market,where competition is moderate and barriers toentry high. We have a strong financial capacity, a capable engineering staff and close relationshipswith yards and suppliers, and are well equipped to secure our share of the growing market.

Steadily improving HSE resultsProsafe continued the good underlying HSE trend it has maintained over many years. The lost-timeinjury frequency, which expresses the number oflost-time injuries per million working hours, wasthe lowest ever and stood at 1.4. The injury frequency, which expresses the number of personalinjuries per million working hours, was 4.6, whichalso is the best result in the company's history.

Sickness absence remained low and was only 1.1 per cent.

We believe, however, that substantial scope continues to exist for further improvement in preventive work. We are not resting content withthese results, and will continue to work hard anddetermined to bring the number of accidents andinjuries down to zero.

Responsibility engenders trustProsafe believes that being corporate social responsible is an integral part of being an effective,value-creating business. We pursue all our activitiesin a financially, ethically and socially responsiblemanner.

In 2006 we intensified our focus on ethical behaviour. We published our ethical guidelines in a booklet entitled Code of conduct. The implementation of this code of conduct is given thehighest priority. At the same time, we established a channel for reporting concerns about possiblebreaches of the code of conduct on a confidentialbasis. A corporate ethics committee was also established, and shall maintain and further developthe company's code of conduct.

Our reputation, and therefore our future as a company, depends on all employees taking responsibility for the conduct of Prosafe's business.By adhering to our code of conduct, we will be ableto achieve business excellence for the benefit of ourshareholders, customers, and of course, for Prosafe.

An attractive workplaceThe knowledge and skill of the company's employees are fundamental to the sustained success of Prosafe. Motivated and skilled employeeswho enjoy their work are one of our most importantcompetitive advantages.

Prosafe wants to be a preferred employer and willattract and retain employees by offering them challenging and motivating work, influence overtheir own working conditions, competitive termsand career opportunities within the company.

The group

15

At 31 December the company had 1 030 employees,as opposed to 665 in 2005. This number reflects thestrong international growth of the company and itsgrowing fleet of vessels. The company's onshoreorganisation in Singapore now employs 350 persons, mainly within engineering disciplines.Manning will increase even further in order to meetthe large workload in connection with FPSO conversion projects.

Conversion to an SE (Societas Europaea) companyProsafe was converted from a Norwegian PublicLimited Company (ASA) to a European PublicCompany (Societas Europaea or “SE company”) inFebruary 2007. The rationale for the conversion wasto achieve flexibility with regard to future localisation of the holding company.

The board of directors has resolved to propose tothe annual general meeting on 3 May 2007 thatProsafe's headquarters be relocated from Norway to Cyprus. The purpose of the relocation is to position the company in a jurisdiction which provides a predictable fiscal regime and improvedgrowth opportunities.

Uniquely positioned for sustainable growthProsafe has at present two strong business unitswith leading positions in global markets. With ourportfolio of contracts, a very good market outlookand high bidding activity, we are uniquely positioned for sustainable growth.

We have the expertise, capacity and financialresources to consolidate and fortify our leadingpositions, and are well equipped for implementingour plans for continued success in the time tocome.

Arne AustreidPresident and CEO

16

Order backlog ofUSD 2.4 billion

Directors´ report

17

Directors’ report

Prosafe is a global company with leading positionsin the segments for floating production and accommodation/service rigs. Both divisions arewell placed in the later part of an oil field's lifecycle. The company has a strong position in anindustry with an expanding level of activity.Operating profit for 2006 was Prosafe's best ever.

Income statementConsolidated revenues in 2006 ended at USD 365.6 million (USD 295.3 million in 2005). Revenuesin the Offshore Support Services division rose byUSD 85.9 million. This reflected a high utilisationfactor and rising dayrates, as well as a larger fleetfollowing the acquisition of Consafe Offshore AB(Consafe) in summer 2006. Revenues in the FloatingProduction division decreased by USD 15.7 millionin 2006 compared with 2005. This drop reflectedreduced project activity on the company's FPSOs inwest Africa, while the company's two FPSOs thatare being converted will not generate revenuesuntil the end of the second quarter of 2007.

Consolidated operating profit for 2006 was USD 150.0 million (USD 103.6 million). This improvement primarily reflects higher revenues in the Offshore Support Services division as a consequence of high rig utilisation, rising dayratesand a larger fleet following the acquisition ofConsafe. Further, the operating profit in theFloating Production division rose due to reducedadministration costs and high operational regularity of the division's FPSO fleet. Consolidateddepreciation rose by USD 10.4 million, primarily onaccount of the acquisition of Consafe.

Net interest expenses totalled USD 23.6 million in2006, an increase of USD 10.3 million from 2005.The company's net debt increased from USD 87.3million at the end of 2005 to USD 491.7 million at31 December 2006. During 2006 Prosafe refinancedits loan portfolio. The general rise in interest rateswas to some extent compensated by lower marginson the company's loan portfolio. The company's interest rates increased from 4.7 per cent in 2005 to 5.5 per cent in 2006. Other financial items

amounted to USD 16.6 million (negative of USD 2.6million) and primarily refer to a higher market valueof the company's financial instruments.

Prosafe's tax expense in 2006 was USD 14.9 million(USD 122.8 million). The tax expense for 2005 wasin essence affected by deferred tax related to thecompany's enforced departure from Norway's special tax scheme for shipping companies. The taxexpense for 2006 is affected inter alia by the company's positive financial items, which are subject to normal taxation in Norway (28 per cent).Ongoing tax charges for the company's ordinaryactivities in Offshore Support Services and FloatingProduction are in the order of 7-9 per cent, and are largely withholding tax, depending on the countriesin which the company's vessels operate.

Net profit for the group thereby amounted to USD 128.1 million (USD 46.4 million), and dilutedearnings per share were USD 0.64 (USD 0.27).

CapitalTotal assets at the end of 2006 were USD 2 145.9million (USD 1 060.7 million). The increase in thebalance sheet total primarily reflects the purchaseof Consafe, as well as the investment in shares inPetrojarl ASA in autumn 2006. The company alsoinvested USD 350 million in new conversion projects, while depreciation for 2006 came to USD 57.7 million.

During 2006 the company paid NOK 5.50 per share(NOK 1.10 per share after the split) in ordinary dividend for 2005. In addition, the general meetingapproved a special dividend of NOK 20 per share(NOK 4 per share after the split), which was paid on 18 January 2007.

Borrowing in 2006 totalled USD 750 million, whileloan repayments came to USD 508 million. Grossinvestment in 2006 was USD 1 023 million (USD 49 million). USD 350 million of this amount represented capital spending in new conversionprojects in Floating Production. The remaining USD 673 million related primarily to non-current

18

assets and goodwill in connection with the purchase of Consafe. In coming years, maintenanceinvestment by the group will remain moderate.

At the end of 2006 Prosafe had USD 147.2 million(USD 303.6 million) in overall liquid assets. Thedecrease from 2005 reflects the high level of investment in the company's two new FPSO projects, FPSO Polvo and FPSO Umuroa, which areexpected to start on contracts in the second quarterof 2007. The book equity ratio at year-end was 50.8 per cent (41 per cent). The increase reflects the company's high revenues in 2006, but also the issuance of new shares in connection with the company's purchase of Consafe, as well as theinvestment in Petrojarl ASA. Viewed overall, Prosafehas maintained a solid financial position which supports its expressed strategy and dividend policy.

Pursuant to Section 3-3 of the NorwegianAccounting Act, the board confirms that the going-concern assumption applies and that theannual accounts have been prepared on thisassumption.

Offshore Support ServicesThrough its Offshore Support Services division,Prosafe owns 11 of the world's 16 semi-submersibleaccommodation/service rigs. During the year theserigs served charters in the North Sea, Gulf ofMexico, US Gulf, west Africa, Russia and Australia.Total rig utilisation in 2006 was 92 per cent (92 per cent).

Safe Hibernia, Jasminia, Safe Britannia, Safe Lanciaand Safe Regency continued their five-year chartersin the Gulf of Mexico, which began in 2003. Inspring 2006 Safe Concordia began a one-year charter at the Cantarell field. This rig is expected to be on contract offshore Mexico until autumn2007, when it will be mobilised to the US Gulf,where it will be on charter with ChevronTexaco.Safe Caledonia was on charter off Nigeria until summer 2006, before it was mobilised to the NorthSea, where it was on charter on the UK continentalshelf until January 2007. At the beginning of theyear Safe Scandinavia was on charter in the US Gulf,and in spring 2006 was mobilised back to the NorthSea, where it was on charter on the UK continentalshelf. The contract in the US Gulf was the first ever

accommodation/service contract in that area. MSVRegalia was on charter off Angola all year, where itis expected to remain until autumn 2007. SafeBristolia was delivered from the yard in June 2006,and was then mobilised to Sakhalin, where it operated for Samsung/Shell. Since the purchase ofConsafe, Safe Astoria has been located in Australia,where it underwent classification work and periodicmaintenance. This work is now completed, and therig is being marketed for new assignments in andoutside of Australasia. Safe Esbjerg, which isProsafe's only jack-up accommodation/service rig,was on contract for Maersk on the Danish continen-tal shelf during the entire period.

Operating revenues in 2006 amounted to USD272.6 million (USD 186.7 million). The increase primarily reflected high rig utilisation and risingdayrates, as well as a larger fleet following theacquisition of Consafe in summer 2006.Correspondingly, the operating profit rose to USD117.3 million (USD 69.6 million).

Floating ProductionIn its Floating Production division, Prosafe owns andoperates a fleet of six FPSOs and FSOs. It owns andoperates three floating production, storage and off-loading (FPSO) vessels: Abo FPSO off Nigeria, FPSOEspoir Ivoirien off Côte d'Ivoire and FPSO PetróleoNautipa off Gabon (owned 50 per cent by Prosafe).In autumn 2005 the company won two contractsfor converting two units for Brazil's Polvo field andthe Tui field off New Zealand, respectively. Both ofthese contracts will start to generate revenues fromthe second quarter of 2007. In autumn 2006 thecompany won two additional contracts for converting and operating two new units forPetrobras and an undisclosed customer, respectively. The latter two contracts will generaterevenues from the fourth quarter of 2008. In additi-on, Prosafe owns the FSO Endeavor storage vessel,50 per cent of the FSO Madura Jaya, and is respon-sible for operation of FPSO Al Zaafarana in Egypt.

Operating revenues in 2006 came to USD 92.6 million (USD 108.3 million), while operating profitwas USD 37.8 million (USD 37.9 million).

Acquisition of Consafe Offshore ABIn summer 2006 Prosafe purchased 99.8 per cent

Directors´ report

19

In September Floating Production was awarded a letter of intent from an undisclosed customer for the construction and operation of an FPSO. InDecember the company won a new FPSO contractfrom Petrobras for the construction and operationof a gas FPSO for use offshore Brazil. The value ofthe fixed contract periods is USD 332 million andUSD 846 million, respectively. Both vessels areexpected to start production in the fourth quarterof 2008.

The awards of these contracts demonstratesProsafe's strong position in the top segment forconversion and operation of production vessels outside the North Sea. Activity in the FPSO market is very high, and Prosafe is pursuing new tenders in addition to the four existing conversion projects.Prosafe worked throughout 2006 to expand in-house capacity to participate in the strong growthanticipated in the market. The company is now wellpositioned in terms of both operating and financialcapacity for further growth. Its target is to win twoadditional projects during 2007.

Prosafe is well placed within its business areas, withgood contract coverage and a strong financial position. Together with the positive market outlook,this provides a solid foundation for combining profitable growth with capital adequacy and adirect return to shareholders in the future as well.Viewed in conjunction with Prosafe's existing orderbacklog and financial position, this supports anoptimistic view of the future.

Health, safety and the environment (HSE)As health, safety and the environment representfundamental success factors for Prosafe, they arereflected in its core values. The company works proactively and systematically to reduce sicknessabsence, particularly by emphasising attendancefactors and facilitating a good working environment. In 2006 the company's sicknessabsence rate was 1.1 per cent. Such a low level will be significant for the well-being of individuals,while also having a positive financial impact on thecompany and society at large.

In 2006 there were a total of three lost-time injuries, none of which was serious. The companyhad an injury frequency, defined as the number

of the shares in Consafe Offshore AB (Consafe). Thecompany also initiated a compulsory redemptionprocess for the remaining 0.2 per cent.

Based on the current high drilling activity, the boardexpects increased field development activity in thecoming years. At the same time, high oil prices andhigh production rates in many oil fields will result ina sharper focus on maintaining and upgradingolder oil installations. For that reason, the boardexpects increased demand for the company's accommodation/service rigs.

The acquisition of Consafe was a key part ofProsafe's strategy of consolidating the market forsemi-submersible accommodation/service rigs.With this acquisition, Prosafe has strengthened itsposition as the world's leading owner and operatorof such vessels.

OutlookIn recent months Offshore Support Services hassecured charters worth a total of USD 48 million. All these contracts have been won on significantlybetter terms and at significantly better dayratesthan were attainable at the beginning of 2006.They provide confirmation that dayrates for advanced accommodation/service rigs continue to rise and that they have become established at a significantly higher level.

The outlook for 2007 to 2009 is very positive.Although the company has secured a high level ofcharter cover for 2007, it still has vessels availablefor 2008 and 2009. Activity in the market is increasing, and the development of dayrates reflectsgrowing demand, particularly in the North Sea.

Prosafe's rig fleet is well adapted to market requirements. With a presence in all markets, thecompany has a rig fleet that is suited for work inmost geographic areas. Safe Astoria, which can operate in all geographic regions except the NorthSea, is available for assignments on short notice.The dynamically-positioned rig MSV Regalia, whichcan also work in the North Sea, is available fromautumn 2007. Together with long operational experience, this puts the company in a favourablecompetitive position and provides reason for optimism in the near term.

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of lost-time and personal injuries per million working hours, of 4.6 (13.6 in 2005). Prosafe worksaccording to a zero mindset philosophy, and hasinitiated a number of measures to reach the targetof zero injuries.

In 2006 Prosafe's business areas had an incidentthat led to the discharge of approx. 50 barrels of oil.The company's goal is zero accidental discharges tothe sea or emissions to the air, in line with the principles of sustainable development.

Prosafe currently has about 1 030 employees fromover 30 countries. The company wants to be perceived as an attractive place to work and attaches importance to offering challenging andmotivating jobs and equal development opportunities for all, regardless of gender, nationality, culture or religion.

Men are traditionally over-represented in the recruitment pool for offshore operations, which isreflected in the company's gender breakdown.Prosafe's policy is full equality of opportunity between women and men, and it bases hiring, promotion, training and remuneration on qualifications such as education, experience andresults. Two of the company's five directors arewomen.

RiskCorporate governance at Prosafe must deal withthe following primary risks: strategic, operational,financial and insurance-related. The company'sboard and senior officers manage these risk factorsthrough continuous reporting, board meetings,periodic reviews of the business and tenders androlling strategy and budget processes. This is paralleled by dialogue and exchange of views withthe company's management.

Prosafe aims to create shareholder value by allocating capital and resources to the businessopportunities that yield the best return relative to the risk involved within its specified strategicdirection.

The return is to be generated through the company's divisions by taking measures to reducestrategic risk. Prosafe seeks to reduce its exposure

to operational, financial and insurance-related riskthrough proper operating routines, the use of financial instruments and insurance policies.

Conversion to SE company On 22 December 2006 the company's extraordinarygeneral meeting voted to convert Prosafe from aNorwegian public limited liability company (ASA) to a European public limited liability company (SE).The actual conversion took place on 2 February2007, after which the company's name is ProsafeSE.

Possible relocation of the company's headquartersThe board has decided to recommend to the company's annual general meeting on 3 May 2007that the company's headquarters be moved fromStavanger to Cyprus. The purpose of a relocation, if approved, will be to locate the company in a jurisdiction providing a regime that is more predictable and thus more stable for dealing withissues relating to the company's international activities. It is the opinion of the board that relocating the company's headquarters will stimulate further international growth for the company in its core activities.

ShareholdersThe shareholder register at 31 December 2006 showed that one shareholder owns or controls 17.3 per cent of the company's shares. No othershareholder owns or controls more than 10 per cent of the company's shares. Its ten largest shareholders owned all together 53.2 per cent ofthe shares, with the remaining held by just over 4 000 investors. The foreign stake was 70.1 per cent at year-end.

On 22 December 2006 the company's general meeting voted to split the shares five-for-one, so that one old share in Prosafe with a nominalvalue of NOK 10 yielded five new shares in Prosafewith a nominal value of NOK 2. The new number of shares in Prosafe following the share split is 229 936 790.

Proposed dividendProsafe's shareholders are to receive a competitivereturn on their shares through a combination ofshare price appreciation and a direct return in the

Directors´ report

form of dividends. The level of dividend is to reflectthe underlying financial performance of the company, while taking into account opportunitiesfor further value creation though profitable investment. Prosafe's aim is for 30-50 per cent ofthe company's annual profit to be returned to thecompany's owners in the form of a dividend.

The board of directors of Prosafe will propose to the annual general meeting on 3 May 2007 that a dividend of NOK 1.25 per share be paid for fiscal2006.

At 31 December 2006 Prosafe had distributableequity of NOK 2 527 million. The parent companyshowed a net profit of NOK 1 068.8 million for2006, which the board proposes to allocate as follows (in NOK million):

Dividend 287.3Transferred to equity 781.5Total 1 068.8

Oslo, 28 February 2007Board of Directors of Prosafe SE

Reidar Lund Christian Brinch

Ronny Johan Langeland Anne Grethe Dalane

Elin Nicolaisen

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President of Transocean ASA from 1985-97 and chief executive officer of Prosafe from 1997-99. Holds a numberof directorships in offshore-related enterprises. Mr Lundhas been chairman since 1999.

Reidar LundChairBorn: 1941Due for re-election: 2007

Own consultancy business. Previous appointments includechief executive officer of Helikopter Service and deputyCEO of ABB Norge. Holds various directorships in listedcompanies. Mr Brinch has been a director since 1997.

Christian Brinch Deputy chairBorn: 1946Due for re-election: 2008

Runs his own investment and consultancy company.Previous appointments include vice president for investment at Storebrand and Avanse Forvaltning. Holdsvarious directorships in listed companies. Mr Langelandhas been a director since 2002.

Ronny Johan Langeland Born: 1962Due for re-election: 2008

Chief personnel officer at Yara International. Previouslyheld various positions in the Hydro group, most recently asvice president, human resources, for Hydro Oil & Energy.Ms Dalane has been a director since 2004.

Anne Grethe Dalane Born: 1960Due for re-election: 2007

Senior advisor at Aibel. Ms Nicolaisen has broad managerialexperience from offshore projects within Vetco Aibel and ABB Offshore Systems, and has previously held the position as manager for the Structural Department in ABB OffshoreSystems. Ms Nicolaisen has been a director since 2006.

Elin Nicolaisen Born: 1962Due for re-election: 2008

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Market capitalisation of more than USD 3 billion


23


Prosafe's system of corporate governance is basedon its vision and strategy. The business of thegroup is organised on the basis of a simple, clearand efficient model with a clear segregation of responsibilities and measurable corporate synergies in finance and insurance.

In combination with a broadly-based board of directors, a constructive mode of working in relation to the company's administration and precise reporting, the basis has been laid for efficient management, equal treatment of all shareholder interests, and a controlled and profitable development of the company.

NORWEGIAN CODE OF PRACTICE Listed on the Oslo Stock Exchange, Prosafe is subject to Norwegian company legislation concerning accounting, the stock market and securities trading. The company observes theNorwegian Code of practice for corporate governance of 28 November 2006.

Description of corporate governanceProsafe wishes to clarify the roles of shareholders,board and chief executive, and has accordingly chosen to describe its corporate governance in relation to the Norwegian code of practice.

The businessProsafe's articles of association and its declared vision, goals and strategies provide the informationneeded to help to ensure that shareholders cananticipate the scope of its activities.

The object of Prosafe SE is to conduct explorationfor, drilling for and production of petroleum deposits and other natural resources on land orfrom fixed or mobile installations offshore, and toown, lease and operate the equipment deemed to be requisite and desirable in that connection,including mobile drilling rigs and vessels, etc, toprovide related services and consultancy, engineering and fabrication services, and to deliverproducts and services in connection with its ownbusiness or that of others, including participation in

other companies as a shareholder or in anothermanner.

This object is enshrined in article 3 of the company'sarticles of association. The articles can be found onpage 93 in this report and on the group's website atwww.prosafe.com.

Prosafe's vision and strategy are described on page12 of this report.

Equity and dividendsProsafe's book equity ratio at 31 December 2006was 50.8 per cent (2005: 41 per cent). The companyhas a solid financial position which supports itsexpressed strategy and dividend policy.

Prosafe's shareholders will receive a competitivereturn on their shares through a combination ofshare price appreciation and direct return in theform of dividend. Prosafe's aim is that 30-50 percent of the company's annual net profit will bereturned to its owners in the form of a dividend. In 2006 the company paid an ordinary dividend ofNOK 5.50 per share for fiscal 2005 as well as a special dividend of NOK 20 per share. Following the 1:5 split of the share effective 27 December2006, the board will propose to the company'sgeneral meeting that a dividend of NOK 1.25 per share be paid for fiscal 2006.

The annual general meeting of 3 May 2006 authorised the board of directors to increase theshare capital of Prosafe SE by a maximum of NOK34 116 880 by issuing up to 3 411 688 new shareswith a nominal value of NOK 10. A total of 2 054 638 shares were issued in connection withthe acquisition of Petrojarl shares in August 2006.

Pursuant to section 9, sub-section 4 of theNorwegian Public Limited Company Act, the annualgeneral meeting of 3 May 2006 authorised theboard of directors to acquire up to 10 per cent ofthe company's own shares. This authority allowsthe board to buy shares up to a total nominal valueof NOK 341 168 850. The board is free to decide on

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purchase methods and sales of the company's ownshares. After the 1:5 share split, the company willpay a minimum of NOK 2 (nominal value) and amaximum of NOK 90 per share acquired under thisauthorisation, which is effective for 12 monthsfrom 3 May 2006.

In connection with the acquisition of ConsafeOffshore the share capital was increased by NOK 98 158 350.

Equal treatment of shareholdersProsafe has one class of shares. The articles of association place no restrictions on voting rights. All the shares have equal rights.

The board's right to acquire the company's ownshares is conditional on such purchases being madein the market.

Transactions with close associatesNo transactions took place in 2006 between thecompany and its shareholders, directors, senior officers or the close associates of any of these.

Prosafe has rules which ensure that directors andsenior officers report to the board if they have a significant interest, directly or indirectly, in anyagreement concluded by the company.

Freely negotiable sharesAll Prosafe's shares are freely negotiable. Its articlesof association place no restrictions on negotiability.

General meetingThe general meeting secures the participation of shareholders in the company's highest decision-making body. The company's articles of

association are adopted by the general meeting. Allshareholders are entitled to submit matters forinclusion on the agenda of a general meeting, aswell as to attend, speak at and vote at the meeting.

The AGM must be held by 30 June every year. In2007 it is scheduled for 3 May. Written notice of the meeting is sent to all shareholders by no laterthan two weeks before the meeting is due to beheld. Weight is given to including all requisite information in the supporting documents relatingto items on the agenda so that shareholders cantake a position on all matters to be discussed.

Shareholders wishing to attend the general meeting must notify the company of this intentionbefore the deadline stipulated in the notice. As theboard wishes to facilitate the attendance of asmany shareholders as possible, it aims to set thedeadline for notification of attendance as close aspossible to the meeting date. Shareholders who areunable to attend are encouraged to appoint aproxy. From 2007, Prosafe will make it possible toappoint a proxy for each issue on the agenda.

Historically, the chair, the auditor and at least onemember of the election committee have been present at the general meeting. Of senior officers, at least the chief executive officer and thechief financial officer have attended. Prosafe wishesto facilitate a dialogue with shareholders at the general meeting, and will therefore encourage directors to attend.

The agenda is determined by the board, with themain items as specified in article 6 of the articles ofassociation. The meeting is opened by the chairmanof the board, and a chairman for the meeting is


25

then elected. The minutes of the general meetingwill be published as a stock exchange announce-ment and posted to the company's website.

Election committeePursuant to article 5 of its articles of association,Prosafe has an election committee comprising threemembers and one alternate, with one memberappointed by the board of directors and the othertwo members plus the alternate elected by thegeneral meeting, all to serve for a period of twoyears. When directors elected by the shareholdersare to be elected, the election committee will meetand submit its recommendations to the generalmeeting. As far as possible, the election committee's recommendations will be sent to shareholders together with the notice of the general meeting. Prosafe will give notice on its website that shareholders are encouraged to suggest names of potential candidates for theboard of directors and the election committee.

The committee that was elected by the AGM of 3 May 2005 comprises:

- Hans Thrane Nielsen, deputy chief executive, Storebrand Kapitalforvaltning

- Jarl Ulvin, vice president for investment, Odin Forvaltning AS

- Christian Brinch, deputy chairman of the Board, Prosafe SE

- Alternate: Truls Evensen, senior fund manager, Storebrand Kapitalforvaltning

In January 2007, Jarl Ulvin gave notice of resignationfrom the election committee. Truls Evensen steppedin as alternate. A new election committee will beelected at the AGM in May 2007. The election committee will ensure a proper rotation of members and alternate.

In addition to an appropriate combination of expertise and experience, when nominating newdirectors the election committee will attach weightto the guidelines issued by Norway's minister oftrade and industry for increasing the proportion of women directors in Norwegian companies. Thepresentation of the board on page 21 indicateswhich directors are up for election at the AGM inMay 2007. The election committee also

recommends the fees to be paid to directors andmembers of the election committee.

The annual general meeting is responsible for electing the chairman of the election committeeand for approving the committee's remuneration.

Remuneration paid to the members of the electioncommittee is specified in note 8 to the consolidatedaccounts.

Composition and independence of the boardThe board of Prosafe SE comprises five shareholder-elected directors. Continuity on the board is ensured by staggering the election of directors andby providing newly-elected directors with a thoroughbriefing on the company's history, business, statusand challenges. The board attaches weight to avoiding conflicts of interest between directors,senior officers, their close associates and externalplayers with whom the company collaborates.

The board also seeks to ensure that directors andsenior officers possess expertise, both broad-basedand in-depth, relevant to the business pursued and to the different market segments served nationally and internationally. Directors are electedfor two-year terms.

The chairman of the board was until 1999 presidentof Prosafe SE and receives a pension from the company. Directors are otherwise independent ofthe company and its management.

Work of the boardThe board of Prosafe has overall responsibility formanagement of the company and for supervisingits day-to-day administration and operations.

The company's operations and strategic directionare regularly reviewed with the help of periodicboard meetings and annual strategy and budgetaryprocesses, supplemented by ongoing strategic discussions and monthly reporting of all significantmanagement parameters and other factors. Inparallel, a constructive on-going dialogue is pursued between board and management. Theboard is also responsible for reaching decisionswhich form the basis for improving and executinginvestments and structural measures.

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Scheduled board meetings are as a minimum heldeight to 12 times a year, but the work schedule isflexible and otherwise adaptable to the need toconsider relevant operational and strategic circumstances. The board has adopted rules of procedure for itself and management, with particular emphasis on a clear internal segregation of responsibilities and duties.

The board has drawn up separate instructions formanagement. A job description for the chief executive officer specifies his duties, authority andresponsibilities in relation to the rules governingthe business. The chief executive officer has a particular responsibility for ensuring that the boardreceives precise, relevant and timely informationwhich is sufficient for the board to be able to discharge its duties.

Prosafe does not have a separate internal auditfunction. Proper internal control is ensured throughvarious forms of segregation of duties, guidelinesand approval procedures. The company's internalfinancial transactions are subject to special controlsystems and routines. Financial risk is managed bythe group's central finance function. Monthly financial reports are received by the board.

The company has clear rules on in-house communication, and has clearly defined which persons are authorised to speak to the externalmarket on its behalf concerning various issues.

The chairman has a particular responsibility forensuring that the board's work is well organisedand efficiently conducted. The chairman of theboard of Prosafe SE encourages open and constructive debate by the board. The board haselected a deputy chairman who can act when thechairman is unable to lead its work.

The board has assessed the use of board committees. An election committee is specified inthe group's articles of association. Further, in 2006 a compensation committee was established to prepare proposals related to the remuneration ofsenior officers. The compensation committee con-sists of two directors: chairman Reidar Lund andboard member Anne Grethe Dalane. The board hasnot otherwise found it appropriate to appoint

committees. This is primarily because all the directors are regarded as independent, and thechief executive officer is not a director. The board is accordingly unaffected by problems relating toindependence, which are often used as an argument for appointing board committees.

The board undertakes a yearly self-evaluation of itsworking methods, composition and the way thedirectors function both individually and collectivelyin relation to the goals set for their work. In thiscontext, the board also assesses itself in relation tocorporate governance. The assessment is madeavailable to the election committee.

Risk management and internal controlProsafe's conduct and development of its businessare subject to several categories of risk. The strategic, operational, financial, insurance and project related risk and sensitivities of the business,and the associated internal control measures, aredescribed in more detail in the chapter on riskmanagement and sensitivities on page 43 in thisannual report.

In 2006 Prosafe established a corporate ethics committee which will maintain and further developProsafe's code of conduct. Concerns about possiblebreaches of the code can be reported to the committee by ordinary mail or e-mail([email protected]) on a confidential basis. The committee will ensure that alleged breachesare investigated thoroughly and fairly and reportedto the board of directors.

Remuneration of the boardThe AGM determines directors' fees. Remunerationof the board reflects its responsibilities, expertise,commitment of time and the complexity ofProsafe's activities. Directors' fees are not related tothe company's performance, and no options aregiven to directors.

Remuneration to the board for 2006 totalled USD 247 000, which breaks down as USD 70 000 for thechairman, USD 51 000 for the deputy chairman andUSD 42 000 each for the other directors. The chair-man is a former chief executive officer of Prosafe SEand also receives a pension from the company, seenote 8 to the consolidated accounts.


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Remuneration of senior officersThe terms of employment of the president and CEOare determined by the board of directors, whichconducts a detailed annual assessment of his salaryand other remuneration.

Prosafe aims to provide a competitive total packagefor senior officers. By and large, the basis for com-parison is the practice followed by other companies involved in the oil and gas sector in thegeographic areas where Prosafe pursues its operations. The total remuneration package for thecorporate management team and other senior officers comprises three principal elements - basepay, variable pay and other benefits, including company car, pension and insurance schemes.Further, the seven primary insiders of the company,i.e. corporate management and two senior officers of Prosafe SE are granted synthetic shareoptions.

Introduced in 2003, the company's bonus schemecovers 20 employees. The size of bonuses dependson achieving defined results for health, safety andthe environment, earnings and meeting strategictargets. The total bonus payment based on targetsreached in 2006 is calculated to be USD 0.6 million, including payroll taxes. In addition, thecompany matches bonus payments in the ratio of 1:1 with three years' delay as a long-term incentive to secure continuity among senior officers.

The company's share option programme, whichcommenced in 2006, was approved by the AGM on3 May 2006. For further details of this scheme, seenote 8 to the consolidated accounts.

Remuneration paid to corporate management isspecified in note 8 to the consolidated accounts.

Information and communicationProsafe SE presents preliminary annual accounts inearly February. Complete accounts, the directors'report and the annual report are sent to share-holders and other stakeholders in April. Beyond this,Prosafe presents its interim accounts on a quarterlybasis. Its financial calendar is published on the company's website at www.prosafe.com and in theannual report.

Open investor presentations are held in connectionwith the reporting of annual and interim results forProsafe SE. The chief executive officer and chieffinancial officer use these occasions to review theresults and comment on operations, markets andprospects. These presentations can also be accessedon Prosafe's website.

An ongoing dialogue is otherwise maintained with,and presentations made to, analysts and investors.In order to ensure equal treatment of its share-holders, one of Prosafe's aims is to make sure at all times that the stock market is in possession ofcorrect, clear and timely information about thecompany's operations and condition. The companygives great weight to treating all analysts equally.Prosafe was awarded the Oslo Stock Exchange'sInformation Symbol and English Symbol in October2004.

Take-oversProsafe SE has no defence mechanisms againsttake-over bids in its articles of association, and hasnot implemented other measures which limit theopportunity to acquire shares in the company.

If an offer is made for the company's shares,Prosafe's board of directors will issue a statementevaluating the offer and making a recommendationas to whether shareholders should or should notaccept the offer.

AuditorErnst & Young in Stavanger has been the company's auditor since 1997. The auditor alwaysattends the meetings of the board of directorswhich consider the annual accounts. To ensurecontinued independence, partner JosteinJohannessen of Ernst & Young in Stavanger stepped

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down as the company's auditor with effect from2006 and was replaced by partner Nicolai Hommeat Ernst & Young. Auditor's fees expensed in 2006total USD 170 000. Consultancy fees paid to thecompany's elected auditor in 2006 were expensedat USD 11 000 on a consolidated basis. These feesrelate to accounting and tax-related issues.

BUSINESS MODEL AND MANAGEMENTProsafe has a simple and comprehensible management model, which lays the foundation for a controlled and profitable development of thecompany. The main elements in this managementmodel are:

- a clear and consistent vision and mission

- a clearly defined strategic direction and objective, tested through annual strategy and budgetary processes

- a corporate culture based on common core values which provide the basis for behavioural norms and collaboration

- a clear organisational and decision-making model with effective systems based on dialogue, monthly reporting and reviews of the divisions once a quarter

- close contact between top management and boards in subsidiaries, as the president and CEO is the chairman of the main subsidiary boards

- clear corporate requirements, expressed in corporate procedures, which provide guidelines for management systems, operation, development and internal control in all the divisions

- organisational development on divisional level with the focus on recruiting and developing expertise as well as plans for in-house management development and continuity

- clear goals for equal employment and develop-ment opportunities, regardless of gender, age, culture and religion

Corporate proceduresThe parent company has established clear corporate management and governance procedures. Among their other duties, the managements and boards of subsidiaries areresponsible for ensuring that subsidiaries observethese procedures. Annual strategy plans are prepared, which are approved and incorporated inthe group's overall strategy document.

The boards and managements of the subsidiariesare responsible for ensuring that the business is pursued in accordance with approved strategies,targets and financial requirements. Parent companyemployees ensure that economies of scale are achieved within financing and insurance, and thatbest practice is applied across companies in theseareas.

The following corporate procedures include, but arenot limited to, requirements related to:- accounting policies and reporting- insider trading- financing and liquidity - insurance- design manual- risk management - business ethics

Core valuesProsafe's core values guide the conduct of its overallbusiness and the behaviour of each employee at alltimes. They will thereby fortify and protect the company's reputation which, in addition to HSE performance, ethics and high standards of operation, is a fundamental value driver forProsafe's future development opportunities andsuccess.

Nobody at Prosafe must compromise on the corevalues for short-term gain. These values are animportant part of the foundation for the company'sexistence. They are not subject to annual negotiation and revision, but set in stone.

Prosafe's business activities must be conducted in a professional manner, so that its customers, shareholders and other stakeholders can be


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confident that the company's core values underpineverything the company does.

Prosafe's website provides more information forunderstanding the core values in a broad perspective. Both divisions have established division-specific behavioural norms under theumbrella of the group's core values.

Business ethicsThe corporate code of conduct covers the followingmain elements:

- respect for human rights- conflicts of interest- confidentiality and protection of assets- insider trading- bribery, corruption and breaches of anti-trust law - use of IT systems.

Compliance with the standards for business ethicsis essential, and every employee is responsible foracting in accordance with these principles. They arereadily accessible, including on the company's website. Managers have a special responsibility for communicating and ensuring implementation of the code of conduct.

Advisors and others who gain access to inside information on the company must sign a declaration of confidentiality, and accept an insiderposition if the information is not known to the market. The company maintains lists of all employees, advisors and others with access to inside information in accordance with the requirements of the Oslo Stock Exchange.

Prosafe's obligations for ensuring sustainable development of the company are described in moredetail in the chapter on society and people on page55 of this annual report.

Share purchase programme for employeesProsafe provides opportunities for each employee to become a shareholder in their own company. In that context, the group's share purchase programme for employees was implemented againin 2006. This was the seventh time that the wholeworkforce has been given the opportunity to buyshares in their own company for up to NOK 7 500 at a 20 per cent discount.

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23 modern, highquality vessels

FPSO/FSO

FPSO from Q2 2007

Accommodation/service rig

Office

HOUSTON

BRAZIL

ABERDEEN

STAVANGER

GULF OFMEXICO EGYPT

NIGERIA

GABONANGOLA

SINGAPORE

NEW ZEALAND

INDIA

INDONESIA

IVORYCOAST

NORTH SEA

SAKHALIN, RUSSIA

AUSTRALIA

Business divisions

31

Business divisions

Prosafe is a leading owner and operator of floatingproduction, storage and offloading vessels (FPSOs).It currently operates a fleet of six FPSO/FSO unitsoffshore west Africa and Asia, and had further twovessels undergoing conversion to FPSOs during2006.

In addition, two conversion contracts were securedin 2006 for conversion of tankers to FPSOs through2007/08 with delivery late in 2008. The divisionalhead office, as well as engineering, project management and operations, are located inSingapore.

The core business of Floating Production is thedesign, engineering, conversion and operation ofFPSO/FSO vessels. Three FPSOs are owned and operated by the division: FPSO Espoir Ivoirien, AboFPSO and FPSO Petróleo Nautipa (owned 50 per centby Prosafe). Further, Prosafe has the operations contract on the FPSO Al Zaafarana. In addition, twoFSOs: FSO Endeavor and FSO Madura Jaya (owned50 per cent by Prosafe) are operated by the division.These vessels operate off Côte d'Ivoire, Nigeria,Gabon, Egypt, India and Indonesia. All six units havebeen converted to FPSOs/FSOs by Prosafe.

In the fourth quarter of 2005, the company begantwo FPSO conversions. The VLCC M/T Apollo wasused as a basis for conversion into the FPSO Polvo,which is to operate for Devon Energy on the BM-C-8field offshore Brazil. During 2006 the vessel wasconverted at Keppel Shipyard in Singapore, and atyear-end the vessel was nearing completion. The

vessel will sail away in the first quarter of 2007.First oil is expected in the second quarter of 2007.In parallel, the Suezmax M/T Ionikos was convertedto the FPSO Umuroa, and will also sail to the field inthe first quarter of 2007. The FPSO Umuroa isexpected to receive first oil in the second quarter of2007 at the Tui field in the Taranaki basin offshoreNew Zealand. Both these FPSOs were designed andengineered in-house and incorporate Prosafe-designed internal turret moorings and swivels.

During the year Prosafe actively pursued new project opportunities, and in the fourth quarter two new awards were announced. The first was theaward of a letter of intent for an undisclosed customer. The conversion is to be based on theVLCC M/T Europe. The firm contract period is sevenyears, with agreed option periods taking the contract to a maximum of 15 years. The secondaward was for the large gas/condensate FPSOCicade de São Mateus for Petrobras, which will operate in the Espirito Santos basin offshore Brazil.The contract has a firm period of nine years andoption periods of up to six years. Prosafe will usethe VLCC M/T Navarin for the project.

Prosafe also acquired the vessel M/T Kudam inOctober. The vessel has a storage capacity ofapprox. 709 000 barrels, and is a suitable conversion candidate for a number of FPSO projects,particularly in Australasia.

StrategyThe Floating Production division aims to be the leading owner of FPSOs for charter and operationworldwide. It will be the best over time in terms ofsafe, efficient and profitable operation.

Priority geographical areas for the division are westAfrica, Australasia and Brazil. At the same time, ithas ambitions of creating value in the long termthrough the continued development and sale oftechnology developed in-house.

The Prosafe group comprises a parent company andtwo divisions: Floating Production, a leading ownerand operator of FPSOs and FSOs, and OffshoreSupport Services, the world’s leading owner andoperator of semi-submersible accommodation/ service rigs. The business divisions are representedin the world’s largest offshore oil and gas provinces.

Floating Production

32

Activity in 2006During the year the onshore organisation grew significantly in size. Following the award of thePolvo and Umuroa contracts, two full project teamswere set up in Singapore. In addition, more resources were added to continue the developmentof in-house technology and for the purpose of conducting engineering studies and pursuing newprojects. At the end of the year, the onshore headcount was approaching 350 persons. The successful expansion of the organisation has prepared the division for the execution of the tworecent contract awards, and the subsequent startup of their operations in new countries, whilst alsoensuring capacity for multiple projects in 2007.There is also an ongoing engineering requirementfor customer-requested upgrades to the existingfleet.

Abo FPSO began an eight-year charter with NigerianAgip Exploration in Nigeria in April 2003. This vesselwas in operation throughout 2006, achieving highoperational regularity and good health, safety andenvironmental results.

FPSO Espoir Ivoirien produced throughout 2006from the Espoir field off Côte d'Ivoire for CanadianNatural Resources. Following the original conversion, the vessel was upgraded in 2005 toaccommodate the tie-in of the West Espoir wellhead platform. This upgrade involved expandedprocessing capacity, increased water injection andadditional riser slots. The tie-in of the West Espoirwellhead platform confirms the basis for long-termemployment of the FPSO on the field.

FPSO Petróleo Nautipa is chartered to Vaalco on theEtame field off Gabon. This charter originally ran toSeptember 2007. In April 2005, it was renegotiatedand extended to September 2012, with an optionfor the customer to cancel in September 2011.Production from the field has been steady, and thenearby Avouma field was successfully tied back tothe FPSO in the fourth quarter of 2006.

FSO Endeavor was under charter throughout theyear to Aban Loyd Chiles Offshore on the PY-3 fieldoffshore India. The charter is firm until July 2007,ensuring that the vessel will operate on the field for an unbroken period of at least ten years. This is

more than three times longer than the original firmcharter.

FSO Madura Jaya has been under charter to KodecoEnergy since January 2003. This assignment wasrenegotiated in April 2005 and extended for fiveyears until May 2010.

The operation of the FPSO fleet was very consistentwith continuous high uptime, and operation regula-rity stood at 99.9 per cent. With only one exception,all of the vessels operated with less than eighthours of accumulated downtime for the whole year.

Floating Production generated operating revenuesof USD 92.6 million (2005: USD 108.3 million), whileoperating profit came to USD 37.8 million (2005:USD 37.9 million).

The charters for FPSO Espoir Ivoirien, Abo FPSO, FPSOPetróleo Nautipa and the FPSO Polvo give the customer an option to purchase these vessels atone or more points in time during the firm charterterm. The value of the purchase option at any giventime will secure the net present value of the remaining charter period, including the residualvalue of the vessel, and will accordingly also exceedthe book value of the ship at all times.

Markets and outlookThe demand for new FPSO conversions increased in 2005 after modest growth in the previous years.In 2006 the market activity gathered furthermomentum, and an all-time high tendering activitywas seen during the second half of the year. Theawards late 2006 confirm Prosafe's position amongthe top contractors in the FPSO industry. The company showed strong organic growth with fourFPSO projects awarded within a 15-month period,and a firm long-term revenue stream has beensecured.

Business divisions

33

Floating Production has long experience of converting and operating both FSOs and FPSOs. Thefirst FSO conversion was carried out in 1985, withthe first FPSO conversion completed in 1994.Including the two new FPSO contracts, the company has carried out a total of 12 FPSO conversions or significant upgrades, and has converted six FSOs.

Prosafe has developed efficient solutions over along period for use in the FPSO industry, includingturret/swivel technology which permits mooring inboth shallow and deep water with multiple risercapacity. The most recent development is a disconnectable turret for use in harsh environments. To date, six of the conversion projects have utilised the company designed andengineered internal turret/swivel solution.

The combination of long operational experienceand efficient technical solutions helps to giveProsafe competitive advantages in the FPSO market.Prosafe targets the higher end of the FPSO marketfor larger and more complex units, and believes thisis where the organisation will be most effective ingenerating value for customers and shareholders.

Letter of intent Project phase Contract Option

Contract overview

Letter of intent

FPSO Brazil

FPSO Umuroa

FPSO Polvo

Abo FPSO

FPSO Espoir Ivoirien

FPSOPetróleo Nautipa

FPSO Al Zaafarana

FSO Endeavor

FSO Madura Jaya

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

>2024

>2023PETROBRAS, Brazil

NZOP, New Zealand

DEVON, Brazil >2022

AGIP, Nigeria

>2022CANADIAN NATURAL RESOURCES, Ivory Coast

<1998, Angola VAALCO, Gabon 1)

<1994 ZAAFARANA OIL COMPANY, Gulf of Suez

<1997 ABAN LOYD CHILES OFFSHORE, India

<2000 KODECO ENERGY, Indonesia

25.4%operating revenues

25.2%EBITDA

45.2

2003

EBITDAUSD million

At the start of 2007 the outlook for the market ispositive. A high number of field developments arebeing planned, and the number of projects suitablefor FPSOs continues to climb. The current levels ofbidding and oil company interest in Prosafe's solutions, as well as the activity level in the seismicand drilling sectors, indicate that the high demandfor FPSOs experienced in 2006 will continue.

Floating Production

Offshore Support Services

51.8

2004

54.3

2005

53.5

2006

1) The contract runs until September 2012, but the client may terminate the contract with effect from September 2011

Key figures Financial figures in USD million

2006 2005 2004 2003Operating revenues 92.6 108.3 89.3 83.0EBITDA 53.5 54.3 51.8 45.2EBIT 37.8 37.9 31.9 15.1Assets 774.0 418.2 372.7 390.0Investments 352.5 33.0 1.0 1.7

34

FPSO UMUROAConversion/yard: FPSO 2007/Keppel (Singapore)Built/yard: 1981, Mitsubishi Heavy

Industries Ltd Nagasaki (Japan)Former names: M/T Ionikos, M/T Kyokuwa MaruLength/breadth: 241m/46mDeadweight tonnes: 119 990Storage capacity: 773 245 bblsProduction capacity: 120 000 bfpd, 50 000 bopd,

118 000 bwpdGas compression capacity: 25 mmscfdWater injection capacity: -Ownership: 100%

ABO FPSOConversion/yard: FPSO 2002/Keppel (Singapore)Built/yard: 1976, Mitsubishi (Japan)Former names: M/T Grey WarriorLength/breadth: 280m/54mDeadweight tonnes: 155 612Storage capacity: 930 000 bblsProduction capacity: 44 000 bpdGas compression capacity: 44 mmscfdWater injection capacity: 30 000 bwpdOwnership: 100%

FPSO ESPOIR IVOIRIENConversion/yard: FPSO 2001/Keppel (Singapore)Built/yard: 1975, Mitsubishi (Japan)Former names: M/T White SeaLength/breadth: 280m/54mDeadweight tonnes: 151 000Storage capacity: 1 100 000 bblsProduction capacity: 50 000 bpdGas compression capacity: 60 mmscfdWater injection capacity: 120 000 bwpdOwnership: 100%

FPSO PETRÓLEO NAUTIPAConversion/yard: FPSO 1998, 2002/Keppel

(Singapore)Built/yard: 1975, Nippon Kokan (Japan)Former names: M/T Knock BuieLength/breadth: 266m/44mDeadweight tonnes: 141 330Storage capacity: 1 080 000 bblsProduction capacity: 30 000 bpdGas compression capacity: 3 mmscfdOwnership: 50%

FPSO POLVOConversion/yard: FPSO 2007/Keppel (Singapore)Built/yard: 1981, Ishikawajima - Harima (Japan)Former names: M/T Apollo, M/T Nissho MaruLength/breadth: 340.6m/54.5mDeadweight tonnes: 257 865Storage capacity: 1 600 000 bblsProduction capacity: 150 000 bfpd, 90 000 bopd,

135 000 bwpdGas compression capacity: 7.5 mmscfdWater injection capacity: 100 000 bwpdOwnership: 100%

Fleet overview - Floating Production

FSO ENDEAVORConversion/yard: FSO 1997/Keppel (Singapore)Built/yard: 1971, Bethlehem (USA)Former names: S/S Cove EndeavorLength/breadth: 240m/32mDeadweight tonnes: 69 770Storage capacity: 550 000 bblsOwnership: 100%

Business divisions

35

FSO MADURA JAYAConversion/yard: FSO 2002/Sembawang (Singapore)Built/yard: 1981, Uddevallavarvet (Sweden)Former names: M/T Paris IILength/breadth: 228m/42mDeadweight tonnes: 89 000Storage capacity: 633 000 bblsOwnership: 50%

FPSO AL ZAAFARANAConversion/yard: FSO 1991, FPSO 1994/Jurong

(Singapore)Built/yard: 1969, Kawasaki Dockyard,

Kobe (Japan)Former names: S/S Kavo LongosLength/breadth: 260m/40mDeadweight tonnes: 131 878Storage capacity: 800 000 bblsProduction capacity: 35 000 bpdOwnership: 0% (operation contract only)

M/T EUROPE Conversion/yard: FPSO 2008/Keppel (Singapore)Built/yard: 1988, Hyundai Heavy Industries

(South Korea)Former names: Samco Europe, Fina EuropeLength/breadth: 322m/56mDeadweight tonnes: 270 551Storage capacity: 1 400 000 bblsProduction capacity: 40 000 bopd, 60 000 bfpdGas compression capacity: 0Water injection capacity: 60 000 bwpdOwnership: 100%

M/T NAVARIN / GAS FPSO FOR BRAZILConversion/yard: FPSO 2008/Keppel (Singapore)Built/yard: 1989, Hyundai Heavy Industries

(South Korea)Former names: Maersk NavarinLength/breadth: 322m/56mDeadweight tonnes: 276 736Storage capacity: 700 000 bblsProduction capacity: 4 000 m3/day, 35 000 bopdGas compression capacity: 353 mmscfdWater injection capacity: 5 000 m3/day (32 000 bwpd)Ownership: 100%

M/T KUDAMConversion/yard: TBDBuilt/yard: 1981, Ishikawajima -

Harima (Japan)Former names: Kudamatsu MaruLength/breadth: 244m/41.6mDeadweight tonnes: 101 800Storage capacity: 600 000 bblsOwnership: 100%

36


Prosafe is the world's leading owner and operatorof accommodation/service rigs. The company ownseleven semi-submersibles and one jack-up.Operations in 2006 comprised bareboat charters inthe Gulf of Mexico and time charters in the NorthSea, west Africa, the US Gulf, Australia and offSakhalin Island, Russia. The divisional headquartersare in Singapore.

Accommodation/service rigs have traditionally beenused wherever there is a need for additional accommodation, engineering, construction or storage capacity offshore. Typically, these rigs willbe employed for installing and commissioning newfacilities, upgrading or maintaining existing installations, hooking-up satellite fields to existinginfrastructure, and removing installations. The rigsare positioned alongside the host installation andare connected by means of a telescopic gangway, or personnel can be transported to and from theunit by boat or helicopter. These rigs boast substantial accommodation capacity, with berthsfor 245-812 people, have high quality welfare andcatering facilities, medical services, storage, workshops and offices, deck cranes, and the necessary equipment and systems for ensuring the safety of the personnel living on board.

During 2006 Prosafe acquired the accommodation/service rig company Consafe Offshore AB. Consafeowned three semi-submersibles, Safe Astoria, SafeBristolia and Safe Concordia, and one jack-up, SafeEsbjerg. The first two semi-submersibles and thejack-up had been through significant upgrades andlife extension programs in 2005 and 2006, whilstSafe Concordia was a 2005 new built semi-submersible with dynamic positioning capabilities.The conversion of Safe Bristolia was completed inJune 2006.

The acquisition of these vessels represented a further strengthening of the Prosafe fleet and increased the company's capacity to supply qualityoffshore accommodation services to a growingnumber of customers globally.

Strategy Offshore Support Services' strategy is to maintainits position as the world's leading player in the market for semi-submersible accommodation/service rigs and to maximise rig utilisation and free cash flow at all times.

Activity in 2006The high activity level experienced in the previousyear continued throughout 2006. Safe Scandinaviastarted the year in the US Gulf working with Shellon the Mars restoration project. This contract was amilestone achievement. It was the first contract forProsafe in the US Gulf, and it was the first operationwhere a semi-submersible was moored against atension-leg platform (TLP). The innovative mooringarrangement was a success, and the rig achieved avery high uptime on the gangway connection.Following this contract, Safe Scandinavia returnedto the North Sea where she commenced a shortcontract for BG at Maria in the North Sea, beforebeginning at Britannia Satellites for ConocoPhillips,again in the UK sector of the North Sea.

MSV Regalia has been alongside the Girassol FPSO,which is operated by Total E&P Angola, for all of2006. The rig has provided accommodation facilitiesand assisted in the upgrade of the FPSO and the tie-back of the nearby Rosa field. This project hasbeen extended beyond the original contract periodat the current market dayrates until the end of thethird quarter of 2007.

Business divisions

37

Safe Caledonia started the year on charter for Shellat the Bonga FPSO in Nigeria. Upon completion ofthe project, the rig was mobilised back to the UK in the second quarter and commenced a new assignment for Nexen at the Buzzard field in theearly part of the summer.

Safe Esbjerg was in operation for Mærsk Oil and Gasin the Danish sector of the North Sea throughoutthe year.

Safe Astoria operated in Australian waters for OriginEnergy in the first half of 2006. After completion ofthis contract, the rig was taken out of service tocomplete a five-year special periodic survey. She is currently being marketed for work in several geographic regions.

Safe Bristolia started on contract for Samsung/SEICat the Sakhalin development in Russia in early summer 2006. The contract has firm operationalperiods during the summer and autumn of 2006and 2007, bridged by a funded standby for the2006/07 Russian winter period when the rig wasrelocated to South Korea.

The Prosafe fleet operating in Mexico expanded to six units when Safe Concordia commenced a one-year contract for Pemex in May. The rig willlikely remain in Mexico until the second half of2007, when she will begin operating in the US Gulf for ChevronTexaco on the Tahiti Spar project.The other five units, Safe Britannia, Safe Lancia, SafeRegency, Safe Hibernia and Jasminia were in operation for Pemex in the Gulf of Mexico duringthe whole year.

Operating revenues for Offshore Support Servicestotalled USD 272.6 million (2005: USD 186.7 million), while operating profit came to USD 117.3million (2005: USD 69.6 million). Rig utilisation was92 per cent (2005: 92 per cent). The improvement inoperating profit for 2006 reflects continued high rigutilisation, stronger dayrates and the inclusion ofthe acquired rigs in the second half of the year.

Markets and outlookProsafe currently owns 11 of the world's 16 semi-submersible accommodation/service rigs, includingsix of the nine dynamically positioned units and fiveof seven moored vessels. Prosafe has followed along-term strategy of providing a fleet of flexibleunits with high quality accommodation and servicefacilities.

Over the last five-year period, the Prosafe semi-submersible fleet has grown from seven to 11 unitsand the number of dynamically positioned vesselshas increased from two to six. Prior to 2003 all rigswere positioned either in the North Sea or in theGulf of Mexico. Since then contracts have been exe-cuted in the US Gulf, the Mediterranean, westAfrica, East Timor, Russia and Australia.

During this period, a number of new operatingmodes have also been developed, using dynamicallypositioned rigs alongside moored floating installati-ons and positioning a moored rig alongside a TLP.These technology developments have taken placeagainst a growing trend of new field developmentsmoving into deeper waters and into more demanding locations. The combined effect of this isa gradual increase in demand for accommodation/service rigs in both benign and harsh environments.

38

The North Sea outlook continues to provide opportunities with more prospects coming to fruition in the form of firm contracts. This market is characterised by demand related to hook-up ofnew installations, tie-back of subsea-completedwells and maintenance shutdowns. With matureNorth Sea fixed installations, there is a growingneed for extensive maintenance programmes andsubstantial upgrades. This is creating an increaseddemand for accommodation/service units in themedium to long term.

The market in the Gulf of Mexico continues to bestrong. The Mexican state oil company Pemex is the dominant operator in the region. It follows anexpressed strategy which involves a considerableconstruction programme over the next five to tenyears as well as a high need for continuous mainte-nance of the existing fleet of offshore installations.The high projected activity level supports the viewof long-term employment for a large number ofaccommodation/service units in the region.

A utilisation factor of 81 per cent, excluding unexercised options, has been secured for the fleetin 2007. Further market availability relates largelyto Safe Astoria and MSV Regalia in the second halfof the year. The combination of robust demand,higher dayrates and a larger fleet is set to produce a strong improvement in earnings compared to2006.

74.6%operating revenues

74.8%EBITDA


Floating Production

54.7

2003

EBITDAUSD million

Key figures Financial figures in USD million

2006 2005 2004 2003Operating revenues 272.6 186.7 168.8 129.3EBITDA 159.0 100.2 87.2 54.7EBIT 117.3 69.6 56.5 30.8Assets 1 591.6 458.3 427.5 432.2Investments 670.6 15.5 15.6 73.4Fleet utilisation 92% 92% 87% 73%

87.2

2004

100.2

2005

159

2006

Business divisions

39

2004 2005 2006 2007 2008 2009 2010

Safe Astoria

Safe Bristolia

Safe Esbjerg

Safe Caledonia

Safe Scandinavia

MSV Regalia

Safe Concordia

Safe Britannia

Safe Lancia

Safe Regency

Jasminia

Safe Hibernia

Asia

North Sea / West Africa

Gulf of Mexico

Contract Option Mobilisation Yard Standby

Contract overview

87

1997

Rig utilisationPer cent

72

1998

61

1999

84

2000

80

2001

84

2002

73

2003

87

2004

92

2005

92

2006

81

20071)

<2001

<1998

<1997

<1998

<2002

1) at 31 December 2006

40

Fleet overview - Offshore Support Services

JASMINIADesign: GVA 2000Built/yard: 1982, GVA (Sweden)Berths: 535Positioning: MooredThrusters: 2 x 2.4 MW

MSV REGALIADesign: GVA 3000 - enhancedUpgraded: 2003Built/yard: 1985, GVA (Sweden)Berths: 380Positioning: NMD3Thrusters: 6 x 2.64 MW

SAFE HIBERNIADesign: Aker H-3 (modified)Built/yard: 1977, Rauma Repola (Finland)Berths: 500Positioning: MooredThrusters: 2 x 3 300 HP props (aft)

SAFE REGENCYDesign: PacesetterUpgraded: 2003Built/yard: 1982, FELS (Singapore)Berths: 771Positioning: DP1Thrusters: 4 x 2.4 MW

SAFE ASTORIADesign: Earl & Wright Sedco 600Upgraded: 2005Built/yard: 1983, Promet Builder (Singapore)Berths: 245Positioning: Moored

SAFE BRISTOLIADesign: Earl & Wright Sedco 600Upgraded: 2006Built/yard: 1983, Promet Builder (Singapore)Berths: 612Positioning: Moored

Business divisions

41

SAFE BRITANNIADesign: Pacesetter - enhancedUpgraded: 1987/2003Built/yard: 1980, GVA (Sweden)Berths: 812Positioning: DP2/TAMSThrusters: 4 x 2.4 MW + 2 x 1.5 MW

SAFE CALEDONIADesign: PacesetterUpgraded: 2004Built/yard: 1982, GVA/Kockums (Sweden)Berths: 550Positioning: DP2/TAMSThrusters: 4 x 2.4 MW

SAFE CONCORDIADesign: Deepwater Technology GroupBuilt/yard: 2005 Keppel FELS (Singapore)Berths: 390Positioning: DP2Thrusters: 4 x 2.5 MW

SAFE ESBJERGDesign: Type 82 Marathon LeTourneauUpgraded: 2005Built/yard: 1975, Marathon LeTourneau (USA)Berths: 139Positioning: Moored

SAFE LANCIADesign: GVA 2000Upgraded: 2003Built/yard: 1984, GVA/Kockums (Sweden)Berths: 600Positioning: DP2Thrusters: 4 x 2.4 MW

SAFE SCANDINAVIADesign: Aker H-3.2EUpgraded: 2003Built/yard: 1984, Aker Verdal (Norway)Berths: 583Positioning: Moored

207 700 000207 700 000207 700 000207 700 000207 700 000

207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 700 000207 70020

207 700 207 700 000

USD 207.7 million EBITDA

42


43

FINANCIAL INFORMATION

Risk management and sensitivitiesProsafe has activities on several continents and invarious segments of the international oil and gasindustry. The company's conduct and developmentof its business are subject to several categories ofrisk.

An overall understanding and management of thisexposure is important in ensuring stable value creation for the shareholders.

Prosafe currently assesses the group's total risk infour main categories: strategic, operational, financial and insurance-related. These are integra-ted into a tool used to assess individual project riskand for continuous monitoring of the individualdivisions.

STRATEGIC RISK Unlike operational, financial and insurance-relatedrisk, where the company seeks as far as possible toreduce its exposure, strategic risk is the only category in which the company actively wishes tobear risk in order to generate a return for share-holders. Prosafe will create shareholder value byallocating capital and resources to the commercialopportunities which yield the best return in relationto the risks involved within its specified strategicdirection.

Prosafe's position in the value chainThe bulk of the company's activities are centredaround the production and maintenance phase ofan oil field. Traditionally, this represents the part ofthe value chain which is most robust in relation tooil price variations and associated fluctuations inthe pace of oil company investment anddevelopment.

Prosafe's strategic focus secures the company astable revenue flow combined with growth opportunities in selected niches, even at times ofvolatile oil prices. The company will also seek at alltimes to have a portfolio comprising long, medium-term and short contracts, which confers stabilityand predictability combined with a potential forincreased earnings through market fluctuations

and new growth. Prosafe has operations in all theworld's most important offshore regions, so thatthe company's risk is also substantially diversified ingeographical terms.

Competitive positionThe competitive position, through changes indemand and supply, is the most important factoraffecting the company's results. In Offshore SupportServices, Prosafe competes in a global market foraccommodation/service rigs. The company facescompetition in shallow and calm waters internationally from jack-ups and barges, while itsvessels are technical and safety leaders in harshenvironments. Demand for its rigs has become global, and includes the US Gulf, Africa, Brazil, Asia,Russia and Australia, in addition to the traditionalNorth Sea and Mexican markets.

Demand for accommodation and services has risenin line with an increased pace of development fornew oil discoveries and extended producing lives for existing fields. In markets where competition islower, such as the North Sea, this has led to higherutilisation factors and dayrates. Entry barriers inthis segment are substantial owing to the high costand long delivery time of newbuildings and thelimited availability of rigs which can be converted toaccommodation/service units. These barriers arelikely to be at their highest for the upper end of themarket, with dynamically-positioned rigs whichface demanding weather conditions, while mooredunits in calm waters could be more readily available. Offshore Support Services will create shareholder value by securing the highest possiblecontribution from each rig at all times.

Floating Production operates in an expanding butfragmented industry. The demand for new FPSOconversions increased in 2005 after only a modestgrowth in the previous years. In 2006 the marketactivity gathered further momentum, and an all-time high tendering activity was seen during the second half of the year. Based in part on today'ssubstantial drilling programmes, the companyexpects this high level of activity to persist in

44

coming years. Vessels in demand vary from smallships with a low production capacity to large andcomplex units capable of high production and injection. However, contractors in this market alsodiffer with regard to capital, expertise, geographicalfocus and experience. There has been a trendtowards clear market segmentation on the supplyside. A few selected companies operate in a high-end segment, where technology, engineeringresources, track record and financial strength areprerequisites for being invited to tender for the projects. In addition, there is a market for vesselswith lower complexity and smaller size. The supplyside in this market is more diverse, with a largenumber of smaller contractors. Prosafe is well established in the upper market segment, and willcreate shareholder value by offering innovative andcost-effective vessels fixed on firm charters in combination with safe, stable and cost-effectiveoperation.

Sensitivity: Prosafe's business is based largely onfixed dayrate contracts, with compensation independent of oil prices and production volumes.Dayrates for accommodation/service rigs andFPSO/FSO units are primarily denominated in USD.An increase of USD 10 000 in the dayrate for oneaccommodation/service rig which is operated byProsafe would increase the annual operating profitby USD 2.9 million (1.3 cents per share), assuming80 per cent rig utilisation. Similarly, a ten per centincrease in utilisation for one rig, including savedlay-up costs and assuming an EBITDA contributionof USD 100 000 per day, would increase annualoperating profit by USD 3.7 million (1.6 cents pershare).

The FPSO projects on which Prosafe focuses wouldmainly involve a total capital expenditure of USD150-400 million. Assuming a firm charter period of seven to ten years and an internal rate of returnof 12-15 per cent, a new project worth USD 200 million would increase annual EBITDA by aboutUSD 30-40 million. As an example, the awarded letter of intent disclosed in late 2006 has an investment framework of USD 200-220 million and an anticipated annual EBITDA contribution of USD 35-39 million.

OPERATIONAL RISKProsafe's offshore operations involve risks of injuryto personnel, damage to equipment and accidentaldischarges/emissions to the natural environment.Avoiding harm to personnel and equipment as wellas accidental discharges/emissions represents aclear target. Possible incidents are reported immediately and followed up to limit possible harmand prevent repetition. Prosafe works proactivelyand constructively with customers and suppliers onsetting in-house goals, making continuous improvements to its own routines, and seeking to shape attitudes to protect personnel and equipment from harm and the natural environmentfrom pollution by its own operations and those ofits partners.

In line with industry practice, a contract will normally contain clauses which could give the customer an opportunity for early cancellationunder specified conditions. Providing Prosafe hasnot acted negligently, however, the effect on resultsin such cases can normally be wholly or partly offsetby a financial settlement in the company's favour.

The contracts in the Gulf of Mexico contain a cancellation clause which allows the ultimate customer to cancel the agreement with 30 days'notice without compensation if the Mexican authorities annul financing for the project. Theseclauses reflect the crisis in Mexico during the 1980s,and the company takes the view that a cancellationbased on them is only likely if the Mexican economysuffers another deep and lengthy crisis. Prosafedoes not regard this as a realistic scenario, given the high present and planned levels of activity inthe Gulf of Mexico, the high oil price and the importance of oil production for Mexican economicdevelopment.


45

Geographical distribution of operating revenues

FINANCIAL RISKInterest rate riskProsafe's interest-bearing debt totalled USD 639million at 31 December 2006. Unsecured bondloans accounted for USD 130 million of this totaland bank loans secured by mortgages for USD 509million. The bond debt is divided into three loans, of NOK 89 million running to March 2007, NOK 411 million running until March 2010 and USD 50 million running until March 2012 respectively.Interest on the debt is in principle floating, but hasbeen hedged through the use of interest rate swapagreements and interest rate collars. Prosafe evaluates the proportion of interest-rate hedging inrelation to the repayment profile of its loans, thecompany's portfolio of contracts, cash flow andcash in hand. The proportion hedged will normallylie between 50 and 75 per cent for all loan terms.The average interest cost in 2006 was 5.5 per centas opposed to 4.7 per cent in 2005.

Sensitivity: Assuming an average interest-bearingdebt of USD 800 million and a hedged proportion of 60 per cent, a rise of one percentage point ininterest rates would increase annual interestexpenses by USD 3.2 million before tax.

Currency risk Prosafe has compiled its accounts in USD fromJanuary 2004. In normal operation, the company

will mainly have a currency exposure to GBP, NOKand SGD. Part of the operating expenses in OffshoreSupport Services is denominated in GBP, while revenues are primarily in USD. During certain periods, however, the company will have contractson the UK continental shelf which yield GBP revenues, with a consequent reduction in net currency exposure.

Depending on the country of operation, a small proportion of operating expenses in OffshoreSupport Services could be in NOK. Together withoperating expenses in the parent company, whichare also mainly in NOK, this normally represents an annual amount corresponding to approx. USD 10 million.

Debt and interest expenses in currencies other thanUSD are currency-hedged on a continuous basisagainst the USD, so that this effectively functionsas USD financing. The hedging takes the form ofliquidity reserves and financial instruments.

A portion of the shared operating expenses inFloating Production is in SGD, while the companynormally has no significant revenues in that currency. The bulk of its revenues and expenses is in USD.

Net cash flow in GBP, SGD and NOK normally showsa deficit corresponding to USD 40-60 million perannum, excluding any dividend payments and project capital expenditure. The bulk of the company's net cash flow from operations will becurrency-hedged using forward contracts within a time horizon of 12-18 months. Factors such ascurrency exposure in the balance sheet and tax calculations will also be taken into account to theextent that they are affected by exchange ratechanges.

Both rigs and ships belonging to the company arevalued, traded and financed in USD. Investmentsuch as upgrading and conversion of rigs and shipswill primarily be in USD. To the extent that suchinvestment is denominated in currencies other thanUSD, the cash flow will be hedged with the aid ofcurrency forward contracts.

Africa 41% America 29%Europe 22%Asia and Australia 8%

46

Sensitivity: Assuming a net annual requirement for GBP, SGD and NOK corresponding to USD 60 million, a 10 per cent weakening of the USD againstthe GBP, SGD and NOK will increase operatingexpenses by USD 6 million before the effect of currency-hedging is taken into account.

Liquidity risk Under existing credit agreements, the group isrequired to maintain a minimum liquidity reserve of USD 40 million. Prosafe makes active use of asystem for planning and forecasting the development of its liquidity, and utilises scenarioanalyses to secure stable and sound development.

Oil price risk Since it is largely dictated by oil price trends, thelevel of activity in the oil and gas industry has historically been cyclical. Activity levels at Prosafehave traditionally been relatively robust in relationto oil price fluctuations because the company's operations generally focus on the production andmaintenance phase in an oil field, in combinationwith dayrate charters which can be of long duration. However, the company could be influenced by a persistently low oil price which, over time, might cause field developments to bepostponed and thereby affect demand for newFPSOs or service rigs to carry out installation andhook-up work.

INSURANCE-RELATED RISKThe company primarily aims to cover insurance-related risk as fully as possible through insurancepolicies, to the extent that such cover is availableand reasonably priced.

Prosafe's insurance policies provide cover against

injury to crew, damage to its vessels, loss of revenue, third-party liability - including oil spill,employer's and director's liability - and personalcover for employees relating to accident, death, disability and pension.

Cover under hull and machinery and loss-of-hirepolicies for vessel loss or damage is related to thevessel's estimated market value and the value ofthe individual charter respectively, so that theimpact of a possible loss on results is minimised.Prosafe has also taken out war risks insurance tocover physical damage and liability arising from war and terrorist actions.

PROJECT RISKThe four above-mentioned risk categories are integrated in a tool used to assess project risk. Inaddition, the company carries out a particularassessment of five risk factors when tendering forFPSO/FSO contracts:- conversion risk- country/political risk- the customer's creditworthiness- the field's expected production profile and

reservoir risk- project profitability when residual value

considerations are taken into account.


47

Conversion risk embraces the possibility of costoverruns and delays. The company's history showsthat Prosafe handles such risk well. Managing thistype of risk is a key part of its core competence.Continuous improvement of systems and work processes is important for management of conversion risk. So is a focus on securing continuityin the organisation and in key positions and on maintaining relations with sub-contractors andequipment suppliers. The company's growth ambitions are aligned to the organisation's abilityto ensure a controlled and cost-effective implementation of conversion projects.

Country/political risk involves factors which arerelevant when operating globally. In this context,Prosafe primarily seeks to secure guarantees andpayment in USD to reputable banks in politicallystable countries. Its units also operate fairly far outto sea and would not necessarily be affected by possible internal disturbances in a country.Moreover, the company has established emergencyresponse plans and implements periodic emergencyexercises.

Credit assessment of customers and suppliers ispart of Prosafe's project evaluations and risk analyses. The company attempts as far as possibleto reduce credit risk via parent company or bankguarantees.

The field's expected production profile and reservoirrisk are analysed to assess the long-term require-ment for the vessel on the field. So far, the companyhas only concluded charters based on fixed dayratesfor a firm period, independent of both oil price variations and production volumes. Such chartersalso contain compensation clauses in the event ofearly cancellation, thereby safeguarding Prosafe'sinvestment and expected earnings.

The profitability of a project is assessed on the basisof the residual value of vessel and equipment, thetechnical lifetime of individual components and thelength of the firm contract, as well as option periods and the likelihood that these will be exercised. Assessments are also made of the vessel's direct applicability to other types of fieldand possible requirements for upgrading and modifications in that context.

Generally speaking, all units will be completed to

provide a technical life of up to 20 years. Given thatfirm charters in this industry tend to run for sevento ten years, each unit is thereby built to servepotentially under at least two contracts. A field's producing life will often be extended, allowing goodprofitability to be achieved with a single charter.

Prosafe pursues a conservative depreciation policy,and a large proportion of the investment in a project will always be depreciated over the first firmcharter period. In the event that a charter is extended, the depreciation profile will also be lengthened to reflect the vessel's longer economiclife and thereby lay the basis for good profitability -including those cases where an extension mightinclude a reduction in rates. A conservative depreciation policy will also help to ensure that the company's vessels are competitive for a newproject, even after necessary upgrading/modifications.

Combined with good contracts and a proper maintenance programme, a conservative depreciation profile contributes to the quality ofearnings, a sound balance sheet, and a high degreeof predictability and transparency. Taken together,these factors reduce risk and help to ensure long-term creation of shareholder value.

Special dividend Ordinary dividend

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Prosafe's aim is that 30-50 per cent of the company'sannual profit will be returned to its owners in theform of dividend.

Shareholder information

The principal objective of Prosafe's shareholderpolicy is to provide shareholders with a competitiverisk-adjusted yield on their shares through a combination of share price appreciation and directreturn in the form of dividend.

The level of dividend will reflect the underlyingfinancial progress of the company, while takingaccount of opportunities for further value creationthrough profitable investment. Prosafe's aim is that30-50 per cent of the company's annual profit willbe returned to its owners in the form of dividend.Special dividends were paid for the years from 2002to 2005 because the free cash flow significantlyexceeded the need to invest. Buying back shareswill be considered as an alternative to profitable

new investment, dividend and extraordinary debtservicing. The management's mandate is to createthe best possible basis for active development ofthe company and to manage its assets in such away that its value is as clear as possible at all times.

The board will propose to the annual general meeting on 3 May 2007 that a dividend of NOK 1.25 per share be paid for fiscal 2006, which represents an increase from the ordinary dividendof NOK 1.10 (equivalent to NOK 5.50 before sharesplit) per share for 2006. The company also resolvedon 22 December 2006 to pay a special dividend ofNOK 4 (equivalent to NOK 20 before share split) pershare. This was paid on 18 January 2006.

Equal treatment of shareholdersIn order to ensure equal treatment of its share-holders, one of Prosafe's aims is to make sure thatat all times the stock market is in possession of correct, clear and timely information about thecompany's operations and condition. This is essential for an efficient pricing of the shares andfor confidence in the company. Approaches taken to meet this aim include prompt and comprehensivereporting of the company's interim results, and thedistribution of annual and quarterly reports. Inaddition, information of significance for assessingthe company's underlying value and prospects isreported to the Oslo Stock Exchange and madeavailable via the Hugin financial information serviceat www.huginonline.no as well as on the company'sown website.

2001* 2002* 2003* 2004* 2005* 2006

DividendNOK/Share

* Adjusted for 1:5 share split

4.03.53.02.52.01.51.00.5

0


49

Key share data

Key share data 2006 2005 2004 2003 2002

Number of shareholders 4 051 3 577 3 843 3 556 3 031

Foreign ownership (%) 70.1 68.5 50.1 35.6 43.46

Share price at 31 Dec (NOK) 1) 88.50 57.30 32.80 26.80 18.90

Shares issued at 31 Dec (1 000) 1) 229 937 170 485 170 215 169 790 169 790

Market cap at 31 Dec (NOK million) 20 349 9 769 5 583 4 550 3 209

Turnover (NOK million) 32 880 11 000 5 963 4 602 2 832

Number of transactions 137 737 52 774 21 153 14 781 12 738

Turnover rate (%) 216.7 148.7 113.1 110.2 70.9

1) Figures for 2003, 2004 and 2005 are adjusted for 1:5 share split

0

5 000

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Volume (1 000)

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28.0

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31.0

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31.0

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30.0

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30.1

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31.1

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07

PRSOSEBX

ENERGY

(1 000)

50

Further details, such as the articles of association,contact names, addresses and news about the company, are also available at www.prosafe.com.

Prosafe has been awarded the Oslo Stock Exchange'sInformation Symbol and English Symbol, established to identify companies which work professionally and systematically to make financialinformation readily available to investors and othermarket players, both nationally and internationally.

The company has clearly defined, and will otherwisedefine case-by-case, which persons are authorisedto speak to the external market on its behalf concerning various issues.

A number of Norwegian and foreign stockbrokersprovide analyses of the Prosafe share. It is in thecompany's interests that such analyses are of highquality and based on the facts. For that reason,Prosafe places great weight on ensuring that allanalysts receive accurate, clear and relevant information, and are treated equally regardless of the recommendations they make. A list of analysts who monitor Prosafe can be found atwww.prosafe.com.

Share capitalThe company's share capital totalled NOK 459 873 580 at 31 December 2006, divided between 229 936 790 shares with a nominal valueof NOK 2 each. The average number of outstandingshares in 2006 was 201 282 780. Prosafe's sharesare listed on the Oslo Stock Exchange (OSE) with ticker code PRS.

Prosafe owned 110 160 of its own shares at 31 December, corresponding to 0,048 per cent of the total.

Developments in share price and liquidityProsafe's share price at 31 December 2006 was NOK 88.50, giving the company a market capitalisation of NOK 20.3 billion. That represents a rise of 55 per cent during 2006 before adjustmentfor dividend. Adjusted for a total dividend of NOK 5.1 per share, the increase was 63 per cent. By comparison, the Oslo Stock Exchange's bench-mark and energy indices rose by 32.4 and 31.6 percent respectively over the same period. The graphon page 49 shows the performance of Prosafe'sshare price from 31 December 2005 to 31 January2007, and the concurrent performance of the OsloStock Exchange's benchmark and energy indicesover the same period.

On average, 1.74 million shares were traded per trading day in 2006 (after the 1:5 share split). This represents a 74 per cent increase in volume fromthe year before. Adjusted for an average tradingprice of NOK 75.42 as against NOK 43.42 in 2005,the value of daily turnover rose by 204 per cent toaround NOK 131 million.

Shareholder compositionAt 31 December 2006, Prosafe had 4 051 registeredshareholders. Norwegians owned 29.9 per cent ofthe shares, while 70.1 per cent were registered toforeign owners.


51

Shareholder composition at 31 Dec 2006

Name No of shares PercentageBW Euroholdings Ltd 39 675 905 17.26Folketrygdfondet 14 845 385 6.45Euroclear Bank (nominee) 14 114 465 6.14Skandinaviska Enskilda 13 241 615 5.76ING Bank 10 608 750 4.61State Street Bank (nominee) 8 801 511 3.83Fimat International 7 538 000 3.28JPMorgan Chase Bank (nominee) 5 006 661 2.18Odin 4 275 050 1.86Brown Brothers Harriman 4 271 905 1.86Pareto 3 477 750 1.51RBC Dexia Investor (nominee) 3 257 630 1.42HSBC Bank 3 015 000 1.31Bank of New York 2 949 000 1.28Carnegie 2 940 680 1.28GMO 2 873 780 1.25Vital 2 862 875 1.25Morgan Stanley & Co (nominee) 2 575 787 1.12Storebrand 2 561 930 1.11Nordea 1 802 265 0.78Total 20 largest 150 692 944 65.54Total number of shares 229 936 790

OSE indicesThe Prosafe share was included in the followingindices on the Oslo Stock Exchange at 31 January2007:

Name Ticker WeightingOSE OBX index OBX 2.509%OSE Benchmark index OSEBX 2.048%OSE All-share index OSEAX 1.134%OSE Energy index OSE1010G 2.192%OSE Fund index OSEFX 2.481%DJ STOXX 600 SXXP 0.033%DJS Oil & Gas SXEP 0.405%

Financial calendarProsafe will publish its interim results on the following dates:

1st quarter 2007: 11 May 20072nd quarter 2007: 8 August 20073rd quarter 2007: 2 November 20074th quarter 2007: 8 February 2008

The annual general meeting will be held on 3 May 2007.

Norway 29.9%UK + Ireland 24.5%Cyprus 17.3%Continental Europe 15.0%USA 12.0%Others 1.3%

Geographical distribution of shareholders at 31.12.2006

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Analytical information

A key aim at Prosafe is to encourage the broadestpossible coverage of and interest in the companythrough a steady flow of information to the stockmarket.

Prosafe does not want to provide guidance onassessments or methodologies for judging theunderlying value of the group's business. It prefersto leave a valuation of the company to the capitalmarket, based on assessments of operations, developments, market prospects and other infor-mation in the public domain.

Valuation Prosafe's business consists of the Offshore SupportServices and Floating Production divisions. Both areto a large extent capital intensive and active in theglobal oil and gas industry. The capital market hastraditionally based its valuation of Prosafe on acombination of net asset value and earnings-basedmethods.

Debt service At 31 December 2006, the group's interest-bearingdebt totalled USD 639 million. Unsecured bondloans accounted for USD 130 million of this total,and bank loans secured by mortgages for USD 509 million. The bond debt is divided into threeloans, of NOK 89 million maturing March 2007,NOK 411 million maturing March 2010 and USD 50 million maturing March 2012 respectively. Theseloans are listed on the Oslo Stock Exchange with ticker codes PRS01, PRS02 and PRS03 respectively.

Amount Maturity Interest Loan drawn margin

PRS01 NOK 89 March 2007 floating 1.75%million

PRS02 NOK 411 March 2010 floating 1.15%million

PRS03 USD 50 March 2012 floating 1.40%million

The estimated bond prices at 31 December 2006were 100.35 for PRS01, 101.62 for PRS02 and 101.74for PRS03.

The company's two main bank facilities have thefollowing repayment structure:

Facility 1: - Drawn amount as of 31 December 2006 was

USD 492 million. Total availability is USD 800 million. The first of 20 three-monthly instalments of USD 32 million is due in January 2008, and a final payment of USD 160 million is due in July 2013.

Facility 2: - Initial facility amount of USD 17.5 million drawn

in June 2006. The first instalment of approx. USD 1.1 million in December 2006, followed by 13 six-monthly instalments of USD 1.1 million in June and January each year. There is a final balloon payment of USD 2.5 million in 2012.

Total outstanding debt on other bank facilities at 31 December 2006 was approx. USD 0.5 million.

Investment and required return Since its formation in 1997, Prosafe has beenthrough a period of major investments both in theform of organic growth and through the purchaseand sale of companies.

During 2006 there were three main investmentcategories: the acquisition of shares in other companies, the acquisition of ships and subsequentinvestments for the purpose of converting the vessels into FPSOs, and general maintenance investments.

With today's fleet and contract coverage, ordinarymaintenance investment will normally be limited to USD 15-20 million per annum for the group as a whole. The bulk of this will usually fall in OffshoreSupport Services.


53

Investment by Floating Production will largely berelated to conversion projects or upgrading of existing units for new contracts. Up to the secondquarter of 2007, M/T Apollo and M/T Ionikos will beconverted into the FPSOs Polvo and Umuroa. Theinvestment for these two projects will total aboutUSD 330-360 million including change orders fromthe clients. These projects followed roughly thesame schedules, and the bulk of the investmentwas incurred in 2006. About 20 per cent of the totalspending will fall in the first half of 2007.

In 2006 Floating Production acquired three newvessels for the purpose of future FPSO conversions.The total cost of these vessels was in the range ofUSD 110-120 million. Two of the acquired vesselswill be used for the two projects awarded late 2006.The projected total investment in these two projects will be in excess of USD 600 million.Excluding any further projects or acquisitions, the organic investment in Floating Production isexpected to be in excess of USD 300 million for the year 2007.

In the second quarter of 2006, Prosafe acquired the rig company Consafe Offshore AB for approx.USD 532 million. In August, 30 per cent of the outstanding shares of the FPSO company TeekayPetrojarl was acquired for USD 179 million.

Prosafe assesses new projects and investments onthe basis of the expected return in relation to risk.On a general basis, the company has establishedguidelines for the minimum expected return in thedivisions. These required rates of return are calculated on the basis of expected contractual and market conditions, risk and financing structure.

For Offshore Support Services, the recommendedinternal rate of return is set at 15 per cent. Theinternal rate of return is then calculated on thetotal invested capital without reference to thefinancing sources used. Investment in rigs or FPSOswill normally be financed through a combination ofnew debt and equity. In such cases, the expectedpercentage return on equity will exceed the above-mentioned internal rate of return assumingthat the terms for external capital financing arecheaper than for internal financing.

The contract horizon is normally longer in FloatingProduction than in Offshore Support Services, andthe required equity ratio is thereby lower. Assumingthe same risk conditions, it should thereby be possible to maintain the return on equity despite alower return on total capital. For that reason, thecompany normally uses 12-15 per cent as therequired return on FPSO projects.

Order backlogOrders in hand for Offshore Support Services at 31 December 2006 totalled USD 400 million (2005: USD 275 million), of which USD 300 relatesto 2007. At the beginning of 2007, a rig utilisationfactor of 81 per cent had been secured for thecoming year excluding any option periods.

Floating Production had firm orders in hand worthabout USD 2 billion at 31 December 2006 (2005:USD 850 million). Of this, approx. USD 150 millionrelates to 2007. In addition, there are options forcontract extensions worth approx. USD 1.5 billion.

Taken together, the group thereby had a total orderbacklog of USD 2.4 billion at 1 January 2007 excluding option periods, and USD 4.0 billion including option periods.

Further details on contracts held by the various divisions can be found on pages 33 and 39.

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1 030 focused and motivated employees

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Society and people

Prosafe believes that corporate social responsibilityis an integral part of being an effective, value-creating business. The company pursues all its activities in a financially, ethically and sociallyresponsible manner.

The UN defines sustainable development as onewhich meets today's requirements without destroying the opportunities for future generationsto fulfil their own needs.

Prosafe wishes to promote sustainable developmentthrough responsible business operations. The company's principal goals are to secure long-termvalue creation for its shareholders and other stakeholders, to help solve environmental challenges, and to make a positive contribution to society as a whole.

Prosafe's aim is adherence to the highest standardsof business conduct, first-class treatment of itsemployees and contractors, good relationships withcommunities and exemplary environmental performance.

Responsibility engenders trustProsafe believes that excellence in corporateresponsibility gives it a competitive advantage andcontributes to its long-term success. It helps thecompany attract and retain the best people andmaintain successful working relationships with clients, suppliers and authorities. It also enablesProsafe to build goodwill and to support the countries in which the company has operations.

TransparencyProsafe's corporate social responsibility is built ontransparency, stakeholder dialogue and integrity in the conduct of its business. Prosafe will ensurethat its stakeholders are in possession at all timesof correct, clear and timely information about thecompany's operations and condition. Dialogue with stakeholders is essential for identifying risk,creating realistic expectations and securing confidence in the company.

Human rightsRespect is one of Prosafe's core values. The company will show respect for all individuals, ensure that all its activities are conducted in accordance with basic human rights standards, and require its suppliers and business partners to do the same.

Prosafe does not accept any form of discriminationon the basis of gender, religion, race, national orethnic origin, cultural background, disability, sexualorientation, age or political opinion.

The company will ensure that child labour or forcedlabour does not occur in Prosafe or in the operati-ons of its suppliers and other business partners. Inaddition, basic employee rights such as the entitlement to collective bargaining, to receiveminimum wage, and to have regulated workinghours are given high priority.

Code of conductProsafe's core values - environment, focus, ambition, safety, innovation, respect and profitability - will be reflected in the company'sbehaviour and in its business conduct. Given theglobal presence of the company and the diversity of backgrounds of its employees, Prosafe mustensure a uniform standard of behaviour. Therefore,the company has adopted a code of conduct whichmust be observed by all employees at all times. This code is the cornerstone of the company's commitment to integrity. It provides guidance toactions and decisions, and reflects the mindset and attitude expected in Prosafe.

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The implementation of the code of conduct will begiven the highest priority. The presidents of thebusiness divisions are responsible for making theseguidelines known and for promoting and monitoring compliance. In 2006 Prosafe publishedits ethical guidelines in a booklet entitled Code ofconduct, which was sent to all employees.

Employees are encouraged to discuss any concernsthey may have with their superior. In order to facilitate whistle-blowing, in 2006 the companyestablished a channel for reporting concerns aboutpossible breaches of its code of conduct, which canbe used if the individual feels that the matter cannot be discussed with the line management. Allreports will be treated with confidentiality, and theindividual may remain anonymous.

In 2006 Prosafe established a corporate ethics committee, which shall maintain and further develop the company's code of conduct. The corporate ethics committee will give recommendations and advice on dealing with ethical dilemmas, and ensure that alleged breaches are investigated thoroughly and fairly.

Prosafe's shareholders, clients, employees and otherstakeholders can be confident that the companywill maintain the highest ethical standards at alltimes, fulfil its obligations and behave with fullintegrity.

EmployeesThe knowledge and competence of the company'semployees are fundamental to the sustained success of Prosafe. Motivated and competentemployees who enjoy their work are one of thecompany's most important competitive advantagesin satisfying the requirements of its clients.

Prosafe had 1 030 employees at 31 December 2006as opposed to 665 a year earlier. This increase ismainly due to the strong order intake in FloatingProduction and the subsequent need to staff theFPSO conversion projects. Prosafe employs contractstaff to provide flexibility during peak working periods.

Both business divisions have drawn up a humanresources policy and personnel procedures to ensure efficient human resources management and equitable treatment of employees.

Prosafe aims to be a good place to work, givingweight to internal recruitment wherever possible. It wants to be a preferred employer, and will attractand retain employees by offering them challengingand motivating work, influence over their own working conditions, competitive terms and careeropportunities within the company. Recruitment,promotion, training and remuneration are based on qualifications such as education, experience andresults.

Diversity - a source of strengthProsafe recognises that a diverse and talentedworkforce is a key competitive advantage.Attracting, developing and retaining the bestemployees, regardless of gender, age, nationality,cultural background or religion, gives the companyaccess to new ideas, promotes better decisionmaking, and creates a workforce that mirrors its clients and the world at large.

Prosafe is committed to developing a diverse work-force and to providing a work environment in which everyone is treated fairly and with respectand has the opportunity to contribute to businesssuccess and realise their potential. Prosafe will utilise the unique skills, experience and perspectivesthat each individual brings and recognises thatthese differences are important to its success.

Men are traditionally over-represented in the recruitment base for offshore operations, and this is reflected in Prosafe's gender breakdown. Womenaccount for 11.4 per cent of the overall workforce,while their proportion on land is 22.7 per cent. Thecompany's policy is full equality between womenand men.

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Development and trainingIn today's tight labour market, where people withknowledge related to oil and gas activities are ascarce resource, recruitment and building of corecompetencies are areas of importance. Prosafe'shigh activity level and strong targeting of international markets have increased the company's need for people with the right skills and attitudes.

Therefore, Prosafe has made a systematic commitment to expertise development and training, with weight given to professional and personal development. The company has also developed routines that ensure the transfer ofknowledge and experience across divisional boundaries.

Managers conduct annual job reviews with theemployees reporting to them. These reviews provide the opportunity to focus on how eachemployee and manager can collaborate in helpingthe company to reach its goals. Managers and theirsubordinates will jointly create working conditionswhich provide job satisfaction and development foreach individual. Based on the job review, the manager in dialogue with each employee will develop an individual development plan.

Supporting local communitiesProsafe has a social responsibility towards the localcommunities in which it is represented, and willcontribute to their positive development. Thecompany accordingly cooperates closely with localemployees, customers and government authorities.Prosafe's most important contribution to local communities is job creation, both directly and indirectly, which helps to enhance the local level ofexpertise and generates tax revenues. Local suppliers of goods and services are used where theyare competitive.

In connection with each operation, Prosafe obtainsthorough information about national law and statutory regulations, and ensures that these areobserved. The company also secures detailed knowledge of the country's political, economic andsocial conditions. It seeks to acquire an understanding of the impact its operations have onpeople and society, and to allow this insight to find

expression in practical action to the benefit of thelocal communities of which it forms an integratedpart. Prosafe's aim is a development which balancesgood financial results with concern for the environment and the community to which itbelongs.

As a global company, Prosafe runs programmes toensure that it employs the largest possible proportion of local managers and employees in itsoperations. Prosafe has established extensive training programmes, both in-house and at approved educational institutions. The companythereby contributes not only to local employmentbut also to boosting the level of local expertise.

The Abo FPSO is on charter to Agip off Nigeria.When production began in April 2003, 59 per centof the crew were Nigerians. The proportion of localemployees reached 85.3 per cent in 2006. Measuredin USD, 70 per cent of goods and services purchasedin 2006 were procured in Nigeria.

70%local procurement

2003

Abo FPSO - crewingPer cent

2004 2005 2006

Abo FPSO - procurement70% Local30% Foreign

Foreign Local

908070605040302010

0

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SponsorshipsProsafe supports local sports teams and makesdonations to humanitarian organisations and charities. The company feels that it is important toshow its employees and the community that thecompany is an integrated part of the society.

Floating Production in Singapore has undertaken to support and help the Movement for theIntellectually Disabled of Singapore (Minds). Thisvoluntary organisation aims to provide training and education for developmentally disabled children. Its pupils have participated in a competition Prosafe initiated on drawing HSE posters. Used to enhance environmental awarenessand focus on safety among employees, these posters will be distributed to all installations andoffices worldwide.

Social programmesIn the end of 2006, Prosafe decided that the company as from 2007 each year will give a substantial donation to support a social program ina country where the company has business activities. Early 2007 a donation was given to SOS Children's Villages.

SOS Children's Villages gives children who have lost their parents or who are no longer able to livewith them a permanent home. Prosafe's donationwill finance the building and operation of a familyhouse in the SOS Children's Village in Igarassu,close to Recife in Brazil. Prosafe believes that offering children a home and education is the most valuable aid the company can give. In thelonger term, this will contribute to a better future,both for the children and the country in which they live.

Combating HIV The Floating Production division operates in countries where many inhabitants are stricken with HIV/Aids. It implemented an HIV-preventionprogramme among its employees during 2005 and2006.

Recognition of Prosafe's commitmentA growing number of investors are setting requirements for a company's non-financial results.They wish to invest only in companies which satisfya set of ethical, social and environment-related criteria.

Prosafe is included in Kempen/SNS's sociallyresponsible investment (SRI) index. Prosafe appreciates this recognition, which confirms thatthe company's efforts in this area have yieldedresults and that it is perceived as a socially-responsible company.

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Prosafe's objective is to create an incident-free environment and to conduct its business with no adverse environmental impact.

Steadily improving HSE results

Prosafe continued the good underlying HSE trend ithas maintained over many years. The company ischaracterised overall by high operating regularity,efficient operations, a low injury frequency, littlesickness absence and a good reputation.

Prosafe has adopted a zero mindset philosophy,which means that the company believes that activepreventive efforts will allow its business to be pursued without negative consequences for people's life and health, the natural environmentand material assets.

Prosafe's objective is to create an incident-free environment and to conduct its business with noadverse environmental impact. The company iscommitted to doing its utmost to reduce risk, to follow up undesirable incidents in a systematicmanner, and to build a culture which promoteslearning.

Collective responsibilityDefining, establishing and incorporating HSEresponsibility, commitment and accountability atevery level in the organisation is a prerequisite forachieving good HSE results. Strong leadership, safebehaviour, a well-entrenched HSE policy and systematic work on HSE are the key features ofProsafe's HSE culture.

Systematic preventive HSE work is a high-priorityline management responsibility. Prosafe expects allits managers to lead the way by setting a goodexample and facilitating good working conditions.An active and visible involvement by managementis a key factor in achieving the company's goal ofoperating without accidents.

All employees take a special responsibility in enforcing safety by always being alert, interveningwhenever spotting unsafe behaviour and dulyreporting any hazardous situation or incident. Thefocus is on recognising and eliminating hazardsbefore they cause an accident. Through the activeparticipation and commitment of the whole workforce, and an open and close collaborationwith customers and the authorities, Prosafe createsproprietary attitudes and continuous improvement.

Under no circumstances will Prosafe compromiseon its HSE standards to achieve cost reductions. Nosafety rules may be broken, and no short cuts maybe taken to speed up completion of a job.

Safety - a core value in ProsafeSafety is a core value in Prosafe, and the company'spositive trend in safety performance from 1997through 2006 validates the systems the companyhas in place to protect the safety and health of itsemployees, sub-contractors and customers.

3

6

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Lost-time injury frequency 1997-2006

Injury frequency 2002 - 2006

Sickness absence 1997-2006

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The lost-time injury frequency, which expresses thenumber of lost-time injuries per million workinghours, has developed positively since the companywas founded. In 2006 it reached an all-time low,decreasing from 3.2 in 2005 to 1.4. A total of threelost-time injuries were suffered. None of themresulted in a serious injury.

The injury frequency, which expresses the numberof personal injuries per million working hours,decreased from 13.6 in 2005 to 4.6 in 2006, which isthe best result in Prosafe's history.

All injuries and serious incidents were subject toextensive in-house investigation in order to identifycauses and introduce risk-reducing measures aimedat preventing recurrence. The findings have beenconveyed to the rest of the organisation in order to ensure a transfer of experience. These areimportant measures for reaching the company'sgoal of zero injuries.

Even though Prosafe achieved good health andsafety results, the company still believes that substantial scope continues to exist for furtherimprovement in preventive work. Prosafe is notresting content with these results, and will continue to work hard and determined to bring the number of accidents and injuries down to zero.

A number of operations have demonstratedthrough long injury-free periods that excellent safety results are attainable. That provides motivation, and these activities are used across the group as examples to ensure transfer of experience in HSE training.

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Number of days since last lost-time injury(at 31 December 2006)

Safe Caledonia 1 664Abo FPSO 1) 1 417 FSO Endeavor 973FPSO Al Zaafarana 502MSV Regalia 415FPSO Petróleo Nautipa 322Safe Scandinavia 262Safe Bristolia 213FPSO Espoir Ivoirien 210

1) Number of days without lost-time injury since contract start.

Continued low sickness absenceThe company had 1 030 employees at 31 December.Sickness absence remained low, and was only 1.1 per cent in 2006.

Prosafe makes active and systematic efforts toreduce sickness absence, particularly by givingemphasis to attendance factors and facilitating a good working environment. Reducing sicknessabsence will be significant for the well-being ofindividuals, while also having a positive financialimpact on the company and on society as a whole.

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Environmental managementProsafe is dedicated to running safe and environmentally responsible operations, and environmental management is firmly establishedon the company's HSE agenda. Possible accidentaldischarges/emissions are reported and followed upin the same way as injuries and material damage.

Prosafe's goal is no harmful discharges to the sea oremissions to the air, in line with the principles forsustainable development. The company cooperatesactively with customers and suppliers to set in-house goals, makes continuous improvements toits own routines, and shapes attitudes towards protecting the natural environment from pollutionby its operations and those of its partners.

Offshore Support Services had no accidental discharges to the natural environment, which iswholly in line with the company's target. FloatingProduction's FPSO Espoir Ivoirien, located offshoreCôte d'Ivoire, had an accidental oil to water discharge on 28 March 2006. Although it was notpossible to quantify the amount of discharge, it wasestimated to be in excess of 50 barrels. The investigation of this incident is still ongoing.

Certified management systemsProsafe is committed to achieving and maintainingthe highest standards of quality in its operations.Documented processes, systems and reviews formthe basis of Prosafe's quality systems. Through ISOand ISM standards, Prosafe maintains an up-to-datequality management system with an integratedsafety and environmental management system.

Prosafe's business divisions' quality managementsystems are certified to the international ISO 9001

quality standard. Floating Production and OffshoreSupport Services were re-certified to the new process-oriented ISO 9001:2000 standard in 2003and 2005 respectively.

Floating Production's environmental managementsystems were certified to ISO 14001 in 2003.Offshore Support Services began work in 2005 onmeeting the requirements for this internationalenvironmental management standard, and willcomplete the process in the second quarter of 2007.

Floating Production's expertise and managementsystems for safety and the working environmentwere certified to the Occupational Health andSafety Management System (OHSAS) 18001:1999standard in 2005. This standard sets requirementsintended to equip the company to manage andmonitor risks associated with HSE and to improveits HSE performance.

Safety management systems for the rig fleet areapproved to the International Safety Management(ISM) code. Prosafe's accommodation/service rigsand production and storage vessels have been certified to the International Ship and Port FacilitySecurity (ISPS) code. The divisions were not servedwith enforcement notices by any regulatory authority during 2006.

AuditsThe company measures achievement of continuousimprovement through internal audits and external/third-party audits. The audits are also used as toolsto ensure that Prosafe's procedures and management systems are properly implementedand observed. A total of 47 audits were carried outin 2006, including 11 by certification bodies and

Society and HSEQ

A

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eight by customers. No major non-conformancesfrom the company's quality systems were identified.

Contingency plansProsafe has established contingency plans to limitharm to people, the environment and materialassets, and to ensure that correct, relevant andtimely information is provided to the outside worldif and when required.

The company carries out regular emergency response exercises in cooperation with its customers and third parties to ensure that the organisation is as well prepared as possible to deal with a possible crisis.

Definitions:Lost-time injury (LTI ): Occupational injury which causes the employee tobe absent from work for one complete shift, i.e. 12hours.

Personal injury/non-LTI: Occupational injury which is not classified as an LTI, but which requires that the employee receivesmedical treatment.

Exposure hours: Total hours worked, based offshore on a 12-hourshift.

LTI frequency = [no of LTIs x 1 000 000]/[exposure hours]

Injury frequency = [(LTIs + non-LTIs) x 1 000 000] / [exposure hours]

Sickness absence = [working days lost owing tosickness or injury] / [working days available]

Serious incident: Accident or incident with the potential to cause 1) fatality 2) life-threatening injury 3) material damage worth more than USD 250 0004) fires or explosions 5) oil spills greater than 50 barrels 6) chemical spills

Prosafe makes active and systematic efforts to reduce sickness absence, particularly by givingemphasis to attendance factors and facilitating a good working environment.

USD 150 million in operating profit

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Accounts

65

CONSOLIDATED ACCOUNTS

Consolidated income statement

(USD million) Note 2006 2005 2004

Operating revenues 6 365.6 295.3 257.6

Employee benefits 8 (56.8) (52.8) (46.7)Other operating expenses 9 (101.1) (91.6) (75.3)

Operating profit before depreciation 207.7 150.9 135.6

Depreciation 10 (57.7) (47.3) (51.1)

Operating profit 150.0 103.6 84.5

Interest income 8.5 4.3 1.4 Interest expenses (32.1) (17.6) (18.1)Other financial items 12 16.6 (2.6) 1.6

Net financial items (7.0) (15.9) (15.1)

Profit before taxes 143.0 87.7 69.4

Taxes 13 (14.9) (122.8) (4.3)

Net profit/(loss) from continuing operations 128.1 (35.1) 65.1

Net profit from discontinued operations 5 0.0 81.5 5.1

Net profit 128.1 46.4 70.2

Earnings per share (in USD) 14 0.64 0.27 0.41

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Consolidated balance sheet

(USD million) Note 31.12.06 31.12.05 31.12.04

ASSETSGoodwill 10 355.0 128.3 128.3 Rigs 10 763.4 360.9 375.0 Ships 10 538.7 203.8 187.6 Other tangible assets 10 9.6 8.2 11.0 Financial assets 11 252.8 0.0 0.0 Total non-current assets 1 919.5 701.2 701.9

Cash and deposits 147.2 303.6 121.6 Debtors 44.4 28.4 27.5 Other current assets 34.8 27.5 8.9 Total current assets 226.4 359.5 158.0

Total assets continuing operations 2 145.9 1 060.7 859.9

Assets discontinued operations 5 0.0 0.0 121.5

Total assets 2 145.9 1 060.7 981.4

EQUITY AND LIABILITIESShare capital 16, 17 63.9 44.8 44.7 Share premium 16 620.4 2.3 1.3 Other equity 16 405.4 387.9 402.6 Total equity 1 089.7 435.0 448.6

Interest-bearing long-term debt 19 622.0 363.0 392.8 Deferred tax 13 97.9 113.4 0.0 Other provisions 3.8 4.2 5.3 Total long-term liabilities 723.7 480.6 398.1

Interest-bearing current debt 19 16.9 27.9 17.4 Dividends payable 15 147.0 30.2 0.0 Taxes payable 13 35.4 4.4 2.5 Other current liabilities 20 133.2 82.6 38.3 Total current liabilities 332.5 145.1 58.2

Liabilities discontinued operations 5 0.0 0.0 76.5

Total equity and liabilities 2 145.9 1 060.7 981.4

Accounts

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Consolidated cash flow statement

(USD million) 2006 2005 2004

CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxes 143.0 87.7 69.4 Gain on sale of fixed assets 0.0 (2.1) (2.9)Unrealised currency (gain)/loss on long-term debt 6.1 (8.9) 11.7 Depreciation 57.7 47.3 51.1 Change in working capital 27.3 24.8 (23.3)Other items from operating activities (1.3) (2.1) 10.6 Net cash flow from operating activities 232.8 146.7 116.6

CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from sale of assets 0.0 3.0 7.8 Acquisition of tangible assets (1 023.2) (48.6) (15.9)Acquisition of financial assets (184.2) 0.0 0.0 Net cash flow from investing activities (1 207.4) (45.6) (8.1)

CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from new interest-bearing debt 749.9 50.3 101.1 Repayments of interest-bearing debt (508.0) (60.7) (113.1)Dividends paid (60.9) (26.4) (74.2)Paid-in capital 637.2 1.1 1.5 Net cash flow from financing activities 818.2 (35.7) (84.7)

Net cash flow from continuing operations (156.4) 65.4 23.8

Net cash flow from discontinued operations 0.0 116.6 (3.4)

Net cash flow (156.4) 182.0 20.4 Cash and deposits at 1 January 303.6 121.6 101.2 Cash and deposits at 31 December 147.2 303.6 121.6

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Notes to the consolidated financial statements

NOTE 1: CORPORATE INFORMATION

Prosafe SE (the 'Company') is a public limited company domiciled in Stavanger, Norway. The Company was on 2 February 2007 transformed from a Norwegian ASA company to a Norwegian registered SE company, andthe Company's name was changed accordingly. On 8 February 2007, the Company's board of directors resolved to propose to the annual general meeting to change the Company's domicile from Norway to Cyprus.This move is planned to take place during the third quarter of 2007. At the same time, the Company will beregistered in Cyprus and deleted from the Norwegian registry.

The Company is listed on the Oslo Stock Exchange with ticker code PRS. The consolidated financial statementscomprise the financial statements of the Company and its subsidiaries (together referred to as the 'Group').The consolidated financial statements for the year ended 31 December 2006 were authorised for issue inaccordance with a resolution of the board of directors on 28 February 2007.

The Group is the world's leading owner and operator of semi-submersible accommodation/service rigs and a major owner and operator of floating production and storage vessels (FPSOs).

NOTE 2: BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International FinancialReporting Standards (IFRS) endorsed by the European Union (EU). The accounts have been prepared on a historical cost basis, except for derivative financial instruments and financial investments that are stated atfair value. The consolidated financial statements are presented in US dollars (USD), and all values are presented in USD million unless otherwise stated.

The management has applied estimates and assumptions which have influenced the annual accounts. Futureevents could lead to changes in these estimates. The estimates and assumptions are assessed on a continuous basis. The judgments which have the most significant effect on the amounts recognised in thefinancial statements relate to depreciation of fixed assets and impairment test of goodwill. Estimated usefullife of the Group's accommodation/service rigs is 20 to 35 years, and up to 15 years for the Group's FPSOs. The management determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated, which requiresmanagement to estimate the future cash flow from the cash-generating units and to apply a suitable discount rate. Further details are given in note 10.

NOTE 3: SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION PRINCIPLES. Subsidiaries are consolidated from the date of acquisition, being the date onwhich the Group obtains control, and continue to be consolidated until the date that such control ceases. Thepurchase method is applied when accounting for business combinations. The acquisition cost of the shares isset off against the equity in the respective subsidiaries. Any value in excess of book value is entered in theaccounts at gross value with a provision for deferred tax. Any residual value is stated as goodwill. Excess valueon tangible fixed assets is depreciated over its estimated useful life. All intra-group transactions and balancesare eliminated in full. Investments in joint ventures are accounted for by proportionate consolidation, and any

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transactions with joint ventures are eliminated proportionally. A joint venture is a contractual agreementwhereby two or more parties undertake an economic activity that is subject to joint control.

FOREIGN CURRENCY TRANSLATION. The Group's presentation currency is USD. This is also the Group's functional currency. Transactions in other currencies than the USD are translated at the exchange rate prevailing at the transaction date. Monetary items in other currencies than the functional currency are translated to the functional currency at the exchange rate on the balance sheet date, and the currency difference is recognised in the profit and loss account. Non-monetary items in other currencies than the functional currency are translated at the exchange rate at the transaction date. When consolidating companies with a functional currency other than the USD, profit and loss items are translated at the monthlyaverage exchange rate, while balance sheet items are translated at the exchange rate on the balance sheetdate. Translation differences are taken directly to equity.

SEGMENT REPORTING. The Group owns assets and provides services which have different risks and rates ofreturn. The segments are therefore determined based on the various types of services which the Group provides. The Group has two segments: Offshore Support Services (chartering and operation of accommodation/service rigs) and Floating Production (chartering and operation of floating production andstorage vessels). There are no material transactions between the segments. Non-allocated profit and lossitems relate to corporate administration, and other costs which cannot reasonably be allocated to the segments. Non-allocated balance sheet items relate mainly to cash and deposits owned by the parent company.

REVENUE RECOGNITION. Revenues are recognised when it is likely that a transaction will generate financialbenefits which will accrue to the Group, and this benefit can be reliably estimated. The Group's revenues arebased mainly on dayrates from charters for the Group's vessels, and are recognised in the period in which thework is performed.

PROVISIONS are recognised when, and only when, the Group has a valid liability as a result of events thathave taken place and it can be proven probable that a financial settlement will take place as a result of thisliability, and that the size of the amount can be measured reliably. Provisions are reviewed on each balancesheet date and their level reflects the best estimate of the liability.

TANGIBLE ASSETS are stated at acquisition cost less cumulative depreciation. Assets are depreciated on a straight-line basis over their estimated economically useful lives, with account taken of their estimated residual value. The management makes annual assessments of the remaining economic life of the assets.Components of an asset which have an estimated shorter life than the main component of the asset areaccordingly depreciated over this shorter period. Acquisition cost includes costs directly attributable to theacquisition of the assets. Subsequent expenditures are added to the book value of the asset or accounted foron a separate basis, when it is likely that future benefits would derive from the expenditures. Other repair and maintenance costs are expensed in the period they are incurred.

GOODWILL arising on consolidation, respresenting the excess of the consideration given over the fair value ofnet identifiable assets, is stated at acquisition cost and reviewed for impairment at least annually.

IMPAIRMENT. The carrying amount of the Group's non-current assets is reviewed to determine whether thereis any indication of impairment. If any such indication is present, the recoverable amount of the asset is esti-mated. The recoverable amount is the higher of the fair value less costs to sell and the discounted cash flowfrom continued use. The fair value less costs to sell is the amount that can be obtained from a sale to an inde-pendent third party minus the sales costs. The value from continued use is calculated as the present value ofthe expected future cash flow for the unit.

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EMPLOYEE BENEFITS. Companies within the Group make contributions to pension schemes that are definedcontribution plans. The companies’ payments are recognised in the income statement for the year to whichthe contribution applies.

SHARE-BASED PLANS. The Group has an option plan for senior officers which provides a cash settlement if anoption is exercised. The fair value of the options is expensed over the period until vesting with recognition ofa corresponding liability which also includes social security tax. This liability is remeasured at each balancesheet date up to and including the settlement date with changes in fair value recognised in the income statement.

EVENTS AFTER THE BALANCE SHEET DATE. New information on the Group’s positions at the balance sheetdate is taken into account in the annual financial statements. Events after the balance sheet date that do notaffect the position at the balance sheet date but which will affect the position in the future are stated if significant.

BORROWING COSTS. Loans are recognised at the amount received, net of transaction costs. The loans are thereafter recognised at amortised costs using the effective interest rate method, with the difference between the net amount received and the redemption value being recognised in the income statement over the term of the loan.

DERIVATIVE FINANCIAL INSTRUMENTS. The Group uses derivative financial instruments to manage its exposure to foreign exchange and interest rate risks. The Group does not hold such instruments for tradingpurposes, but there are no derivatives to which hedge accounting is applied. The derivative financial instruments are stated at fair value as observed in the market at the balance sheet date, and any gain or lossis recognised in the income statement.

FINANCIAL INVESTMENTS are stated at fair value. Unrealised gain or loss on investments which are not madefor trading purposes, is taken directly to equity. When such an investment is realised, the cumulativegain/loss is recognised in the income statement.

TAXES in the income statement include taxes payable and changes in deferred tax. Deferred tax is calculatedon the basis of temporary differences between book and tax values that exist at the end of the period.Deferred tax asset is recognised in the balance sheet when it is likely that the tax benefit can be utilised.Deferred tax and deferred tax asset are measured at nominal value.

CASH AND DEPOSITS include cash, bank deposits and other liquid investments which can be converted to aknown amount of cash and with a maturity of three months or less.

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Identifiable assets and liabilities in Consafe Fair value Carrying valueRigs 427.5 298.1 Cash and deposits 24.9 24.9 Other current assets 14.7 14.7 Total assets 467.1 337.7 Interest-bearing debt 140.0 140.0 Interest-free liabilities 25.4 25.4 Total liabilities 165.4 165.4

Net assets 301.7 172.3 Goodwill 226.7 Total consideration 528.4

Shares issued at fair value 526.1 Cash consideration 1.1 Acquisition costs allocated to the shares 1.2 Total consideration 528.4

If the combination had taken place at the beginning of the year, the revenues and net profit for the groupwould have been USD 412.6 million and USD 155.4 million respectively.

Goodwill is based on expected market and cost synergies with the existing business of the Company. Theseintangible assets do not comply with the criteria for recognition under IAS 38 and are thus not recognisedseparately.

NOTE 4: BUSINESS COMBINATION

Acquisition of Consafe Offshore AB in 2006The Company acquired in June 2006 99.55 per cent of the shares in Consafe Offshore AB (Consafe), a Swedishcompany listed on the Oslo Stock Exchange. In the third quarter, the Company acquired additional shares inConsafe, which took the ownership up to 99.8 per cent at year-end. Remaining shares will be acquired duringa compulsory redemption process. The acquisition cost of 100 per cent of the shares in Consafe is USD 528.4million. The acquisition was financed by issuing 9 815 835 shares at fair value (nominal value of NOK 10 pershare) and by a cash consideration of USD 1.1 million. The fair value of the shares was set at observed marketprices as traded on the stock exchange as at each transaction date. The accounting transaction date was 30June 2006, and the business in Consafe was consequently included in Prosafe's consolidated accounts as fromthe third quarter 2006. At the transaction date, total consideration exceeded net assets in Consafe by USD356.1 million, out of which USD 129.4 million has been allocated to rigs and USD 226.7 million to goodwill.The fair value of the rigs, USD 427.5 million, is based on the average estimate from two independent brokers.

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NOTE 5: DISCONTINUED OPERATIONS

Sale of Prosafe Drilling Services AS in 2005Prosafe Drilling Services AS (the Drilling Services division) was sold to KCA Drilling Deutag Norge AS on 1 August 2005. The Group recorded a gain of USD 80.1 million from this transaction.

Profit from Drilling Services and the gain on the disposal are presented net in the profit and loss account as'Net profit from discontinued operations'. Assets and liabilities related to the discontinued operations are presented on separate lines in the balance sheet. Similarly, net cash flow from the discontinued operations is listed on a separate line in the cash flow statement.

Profit from discontinued operations 01.01 - 31.07.2005Operating revenues 93.8 Operating expenses (85.0)Operating profit before depreciation 8.8 Depreciation (6.5)Operating profit 2.3 Net financial items (0.5)Profit before taxes 1.8 Taxes (0.4)Profit for the period from discontinued operations 1.4 Gain on disposal of the discontinued operations 80.1 Net profit from discontinued operations 81.5

Earnings per share from discontinued operations 0.48

Earnings per share have been adjusted to reflect the 5-for-1 share split effective 27 December 2006.

NOTE 6: SEGMENT REPORTING

The primary segment reporting format is the business segments, Offshore Support Services and FloatingProduction, which are organised and managed separately according to the nature of the services provided.The secondary reporting format is geographical segments, which is based on the geographcial location of theassets.

Offshore Support Services is the world's leading owner and operator of semi-submersibleaccommodation/service rigs.

Floating Production is a major owner and operator of floating production, storage and offloading vessels(FPSOs). The core business of Floating Production is the design, engineering, conversion and operation ofFPSO/FSO vessels.

The parent company, Prosafe SE, undertakes the majority of the Group's interest-bearing debt. Interests onthis debt is not allocated to the segments.

Accounts

Offshore Floating Corporate expensesBusiness segments Support Services Production and eliminations Prosafe Group

2006 2005 2006 2005 2006 2005 2006 2005

Operating revenues 272.6 186.7 92.6 108.3 0.4 0.3 365.6 295.3 Operating expenses (113.6) (86.5) (39.1) (54.0) (5.2) (3.9) (157.9) (144.4)Depreciation (41.7) (30.6) (15.7) (16.4) (0.3) (0.3) (57.7) (47.3)Operating profit 117.3 69.6 37.8 37.9 (5.1) (3.9) 150.0 103.6

Assets 1 591.6 458.3 774.0 418.2 (219.7) 184.2 2 145.9 1 060.7 Liabilities 469.4 354.0 96.1 38.7 490.7 233.0 1 056.2 625.7 Capital expenditure 670.6 15.5 352.5 33.0 0.2 0.1 1 023.3 48.6

Geographical segments 2006 2005Operating revenuesAfrica 151.2 154.4 America 104.2 76.2 Europe 79.9 57.9 Asia and Australia 30.3 6.8 Total operating revenues 365.6 295.3

AssetsAfrica 313.9 397.0 America 282.7 196.4 Europe 556.2 248.2 Asia and Australia 993.1 219.1 Total assets 2 145.9 1 060.7

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NOTE 7: QUARTERLY RESULTS

Q1 Q2 Q3 Q4 2006Operating revenues 75.1 75.3 112.0 103.2 365.6 Operating expenses (31.7) (39.8) (45.2) (41.2) (157.9)Operating profit before depreciation 43.4 35.5 66.8 62.0 207.7 Depreciation (11.8) (12.5) (16.1) (17.3) (57.7)Operating profit 31.6 23.0 50.7 44.7 150.0 Net financial items 0.5 9.7 (12.1) (5.1) (7.0)Profit before taxes 32.1 32.7 38.6 39.6 143.0 Taxes (1.4) (2.6) (3.7) (7.2) (14.9)Net profit 30.7 30.1 34.9 32.4 128.1

NOTE 8: EMPLOYEE BENEFITS AND MANAGEMENT REMUNERATION

2006 2005Wages and salaries 28.4 28.6 Contract personnel 15.8 15.1 Other remuneration 4.0 3.2 Social security taxes 2.3 3.3 Accrual for share-based payments 1.4 0.0 Pension expenses 0.6 2.4 Other personnel-related expenses 4.4 0.1 Total payroll expenses 56.8 52.8

Bonus schemeThe Company's bonus scheme was introduced in 2003, and embraces the corporate management and themanagement team in each of the divisions, a total of 20 people. The bonus depends on achieving definedresults relating to earnings, the attainment of strategic goals and HSE. The total calculated bonus based on2006 achievements due for payment in 2007 is USD 0.6 million, including social security taxes. A corresponding sum has also been allocated for payment in 2010 as a long-term incentive to ensure continuityamong senior officers.

Share optionsThe general meeting resolved in May 2006 to authorise the board of directors to grant up to 600 000 synthetic options (3 000 000 after the 5-for-1 share split in December 2006) over a three-year period, alloca-ted to up to ten senior executives. Grants will take place annually, and 170 000 synthetic options (850 000after the 5-for-1 share split) were granted in May 2006. The strike price of the granted options was initiallyNOK 389, which reflected the average closing share price the six days prior to grant. To reflect the subsequent5-for-1 share split and the special dividend in December 2006, the current strike price for the granted optionsis NOK 73.80. At the earliest, a synthetic option may be exercised two years after each grant, and in May 2012 at the latest.

An exercise of a synthetic option means that the option holder is paid a cash consideration corresponding tothe difference between the share price at the exercise date adjusted for any dividends paid during the period,and the share price at grant. Net proceeds after tax shall be used to purchase shares in the Company at mar-ket price. This plan has no dilution effect, since the shares will be purchased in the market. A provision of USD1.4 million related to the synthetic options has been made in 2006, which reflects the estimated value of theoptions as at 31 December 2006. The options are valued by using the Black Scholes option pricing model.

Pension and severance payMembers of the corporate management have agreements on severance pay. Under these agreements, theCompany guarantees a remuneration corresponding to the base salary received at the time of departure for a period of up to two years after the normal six-month period of notice. With the exception of the agreementwith the president and CEO, these agreements specify that benefits received from new employers are deducted from the remuneration due unless the person concerned left as a result of an acquisition, sale ormerger. The president and CEO has an agreement on early retirement pension after the age of 60 and untilthe age of 67. With full earning of pension entitlement, the annual early retirement pension will equal 24times the national insurance base rate, and the provision recognised in the balance sheet as at 31 December2006 amounted to USD 205 000.

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Accounts

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In accordance with the code of practice for corporate governance recommended by the Oslo Stock Exchange,remuneration to the corporate management and board of directors is specified below.

Corporate management 2006(USD 1 000) Base Other Value of options

salary Bonus 1) Pension 2) benefits 31.12.06 Arne Austreid (president and CEO) 385 195 139 31 247 Bjørn Henriksen (exec VP and CFO) 283 122 16 29 206 Roy Hallås (exec VP business development) 271 102 9 21 206

1) Paid in 2006 based on previous year's achievements.2) Excluding benefits from the company's collective pension scheme. For the president and CEO, the figure includes increase in

early retirement pension liability.

Board of directors 2006(USD 1 000) Other

Board fee Pension 1) benefitsReidar Lund (chair) 70 237 12Christian Brinch (deputy chair) 51 0 0Anne Grethe Dalane 42 0 0Ronny J Langeland 42 0 0Elin Nicolaisen (from May 2006) 26 0 0Brit Rugland (until May 2006) 16 0 0

1) Paid in 2006 based on pension rights earned whilst he was the president and CEO of the company.

Election commitee 2006(USD 1 000)

FeeHans Thrane Nielsen 1.6Jarl Ulvin 1.6Christian Brinch 1.6

Auditors' fee(USD 1 000)

2006 2005Audit 170 127 Fees for other services 11 36

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NOTE 9: OTHER OPERATING EXPENSES

2006 2005Repair and maintenance 30.5 20.0 Mobilisation/demobilisation of rigs 18.3 13.3 Catering offshore 12.1 6.4 Insurance 8.0 8.2 Fuel/transport 7.5 3.1 Travel 6.5 5.7 Office and administration 6.0 6.0 Professional fees 5.3 3.5 Other expenses 6.8 25.4 Total other operating expenses 101.1 91.6

NOTE 10: TANGIBLE ASSETS AND GOODWILL

Rigs Ships Equipment Buildings Goodwill TotalAcquisition cost 1 January 542.1 284.0 4.9 9.9 128.3 969.1 Additions 443.8 349.8 2.5 0.5 226.7 1 023.2 Disposals 0.0 (0.2) (1.8) 0.0 0.0 (2.0)Acquisition cost 31 December 985.9 633.6 5.5 10.3 355.0 1 990.4

Accumulated depreciation 1 January 181.2 80.2 3.2 3.4 0.0 268.0 Accumulated depreciaton on disposals 0.0 (0.2) (1.8) 0.0 0.0 (2.0)Depreciation for the year 41.3 14.9 1.0 0.4 0.0 57.7 Accumulated depreciation 31 December 222.5 94.9 2.4 3.8 0.0 323.7

Net carrying amount 31 December 763.4 538.7 3.1 6.5 355.0 1 666.7

Depreciation rate (%) 6-20 6-33 20-33 3-5 - -Economically useful life (years) 5-35 3-15 3-5 20-30 - -

Tangible fixed assets and goodwill are initially recorded at cost. Subsequent to recognition, these assets arestated at cost less accumulated deprciation and any accumulated impairment losses. The costs of conversionof ships to FPSO/FSO vessels are capitalised, and each converted vessel is accounted for as a single asset.

Estimated useful life for the semi-submersible accommodation/service rigs is 30-35 years. The estimated useful life of the accommodation jack-up is 20 years. Certain equipment on a rig is depreciated over a shorterperiod than the life of the rig itself. The estimated scrap value is USD 3 million per rig. FPSO/FSO vessels aredepreciated over their fixed contract period to their estimated residual value. Equipment which has an estimated shorter life than the main component of the vessel is accordingly depreciated over this shorterperiod.

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USD 128.3 million of the goodwill relates to the acquisition of Nortrans Offshore Ltd in 2001, whereas USD226.7 million relates to the acquisition of Consafe Offshore AB in 2006. The carrying amounts have beentested for impairment. The item of USD 128.3 million has been allocated to a cash-generating unit comprising all FPSOs and FSOs in the Floating Production division, whereas the item of USD 226.7 million hasbeen allocated to a cash-generating unit comprising all accommodation/service rigs in Offshore SupportServices. The recoverable amount for each item has been identified by calculating the value in use. This calculation is based on the present value of the estimated cash flow from each cash-generating unit. The discount rates applied reflect management's estimate of the risks specific to each unit. The present value ofthis cash flow exceeds the carrying value, and no need for a write-down is indicated.

Some of the FPSOs contracts contain an option for the client to purchase the vessel at an agreed price. Thepurchase option price is set to reflect the estimated remaining net present value of the vessel, and is significantly above the carrying value of the vessel.

NOTE 11: FINANCIAL ASSETS

This item refers to shares in Teekay Petrojarl ASA (TP) which were purchased in 2006. At 31 December 2006,the Company owned 22 588 832 shares in TP corresponding to 30.1% of the share capital. The shares wereacquired for USD 184.2 million, and were valued at USD 252.8 million at 31 December 2006. Teekay is themajority shareholder in TP, and the Company has inconsiderable influence on decisions made in TP. As such,the shares in TP are not accounted for as an associated company, and the unrealised gain of USD 68.6 millionhas been taken directly to equity rather than through income statement. Accordingly, the carrying value ofthe shares at year-end was equal to the fair value of USD 252.8 million.

NOTE 12: OTHER FINANCIAL ITEMS

2006 2005Currency gain/loss 12.1 (1.6)Fair value adjustment of derivative financial instruments 3.7 1.6 Other financial items 0.8 (2.6)Total other financial items 16.6 (2.6)

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NOTE 13: TAXES

2006 2005Taxes in income statement:Taxes payable 40.2 8.3 Change in deferred tax (25.3) 114.5 Total taxes income statement 14.9 122.8

Temporary differences:Exit from Norwegian tonnage tax system 355.5 410.7 Tax loss carried forward 0.0 (3.2)Fixed assets (8.4) (1.2)Long-term debt 1.2 0.9 Pension liabilities (2.8) (3.1)Current assets 5.7 1.9 Current liabilities (1.6) 0.0 Basis for deferred tax 349.7 406.0 Recognised deferred tax 97.9 113.4

The group's vessels are subject to taxation based on the special rules for taxation of shipping and offshorecompanies in Singapore. Profit from these charters is not taxable to Singapore, but the company pays taxdeducted at source in the some of the countries in which it operates.

When calculating the tax expense for 2005, account was taken of a tax liability of USD 115 million related to the enforced departure of the rig business from the Norwegian tonnage tax system. The USD 115 millioncharge will be paid at a rate of 20 per cent annually on the outstanding balance, with the first instalment falling due in 2007. As a result of the deferred tax and the expected loss in the parent company, the presentvalue of the tax will be substantially below the USD 115 million initially expensed.

Accounts

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NOTE 14: EARNINGS PER SHARE

Earnings per share are calculated by dividing net profit by the weighted average number of ordinary sharesoutstanding during the year. Diluted earnings per share are calculated by dividing net profit by the weightedaverage number of ordinary shares outstanding during the year plus the weighted average number of sharesthat would be issued on the conversion of all the dilutive potential shares into ordinary shares. Previouslyreported number of shares and earnings per share have been adjusted to reflect the 5-for-1 share split effective 27 December 2006.

Following the acquisition of Nortrans Offshore Ltd in 2001, share options in this company were converted tosubscription rights in Prosafe. The last 19 342 subscription rights were exercised in the first quarter 2006, andthe actual value of these amounted to USD 0.5 million.

2006 2005Net profit 128.1 46.4 Weighted average number of ordinary shares (1 000) 201 283 170 263 Basic earnings per share 0.64 0.27 Weighted average number of ordinary and potential shares (1 000) 201 295 170 338 Diluted earnings per share 0.64 0.27 Net profit from continuing operations 128.1 (35.1)Basic and diluted earnings per share from continuing operations 0.64 (0.21)

Net profit from continuing operations in 2005 includes the deferred tax expense of USD 115 million relatingto the exit from the Norwegian tonnage tax system. Excluding this amount, earnings per share from continuing operations in 2005 equalled USD 0.47.

NOTE 15: DIVIDENDS PAID AND PROPOSED 2006 2005

Ordinary dividend declared and paid during the year 30.7 26.4 Special dividend declared, but not paid at the end of the year 147.0 30.2 Total dividends declared 177.7 56.6 Dividend proposed for approval at annual general meeting next year 45.9 27.7 Total dividends paid and proposed 223.6 84.3

Dividend proposed is not recognised as a liability as at 31 December.

2006 2005Dividends per share (NOK):Ordinary dividend declared and paid during the year 1.10 1.00 Special dividend declared, but not paid during the year 4.00 1.20 Dividend proposed for approval at annual general meeting 1.25 1.10

80

NOTE 16: STATEMENT OF CHANGES IN EQUITY Foreign

Share Share Retained currency Total(USD million) capital premium earnings translation equity

Equity 31 December 2004 44.7 1.3 394.6 8.0 448.6 Implementation IAS 32/39 0.0 0.0 1.9 0.0 1.9 Equity at 1 January 2005 44.7 1.3 396.5 8.0 450.5 Net profit 0.0 0.0 46.4 0.0 46.4 Paid-in capital 0.1 1.0 0.0 0.0 1.1 Dividends paid 0.0 0.0 (56.6) 0.0 (56.6)Foreign currency translation 0.0 0.0 0.0 (6.4) (6.4)Equity at 31 December 2005 44.8 2.3 386.3 1.6 435.0 Net profit 0.0 0.0 128.1 0.0 128.1 Paid-in capital 19.1 621.5 0.0 0.0 640.6 Costs associated with issuing new shares 0.0 (3.4) 0.0 0.0 (3.4)Dividends declared 0.0 0.0 (177.7) 0.0 (177.7)Unrealised gain directly recognised in equity 1) 0.0 0.0 68.6 0.0 68.6 Foreign currency translation 0.0 0.0 0.0 (1.5) (1.5)Equity at 31 December 2006 63.9 620.4 405.3 0.1 1 089.7

1) This item refers to the shares in Teekay Petrojarl ASA. See note 11 for details.

NOTE 17: SHARE CAPITAL AND SHAREHOLDER INFORMATION

2006 2005Number of shares at 31 December 229 936 790 170 487 715Holding of own shares at 31 December 110 160 110 160Nominal value at 31 December NOK 2 NOK 2Number of shareholders at 31 December 4 051 3 577

Note: A 5-for-1 share split was effective 27 December 2006, and 2005 figures have been adjusted accordingly.

Largest shareholders/groups of shareholders at 31 Dec 06 No of shares PercentageBW Group 39 675 905 17.3%Folketrygdfondet 14 845 385 6.5%Euroclear Bank (nom.) 14 114 465 6.1%Skandinaviska Enskildabanken 13 241 615 5.8%ING Bank 10 608 750 4.6%State Street Bank and Trust (nom.) 8 801 511 3.8%Fimat International 7 538 000 3.3%JP Morgan Chase Bank (nom.) 5 006 661 2.2%Odin 4 275 050 1.9%Brown Brothers Harriman 4 271 905 1.9%Pareto 3 477 750 1.5%RBC Dexia Investor Services Trust (nom.) 3 257 630 1.4%HSBC Bank Plc 3 015 000 1.3%Bank of New York 2 949 000 1.3%

Accounts

81

(Continued)Largest shareholders/groups of shareholders at 31 Dec 06 No of shares PercentageCarnegie 2 940 680 1.3%GMO 2 873 780 1.2%Vital 2 862 875 1.2%Morgan Stanley & Co. 2 572 787 1.1%Storebrand 2 561 930 1.1%Nordea 1 802 265 0.8%Total 20 largest shareholders/groups of shareholders 150 692 944 65.5%

Norwegian ownership 29.9%Non-Norwegian ownership 70.1%

Shares owned by senior officers and directors at 31 December 2006: (All numbers after the 5-for-1 share split on 27 December 2006)

SyntheticSenior officers: Shares optionsArne Austreid - president and CEO 62 500 150 000Bjørn Henriksen - executive VP and CFO 700 125 000Roy Hallås - executive VP business development 930 125 000

Directors:Reidar Lund - chair 125 000 0Christian Brinch - deputy chair 0 0Anne Grete Dalane - director 0 0Ronny J Langeland - director 0 0Elin Nicolaisen - director 0 0

NOTE 18: JOINT VENTURES

Company name Country Share capital (in 1 000) OwnershipTinworth Pte Ltd Singapore USD 728 50%Tinworth Ltd Bermuda USD 6 50%Madura FSO Pte Ltd Singapore USD 250 50%

Specification of items from joint ventures included by proportionate consolidation:

2006 2005Income statement:Operating revenues 11.6 11.3 Operating profit 6.8 6.5 Net profit 7.8 6.0

Balance sheet:Fixed assets 8.9 7.2 Current assets 26.2 31.9 Long-term liabilities 1.9 1.6 Current liabilities 1.0 1.2 Equity 32.2 36.3

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NOTE 19: INTEREST-BEARING DEBT2006 2005

Debt in NOK 79.9 73.9 Debt in USD 559.0 317.0 Total interest-bearing debt 638.9 390.9

Long-term interest-bearing debt 622.0 363.0 Current interest-bearing debt 16.9 27.9 Total interest-bearing debt 638.9 390.9

Unsecured bond loans accounted for USD 129.9 million of the total interest-bearing debt and bank loanssecured by mortgages for USD 509 million. The bond debt is divided into three loans, of NOK 89 million maturing March 2007, NOK 411 million maturing March 2010 and USD 50 million maturing March 2012respectively. These loans are listed on the Oslo Stock Exchange with ticker codes PRS01, PRS02 and PRS03respectively.

Loan Amount drawn Maturity Interest Loan marginPRS01 NOK 89 million March 2007 floating 1.75%PRS02 NOK 411 million March 2010 floating 1.15%PRS03 USD 50 million March 2012 floating 1.40%

The estimated bond prices at 31 December 2006 were 100.35 for PRS01, 101.62 for PRS02 and 101.74 forPRS03.

The company’s two main bank facilities have the following repayment structure:Facility 1: Drawn amount as of 31 December 2006 was USD 492 million. Total availability is USD 800 million.The first of 20 three-monthly instalments of USD 32 million is due in January 2008, and a final payment ofUSD 160 million is due in July 2013.

Facility 2: Initial facility amount of USD 17.5 million drawn in June 2006. The first instalment of circa USD 1.1 million in December 2006, followed by 13 six-monthly instalments of circa USD 1.1 million in June andJanuary each year. There is a final balloon payment of circa USD 2.5 million in December 2012.

Total outstanding debt on other bank facilities at 31 December 2006 was circa USD 0.5 million.

LIBOR is the basis for interests on the bank loans and the unsecured bond loan in USD, whereas NIBOR is thebasis for interests on the unsecured bond loans in NOK. The average interest cost in 2006 was circa 5.5 percent as against 4.7 per cent in 2005. The interest cost increased due to higher NIBOR and USD LIBOR interestrates and the assumption of debt in Consafe Offshore which yielded an interest rate margin in excess of 1 percent. In the third quarter Prosafe refinanced the main debt facility with a new fixed margin of 0.6 per cent.

The group’s bond loans are subject to the following covenant:Value-adjusted equity including goodwill must be a minimum of 0.35, defined as market adjusted value ofthe group’s assets less the group’s liabilities divided by the market adjusted value of the group’s assets. Thevalue adjustment will include any difference between market value and book value of rigs, ships and currentassets.

The group’s main facility is subject to the following key covenants:• Liquidity: Minimum USD 40 million• Leverage ratio: Total debt/ EBITDA must not exceed 4.5 for the first two quarters of 2007, and must not

exceed 4.0 thereafter

Accounts

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NOTE 20: OTHER INTEREST-FREE CURRENT LIABILITIES

2006 2005Accounts payable 72.7 23.9 Other accrued costs 25.2 18.3 Debt to joint ventures 15.7 11.6 Public taxes 3.5 2.2 Accrued pay 1.7 1.3 Accrued interest costs 1.5 3.1 Provision share-based payments 1.4 0.0 Other interest-free current liabilities 11.5 22.3 Total interest-free current liabilities 133.2 82.6

NOTE 21: MORTGAGES AND GUARANTEES

In line with industry practice, Prosafe has issued bank and parent company guarantees (completion guarantees)to customers on behalf of its subsidiaries in connection with the award and performance of contracts. Totalbank guarantees issued amounted to USD 61 million at year-end. The bank debt of USD 492 million (facility 1,see note 19) is secured by a mortgage on the shares in Prosafe Production Services Pte Ltd and the accom-modation/service fleet and the five FPSO/FSO vessels which are owned by this entity. The bank debt of USD16.4 million (facility 2) is secured by mortgages on bank deposits and the shares in Tinworth Pte Ltd andProsafe Nautipa AS, and on the FPSO owned by the former.

NOTE 22: FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS

Prosafe operates on a global basis and has cash flow, assets and financing in various currencies. This meansthat the group is exposed to market risk relating to fluctuations in exchange rates and interest rates.

Liquidity riskUnder existing credit agreements, the group is required to maintain a minimum liquidity reserve of USD 40million. Prosafe makes active use of a system for planning and forecasting the development of its liquidity,and utilises scenario analyses to secure stable and sound development.

Credit riskCredit assessment of customers and suppliers is part of Prosafe's project evaluations and risk analyses. Thecompany attempts as far as possible to reduce credit risk via parent company or bank guarantees.

Interest ratesProsafe’s interest-bearing debt totalled USD 639 million at 31 December 2006. Unsecured bond loans accounted for USD 130 million of this total and bank loans secured by mortgages for USD 509 million. Thebond debt is divided into three loans, of NOK 89 million running to March 2007, NOK 411 million runninguntil March 2010 and USD 50 million running until March 2012 respectively. Interest on the debt is in principle floating, but has been hedged through the use of interest rate swap agreements and interest rate

• Value adjusted equity ratio of min 0.4• Collateral maintenance: The fair market value of collateral rigs and ships shall at all times be minimum

150 per cent of the total commitment under the facility.

The Company complied with all covenants on interest-bearing debt as at 31 December 2006.

84

Interest rate swaps as at 31.12.06

Initial swap amount Average interest Maturity Swap typeNOK 200 million 3.00% 2007 BulletNOK 200 million 3.50% 2010 BulletNOK 400 million 3.25%

Initial swap amount Average interest Maturity Swap typeUSD 60 million 3.57% 2007 AmortisingUSD 40 million 4.97% 2007 AmortisingUSD 40 million 2.69% 2008 AmortisingUSD 30 million 3.32% 2008 AmortisingUSD 50 million 5.05% 2010 BulletUSD 28 million 3.61% 2011 AmortisingUSD 28 million 3.61% 2011 AmortisingUSD 100 million 5.12% 2012 BulletUSD 75 million 5.19% 2014 BulletUSD 451 million 4.38%

Foreign currencyProsafe has compiled its accounts in USD from January 2004. In normal operation, the company will mainlyhave a currency exposure to GBP, NOK and SGD. Part of the operating expenses in Offshore Support Servicesis denominated in GBP, while revenues are primarily in USD. During certain periods, however, the companywill have contracts on the UK continental shelf which yield GBP revenues, with a consequent reduction in netcurrency exposure.

Depending on the country of operation, a small proportion of operating expenses in Offshore SupportServices could be in NOK. Together with operating expenses in the parent company, which are also mainly inNOK, this normally represents an annual amount corresponding to circa USD 10 million.

Debt and interest expenses in currencies other than USD are currency-hedged on a continuous basis againstthe USD, so that this effectively functions as USD financing. The hedging takes the form of liquidity reservesand financial instruments.

Part of the shared operating expenses in Floating Production are in SGD, while the company normally has nosignificant revenues in that currency. The bulk of its revenues and expenses is in USD.

Net cash flow in GBP, SGD and NOK normally shows a deficit corresponding to USD 40-60 million per annum,excluding any dividend payments and project capital expenditure. The bulk of the company’s net cash flowfrom operations will be currency-hedged using forward contracts within a time horizon of 12-18 months.

collars. Prosafe evaluates the proportion of interest-rate hedging in relation to the repayment profile of itsloans, the company’s portfolio of contracts, cash flow and cash in hand. The proportion hedged will normallylie between 50 and 75 per cent for all loan terms. The average interest cost in 2006 was 5.5 per cent asagainst 4.7 per cent in 2005.

Sensitivity: Assuming an average interest-bearing debt of USD 800 million and a hedged proportion of 60 percent, a rise of one percentage point in interest rates would increase annual interest expenses by USD 3.2 million before tax.

The carrying value of interest rate hedges was USD 3.75 million as of 31 December 2006.

Accounts

85

NOTE 23: SUBSIDIARIES INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS

Company name Country of registration Ownership Voting shareProsafe Rigs AS Norway 100% 100%Prosafe Offshore AS Norway 100% 100%Prosafe Offshore Norge AS Norway 100% 100%Prosafe (UK) Holdings Ltd United Kingdom 100% 100%Prosafe Rigs Ltd United Kingdom 100% 100%Prosafe Offshore Ltd United Kingdom 100% 100%Prosafe Rigs Nigeria Ltd Nigeria 100% 100%Prosafe Offshore Pte Ltd Singapore 100% 100%Prosafe Offshore Employment Company Pte Ltd Singapore 100% 100%Prosafe Production Services Pte Ltd Singapore 100% 100%Prosafe Production Pte Ltd Singapore 100% 100%Prosafe Services Côte d'Ivoire Pte Ltd Singapore 100% 100%Prosafe Production (M) Sdn Bhd Malaysia 100% 100%Prosafe Production Inc USA 100% 100%Prosafe Production LLP United Kingdom 100% 100%Prosafe Production UK Ltd United Kingdom 100% 100%Prosafe Production do Brasil Servicos Maritimos Ltda Brazil 100% 100%Prosafe Production do Brasil Ltda Brazil 100% 100%Prosafe Production Nigeria Ltd Nigeria 100% 100%Consafe Offshore AB Sweden 100% 100%Egyptian Winlines Shipping Co. SAE Egypt 100% 100%Tinworth Ltd Bermuda 50% 50%Tinworth Pte Ltd Singapore 50% 50%Madura FSO Pte Ltd Singapore 50% 50%OCS Services Ltd British Virgin Islands 50% 50%

Factors such as currency exposure in the balance sheet and tax calculations will also be taken into account tothe extent that they are affected by exchange rate changes.

Both rigs and ships belonging to the company are valued, traded and financed in USD. Investments such asupgrading and conversion of rigs and ships will primarily be in USD. To the extent that such investments aredenominated in currencies other than USD, the cash flow will be hedged with the aid of currency forwardcontracts.

Sensitivity: Assuming a net annual requirement for GBP, SGD and NOK corresponding to USD 60 million, a 10 per cent weakening of the USD against the GBP, SGD and NOK will increase operating expenses by USD 6 million before the effect of currency hedging is taken into account.

At 31 December 2006, Prosafe had entered into the following forward exchange contracts:• Forward purchase of SGD 29 million against USD 18.1 million at an average of 1.60• Forward purchase of NOK 1 261.8 million against USD 200 million at an average of 6.31

The carrying value of forward exchange contracts was USD 2.81 million at 31 December 2006.

86

(NOK 1 000) Note 2006 2005Operating revenues 3 105 3 562 Operating expenses 2 (46 891) (26 042) Depreciation 3 (1 876) (2 655) Operating profit (45 662) (25 135) Gain / (loss) on sale of shares in subsidiary (10 964) 449 726 Income from investments in subsidiaries 1 320 692 68 841 Other financial items 4 (42 280) 32 770 Net financial items 1 267 448 551 337 Profit before taxes 1 221 786 526 202 Taxes 5 (152 938) (5 694) Net profit 1 068 848 520 508

(NOK 1 000) Note 31.12.2006 31.12.2005Tangible assets 3 24 761 25 593Shares in subsidiaries 6 10 653 960 2 735 980Other shares 7 1 581 218 0Deferred tax asset 5 0 7 808Intra-group long-term receivables 1 079 296 1 413 929Total non-current assets 13 339 235 4 183 310Cash and deposits 64 233 1 178 123Other current assets 8 40 250 46 515Total current assets 104 483 1 224 638Total assets 13 443 718 5 407 948

Share capital 9 459 654 340 755Share premium reserve 9 3 851 794 15 898Total paid-in equity 4 311 448 356 653Other equity 9 2 527 170 2 131 212Total retained earnings 2 527 170 2 131 212Total equity 6 838 618 2 487 865Interest-bearing long-term debt 10 3 801 264 2 449 039Intra-group long-term debt 1 595 023 0Pension liabilities 14 881 18 754Deferred tax 5 717 0Total long-term liabilities 5 411 885 2 467 793Interest-bearing current debt 10 89 000 186 904Dividends payable 919 307 204 332Taxes payable 5 144 277 0Other interest-free current liabilities 11 40 631 61 054Total current liabilities 1 193 215 452 290Total equity and liabilities 13 443 718 5 407 948

Balance sheet

PROSAFE SE ACCOUNTS

Income statement

Accounts

87

(NOK 1 000) 2006 2005Cash flow from operating activitiesProfit before taxes 1 221 786 526 202 Loss / (gain) on sale of shares in subsidiary 10 964 (449 726) Depreciation 1 876 2 655 Change in working capital (14 158) 37 705 Other from operating activities (4 008) (2 878) Net cash flow from operating activities 1 216 460 113 958

Cash flow from investing activitiesProceeds from sale of shares in subsidiaries 0 796 033 Acquisition of shares (9 076 224) (100) Change in long-term intra-group balances 1 929 656 (674 316) Proceeds from sale of tangible fixed assets 0 2 593 Acquisition of tangible fixed assets (1 044) (605) Net cash flow from investing activities (7 147 612) 123 605

Cash flow from financing activitiesNew interest-bearing long-term debt 3 689 230 1 336 999 Repayment of interest-bearing long-term debt (2 434 909) (404 335) Dividends paid (391 854) (170 573) Paid-in capital 3 954 795 6 828 Net cash flow from financing activities 4 817 262 768 919

Net cash flow (1 113 890) 1 006 482 Cash and deposits at 1 January 1 178 123 171 641 Cash and deposits at 31 December 64 233 1 178 123

Cash flow statement

88

PROSAFE SE

NotesAll figures in NOK 1 000 unless otherwise stated.

NOTE 1: ACCOUNTING POLICIES

The financial statements have been prepared in accordance with the International Financial ReportingStandards (IFRS). The accounting policies applied to the consolidated accounts have also been applied to theparent company, Prosafe SE. The company's financial statements are presented in Norwegian kroner (NOK).Investments in subsidiaries are measured at historic cost, unless there is any indication of impairment. In caseof impairment, an investment is written down to fair value.

NOTE 2: OPERATING EXPENSES2006 2005

Pay and holiday pay 15 776 11 161 Accrual share-based payments 8 945 0 Other remuneration 4 526 2 053 Payroll taxes 3 577 4 565 Pension expenses 1 810 2 328 Directors’ fees 1 621 2 089 Contract personnel 332 248 Other personnel expenses 137 83 Other operating expenses 10 167 3 515 Total operating expenses 46 891 26 042

Number of man-years 11 11

In accordance with Norwegian law, the company is obliged to offer its employees a pension scheme. The company has since it was established in 1997 offered its employees a defined benefit plan. This plan was in2006 replaced by a defined contribution plan.

NOTE 3: TANGIBLE ASSETSEquipment Buildings Land Total

Acquisition cost 01.01 9 942 36 600 821 47 364 Additions 1 044 0 0 1 044 Disposals at acquisition cost 0 0 0 0 Acquisition cost 31.12 10 986 36 600 821 48 408

Accumulated depreciation 01.01 9 222 12 549 0 21 771 Accumulated depreciation on disposals 0 0 0 0 Depreciation for the year 292 1 584 0 1 876 Accumulated depreciation 31.12 9 514 14 133 0 23 647

Book value 31.12 1 472 22 468 821 24 761

Depreciation rate (%) 20-30 3-5 - -

Accounts

89

NOTE 4: NET FINANCIAL ITEMS2006 2005

Interest receivable from subsidiaries 12 864 15 127 Other interest receivable 13 368 11 204 Interest payable to subsidiaries (78 493) 0 Interest expenses (166 936) (69 965) Currency gain 144 799 76 556 Fair value adjustment derivative financial instruments 23 661 17 010 Other financial items 8 457 (17 162) Net financial items (42 280) 32 770

NOTE 5: TAXES2006 2005

Profit before taxes 1 221 786 526 202 Permanent differences 0 (511 772) Changes in temporary differences (8 552) (41 869) Utilisation of tax loss carried forward (27 114) 0 Basis for taxes payable in the income statement 515 274 (27 439) Taxes payable 144 413 171 Changes in deferred tax 8 525 5 523 Total taxes 152 938 5 694

Temporary differences:Non-current assets (8 556) (8 004) Current assets 35 832 12 738 Long-term liabilities (9 835) 8 029 Pension liabilities (14 881) (18 754) Loss carried forward 0 (21 896) Basis for deferred tax liability (+)/benefit (-) 2 560 (27 887) Deferred tax liability (+)/benefit (-) 717 (7 808)

NOTE 6: SHARES IN SUBSIDIARIES(Share capital and book value in 1 000)

Company Share capital Book value OwnershipProsafe Rigs AS NOK 100 504 100%Prosafe Offshore AS NOK 100 1 878 100%Prosafe Offshore Norge AS NOK 100 100 100%Prosafe Nautipa AS NOK 100 100 100%Prosafe (UK) Holdings Ltd GBP 11 000 159 001 100%Prosafe Production Services Pte Ltd USD 906 599 8 629 954 100%Prosafe Offshore Pte Ltd USD 10 000 61 100%Prosafe Production Nigeria Ltd USD 147 1 000 100%Consafe Offshore AB SEK 27 786 1 861 362 100%Total book value 10 653 960

90

NOTE 7: OTHER SHARES

This item refers to shares in Teekay Petrojarl ASA (TP) which were purchased in 2006. At 31 December 2006,the Company owned 22 588 832 shares in TP corresponding to 30.1% of the share capital. The shares wereacquired for NOK 1 147.3 million, and were valued at NOK 1 581.2 million at 31 December 2006. Teekay is themajority shareholder in TP, and the Company has inconsiderable influence on decisions made in TP. As such,the shares in TP are not accounted for as an associated company, and the unrealised gain of NOK 433.9 million has been taken directly to equity rather than through income statement. Accordingly, the carryingvalue of the shares at year-end was equal to the fair value of NOK 1 581.2 million.

NOTE 8: OTHER CURRENT ASSETS2006 2005

Current receivables from group companies 1 554 20 782 Fair value derivative financial instruments 35 832 12 738 Other current assets 2 864 12 995 Total other current assets 40 250 46 515

NOTE 9: EQUITY

Number of shares: 229 936 790Holding of own shares: 110 160Nominal value: 2

ShareStatement of changes Share premium Other Totalin equity capital reserve equity equityEquity 1 January 2005 340 215 9 610 1 985 313 2 335 138 Net profit 0 0 520 508 520 508 Paid-in equity 540 6 288 0 6 828 Dividend 0 0 (374 609) (374 609) Equity 31 December 2005 340 755 15 898 2 131 212 2 487 865 Net profit 0 0 1 068 848 1 068 848 Paid-in equity 118 899 3 835 896 0 3 954 795 Dividend 0 0 (1 106 828) (1 106 828) Unrealised gain directly recognised in equity 0 0 433 938 433 938 Equity 31 December 2006 459 654 3 851 794 2 527 170 6 838 618

NOTE 10: INTEREST-BEARING DEBT2006 2005

Debt in NOK 500 000 500 000 Debt in USD 3 390 264 2 135 943 Total interest-bearing debt 3 890 264 2 635 943

Unsecured bond loans accounted for NOK 812.8 million of the total interest-bearing debt and bank loanssecured by mortgages for NOK 3 077.5 million. The bond debt is divided into three loans, of NOK 89 millionrunning to March 2007, NOK 411 million running until March 2010 and USD 50 million running until March2012 respectively. These loans are listed on the Oslo Stock Exchange with ticker codes PRS01, PRS02 andPRS03 respectively.

Accounts

91

Loan Amount drawn Maturity Interest Loan marginPRS01 NOK 89 million March 2007 floating 1.75%PRS02 NOK 411 million March 2010 floating 1.15%PRS03 USD 50 million March 2012 floating 1.40%

The estimated bond prices at 31 December 2006 were 100.35 for PRS01, 101.62 for PRS02 and 101.74 forPRS03.

The company’s bank facilitiy has the following repayment structure:Drawn amount as of 31 December 2006 was USD 492 million. Total availability is USD 800 million. The first of 20 three-monthly instalments of USD 32 million is due in January 2008, and a final payment of USD 160million is due in July 2013.

The average interest cost in 2006 was circa 5.5 per cent as against 4.7 per cent in 2005. The interest costincreased due to higher NIBOR and USD LIBOR interest rates. In the third quarter Prosafe refinanced the main debt facility with a new fixed margin of 0.6 per cent.

See note 19 to the consolidated accounts for covenants associated with the loans.

NOTE 11: OTHER INTEREST-FREE CURRENT LIABILITIES2006 2005

Accrued interest costs 9 121 20 694 Accrued costs from sale of shares in subsidiaries 0 28 338 Accrued holiday pay, payroll taxes and personnel taxes 6 040 3 880 Accounts payable 5 231 1 536 Provision share-based payments 8 945 0 Other current liabilities 11 293 6 606 Total other interest-free current liabilities 40 630 61 054

NOTE 12: MORTGAGES AND GUARANTEES

In line with industry practice, Prosafe SE has issued bank guarantees and parent company guarantees (performance guarantees) on behalf of subsidiaries in connection with the award and performance of contracts. At 31 December, bank guarantees issued amounted to NOK 59.3 million.

The company’s interest-bearing bank debt is secured by a mortgage on the shares in Prosafe ProductionServices Pte Ltd, and on the vessels owned by this subsidiary.

Oslo, 28 February 2007

Reidar Lund Christian Brinch Anne Grethe DalaneChair Deputy chair

Ronny Johan Langeland Elin Nicolaisen Arne AustreidPresident and CEO

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To the General Meeting of Prosafe SE

Auditor's report for 2006

We have audited the annual financial statements of Prosafe SE as of 31 December 2006, showing aprofit of NOK 1.068.848.000 for the ParentCompany and a profit of USD 128.100.000 for theGroup. We have also audited the information in the Directors' report concerning the financial state-ments, the going concern assumption, and the proposal for the allocation of the profit. The financial statements comprise the financial statements for the Parent Company and the Group.The financial statements of the Parent Companycomprise the balance sheet, the statements of income and cash flows, the statement of equity andthe accompanying notes. The financial statementsof the Group comprise the balance sheet, the statements of income and cash flows, the statement of equity and the accompanying notes.IFRSs as adopted by the EU have been applied in the preparation of the financial statements of theParent Company and the Group. These financial statements and the Directors' report are theresponsibility of the Company's Board of Directorsand Managing Director. Our responsibility is toexpress an opinion on these financial statementsand on other information according to the requirements of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with laws,regulations and auditing standards and practicesgenerally accepted in Norway, including the auditing standards adopted by the NorwegianInstitute of Public Accountants. These auditingstandards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial state-ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and

auditing standards, an audit also comprises a review of the management of the company's financial affairs and its accounting and internalcontrol systems. We believe that our audit providesa reasonable basis for our opinion.

In our opinion,• the financial statements of the Parent Company

and the Group are prepared in accordance with laws and regulations and present fairly, in all material respects, the financial position of the Company and the Group as of 31 December 2006, and the results of its operations and cash flows and the changes in equity for the year then ended, in accordance with IFRSs as adopted by the EU

• the company's management has fulfilled its duty to properly record and document the Company's accounting information as required by law and bookkeeping practice generally accepted in Norway

• the information in the Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with law and regulations.

Stavanger, 28 February 2007ERNST & YOUNG AS

Nicolai Homme State Authorised Public Accountant (Norway)

Note: The translation to English has been preparedfor information purposes only.

Accounts

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Articles of association for Prosafe SE(at 22 December 2006)

Article 1The company's name is Prosafe SE.

The company is an SE-company (Societas Europaea)governed by the Act on European companies datedApril 2005 no 14.

Article 2The company's registered office is in Stavanger localauthority.

Article 3The company's object is to conduct exploration for,drilling for and production of petroleum depositsand other natural resources on land or from fixed ormobile installations offshore, and to own, lease andoperate the equipment deemed to be requisite anddesirable in that connection, including mobile drilling rigs and vessels, etc, to provide related services and consultancy, engineering and fabrication services, and to deliver products and services in connection with its own business or thatof others, including participation in other companies as a shareholder or in another manner.

Article 4The company's share capital is NOK 459 873 580,divided into 229 936 790 shares with a par value of NOK 2,-. The company's shares will be registeredin the Norwegian Central Securities Depository.

Dividends will be distributed to shareholders registered as such on the day the dividend is determined, unless the general meeting decidesotherwise when determining the dividend.

Article 5The company's management is organised accordingto the one-tier system and shall have an administration organ (board of directors).

The company's board of directors will consist of fivemembers. All directors will serve for a period of twoyears.

The company will have an election committee comprising three members and one alternate, ofwhom one member will be appointed by the boardof directors and the other two members plus thealternate will be elected by the general meeting, all to serve for a period of two years. When directorselected by the shareholders are to be elected, theelection committee will meet and submit its recommendations to the general meeting. As far as possible, the election committee's recommendations will be sent to shareholderstogether with the notice of the general meeting.

The chairman of the board of directors can signalone on behalf of the company, or the presidentand CEO can sign jointly with one director. Theboard of directors may grant powers of attorney.

Article 6The annual general meeting will be held each yearbefore 30 June, with the following items on theagenda:

1. Adoption of the profit and loss account and the balance sheet.

2. Allocation of the net profit or coverage of the net loss, including determination of dividend.

3. Election of directors.4. Other matters included in the notice which

require a decision by the general meeting pursuant to Norwegian legislation or statutory regulations or to these articles of association.

The notice of a general meeting must be in writingand distributed no later than two (2) weeks beforethe meeting is due to be held. Shareholders whowish to attend the general meeting must notify thecompany of their intention to attend before thedeadline stipulated in the notice.

Article 7Prevailing Norwegian legislation on SE-companieswill otherwise apply.

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Glossary

ASA public limited company (Norway)

AGM annual general meeting

Bareboat charter charterparty for a vessel which assigns responsibility for operation and maintenance to the charterer

Bbls barrels

Bfpd barrels of fluid per day

Bopd barrels of oil per day

Bwpd barrels of water per day

DNV Det Norske Veritas. Norwegian classification society which surveys and approves

the technical condition, safety and quality of vessels to its own rules and national government

regulations

DP dynamic positioning. A system which uses telecommunications, satellites and propellers/thrusters

to keep vessels on station

Dwt deadweight tonnes. A vessel's cargo-carrying capacity measured in tonnes of cargo and supplies

EBITDA operating result before depreciation

EU European Union

FPSO floating production, storage and offloading vessel

FSO floating storage and offloading vessel

GBP pound sterling

HSE health, safety and the environment

IFRS International Financial Reporting Standards

IMO International Maritime Organisation. The UN's advisory body for shipping

ISM International Safety Management Code. Standard for safety management systems on vessels

ISO International Organisation for Standardisation

Libor London interbank offered rate. Interest rate charged in London for lending Euro-currencies to banks

Lost-time injury occupational injury which causes the employee to be absent from work for one complete shift,

i.e. 12 hours.

MSV multi-service vessel

M/T motor tanker

NCS Norwegian continental shelf

Nibor Norwegian interbank offered rate

NOK Norwegian krone

OSE Oslo Stock Exchange

PRS Prosafe's ticker code on the OSE

SAG state aid guidelines for maritime transport (EU)

SE Societas Europaea - a European public limited company

SGD Singapore dollar

Suezmax largest ship able to pass through the Suez canal, normally 150-200 000 dwt

Time charter charterparty for a vessel which assigns responsibility for operation and maintenance to the owner

TLP tender-leg platform

UKCS UK continental shelf

USD US dollar

VPS Norwegian Central Securities Depository

Well intervention downhole work to maintain well integrity or improve oil and gas recovery

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Financial calendarReporting resultsThe following dates have been set for quarterly interim reporting and presentations in 2007:

1st quarter: 11 May 20072nd quarter: 8 August 20073rd quarter: 2 November 20074th quarter: 8 February 2008

Results will be published at 08.00. Prosafe reservesthe right to amend these publication dates.

Annual general meetingThe AGM for Prosafe SE will be held in the company's premises at Nedre Holmegate 30-34, N-4006 Stavanger, on Thursday, 3 May 2007.

DividendThe board's proposal to pay a dividend of NOK 1.25 per share for 2006 will be considered by theAGM. Dividend will be paid to shareholders registered in the Norwegian Central SecuritiesDepository (VPS) at 3 May 2007.

Design: Bouvet AS. Print: Bryne Offset AS. Photos: Kjetil Alsvik: pages 5, 6, 8, 21, 37,38, 46, 47, 56, 59. Bitmap: page 53. iStockphoto: pages 30 (icons: Bryce Kroll, map:Joe Fong), 50 (Suprijono Suharjoto). Jupiterimages Corporation: 24, 27, 29, 48, 55,62.

Prosafe SENedre Holmegt 30 - 34P O Box 559 SentrumNO-4003 StavangerTelephone: +47 51 64 25 00Fax: +47 51 64 25 01E-mail: [email protected]

www.prosafe.com

Prosafe Production Services Pte Ltd1 International Business Park#10-01 The SynergySingapore 609917Telephone: +65 6665 6200Fax: +65 6567 5110E-mail: [email protected]

Prosafe Offshore Pte Ltd 1 International Business Park#09-03 The SynergySingapore 609917Telephone: +65 6559 1980Fax: +65 6559 1981E-mail: [email protected]

Prosafe Production Inc14825 St Mary's Lane Suite 260Houston TX 77079USATelephone: +1 281 496 7001Fax: +1 281 496 1877E-mail: [email protected]

Prosafe Offshore LtdGreenwell RoadEast Tullos Industrial EstateAberdeen AB12 3AXUKTelephone: +44 1224 406 900Fax: +44 1224 406 901E-mail: [email protected]

Documents

Annual report 2006 - prosafe.com Filer/Annual reports/AR 2006.pdf · Caledonia and Safe Lancia) is founded and listed on the Oslo Stock Exchange. 8 PROSAFE SE Arne Austreid, president