Polarcus Annual Report 2011

1

POLARCUSLIMITEDANNUALREPORT2011

2

04.KEY FIGURES06.MAKING THE RIGHTCHOICES08.LETTER FROM CHAIRMAN10.SERVICE OFFERING 12.VISION14.POLARCUS FLEET16.BOARD OF DIRECTORS18.EXECUTIVE MANAGEMENT20.BOARD OF DIRECTORS REPORT30.SHARE INFORMATION 32.CONSOLIDATED FINANCIAL STATEMENT76.PARENT COMPANY FINANCIAL STATEMENT92.AUDITORS REPORT94.ADDRESSES

CONTENT

4

KEYFIGURES

M298.676.315.5

M

M

ALL NUMBERS IN USD

REVENUE

EBITDA

EBIT

5

FLEETUTILIZATION

FLEETEXPANSION

FROM TO VESSELS3 6

FLEET UTILIZATION EXCLUDING V.TIKHONOV

Seismic Contract 67%

Multi-Client 12%

Transit 18%

Yard stay (including shakedown) 3%

MAKING THE RIGHTCHOICESDuring 2011 Polarcus doubled its operational fleet from three to six high-end 3D seismic vessels. The Com-pany further delivered significant improvements in technical performance and at year-end secured its first true Arctic 3D contract award, vindicating the Company’s investment in differentiating Arctic and environ-mentally clean technologies.

Polarcus took delivery of POLARCUS SAMUR, the Company’s fourth seismic vessel and the first of the ULSTEIN SX133 design. The vessel transited to Namibia for her maiden charter, for HRT Participações em Petróleo S.A. and UNX Energy Corp.

Polarcus took delivery of POLARCUS ALI-MA, the Company’s fifth seismic vessel and the second of the ULSTEIN SX134 design. The vessel transited to India for her maiden charter, for Reliance Industries Limited.

Polarcus launched its debut multi-client project with strong industry prefunding, a 2,000 square kilometer high density 3D seismic survey in the UK Central North Sea over and around the recently discovered Catcher oil discoveries in Block 28/9. The survey was undertaken through a joint ven-ture with Sabaro Investments Limited.

Polarcus announced the successful place-ment of a USD125 million senior secured convertible bond issue. The bonds, with a maturity date of April 2016, are convertible into common shares of Polarcus with an annual coupon of 2.875% at a conversion price of USD 1.9345.

Polarcus announced term sheet for a USD 410 million bank facility with DnB Bank ASA and DVB Bank SE, Nordic Branch, togeth-er with Garanti-instituttet for Eksportkreditt (GIEK) and Eksportfinans ASA. The facility was secured for the refinancing of existing bank debt, refinancing of bonds related to POLARCUS SAMUR and to finance the Company’s two newbuilds under construc-tion in Norway.

3 Mar

22 Mar

24 Mar

12 Apr

21 Jul

Polarcus signed a five year Bareboat Char-ter Party Agreement with a company within OAO Sovcomflot of Russia for POLARCUS SELMA, the Company’s sixth seismic ves-sel and the second of the ULSTEIN SX133 design. The vessel was subsequently named Vyacheslav Tikhonov in a cere-mony on 16 September attended by then Prime Minister of the Russian Federation, now President Vladimir Putin.

Polarcus announced the awards of two pro-jects offshore New Zealand signaling the expansion of Polarcus’ global operational footprint, a significant milestone for the Company. POLARCUS ALIMA transited to New Zealand via the Northern Sea Route offshore Russia, the first known passage of any 3D seismic vessel, saving eight days of transit compared to the shortest alternative route via the Suez Canal.

Polarcus completed a directed private eq-uity placement to Sabaro Investments Lim-ited, generating gross proceeds of NOK 230 million.

Polarcus announced the successful com-pletion of a NOK 230 million senior unse-cured bond issue with maturity November 2014. The bonds were issued with a cou-pon of 14.00% p.a.

Polarcus announced its first 3D seismic acquisition contract award in the Arctic frontier, offshore Greenland. The project is scheduled for acquisition in summer 2012 using the high ice class vessel, POLAR-CUS ASIMA.

11 Aug

16 Aug

11 Oct

27 Oct

28 Dec

9

2011 was a year marked by significant developments with-in Polarcus as we continued the transition to becoming a top tier seismic company. We doubled our fleet from three to six vessels, launched our first multi-client project and successfully expanded our activities to Australia and New Zealand.

Operationally, we improved performance consistently throughout the year culminating, in the fourth Quarter, in our best achievement for the year in minimizing technical downtime.

Financially, we in April issued US$125 million of convert-ible bonds and in July secured a US$410 million fleet bank facility. This substantially completed funding of our planned capital expenditure, reduced the Groups average interest cost and extended the maturity of a significant portion of Group debt. In October, we completed a NOK 230 million private placement of equity to Sabaro Investments and issued NOK 230 million of unsecured debt in the public bond markets. Sabaro joins our other major shareholders in their commitment to the development of Polarcus’ or-ganic growth and long term strategy.

Strategically, we entered into a long term bareboat charter of Polarcus Selma (now renamed Vyacheslav Tikhonov) to Russia’s Sovcomflot, one of the world’s leading ship owners and an acknowledged specialist on Arctic maritime operations.

The seismic industry is not for the faint hearted, but it is exciting, rewarding and vital to our future energy sup-ply. Within this space Polarcus has sought to carve out a niche as the environmentally friendly Arctic-ready service provider, the pioneering seismic company in an industry where the frontiers of seismic exploration are responsibly expanded without harm to our world. Despite 2011’s chal-lenging financial and business environment, we are con-fident that we shall be able to generate long term returns for our shareholders, be the seismic provider of choice for our customers and be a great place to work for our crew members and onshore employees.

We have continued to take a measured approach to our capital spending by making sound value-adding invest-ments that we believe will position Polarcus well for the long term. We have two additional vessels under construc-tion, both environmentally friendly true ice class vessels able to serve the frontier areas of exploration. We have continued to build on our low-cost culture to maximize as-set utilisation and invest capital where there is an immedi-ate and sustainable return. In 2011 this included laying the ground for a growing multi-client business with two suc-cessful projects carried out during the summer season.

With oil prices rising and the oil companies’ increased in-terest in exploration of the Arctic and other frontier areas, we believe Polarcus’s newly built, environmentally friendly fleet with true ice class specification will position us for continued success.

We have been fortunate to have enjoyed the support and steadfast commitment of our employees throughout all our early years of operation and to them we owe a huge debt of gratitude.

You, our shareholders large and small, have supported us through the unprecedented combination of difficult finan-cial and seismic market conditions which 2011 represent-ed and to you we are also truly grateful.

We are clear in our strategies and in our ambition and we look forward to an improving seismic market in 2012. With the continued support of our employees and shareholders we relish the challenge yet to come in meeting the goals we have set.

Yours sincerely

Chairman, Polarcus

DEARSHAREHOLDERS

10

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

Contract and multi-clientPolarcus has two principal business activities, Contract Seismic Services and Multi-Client Projects, supported by the youngest and most sophisticated marine seismic fleet in the industry. In conjunction with these services Polarcus pro-vides world-class geophysical solutions to effectively and efficiently align survey design with the geological and geo-physical objectives of the client.

Full rangeThe Company offers the full range of marine acquisition contract seismic services including 3D, high-density 3D, 4D, multi-azimuth and wide-azimuth data acquisition. The Polarcus fleet has through 2011 operated primarily along the Atlantic margins, from 75 degrees North in the Barents Sea to 55 degrees South in the Falkland Islands. Beyond the Atlantic margins the Company has also penetrated new markets in the Asia-Pacific region commencing first contract seismic operations offshore India and offshore New Zealand.

The Company has also made its debut in 2011 in multi-client projects with the launch of two important projects in the UK and Norway. Multi-client projects are surveys designed and acquired by the Company on its own account, with the resultant processed data subsequently licensed to oil and gas companies on a non-exclusive basis. The Company has ownership of the data or in certain jurisdictions is granted an exclusive licence to market and sell the data by the ap-plicable State authority. Multi-Client Projects can constitute a highly profitable business line that combined with Contract Seismic Services also provides for greater flexibility in vessel scheduling and market entry as well as generating steady income in all phases of the seismic life cycle. To develop world-class multi-client projects the Company has an exclusive cooperation agreements in place for NW Europe and Africa with an experienced and well-networked partner GeoPart-ners Limited, possessing local geologic and petroleum systems knowledge.

New frontiersThe Company is placing a high focus on the Arctic, in line with the Company’s Arctic Frontiers Strategy and in order to generate value from the vessels’ significant differentiation that specifically benefits such operations. Polarcus is pres-ently the sole operator of 3D seismic vessels combining the high ice class notation, ICE-1A, with a double hull, DP2, and other environmental and safety features, providing a unique competitive advantage for the Company in Arctic opera-tions and in preparation has developed a comprehensive set of Arctic / Cold Weather operational procedures to support such activities. The Company is actively pursuing opportunities for operations within the Arctic and in 2011 entered into a strategic alliance with OAO Sovcomflot of Russia, chartering one of the Company’s ice-class vessels to the Russian company under a five year bareboat charter party agreement. Polarcus is the first seismic company in the industry to receive a Statement of Qualification from Det Norske Veritas (DNV) qualifying Polarcus’ Arctic operating procedures ac-cording to industry best practice and relevant standards. The Company has received significant interest from a number of major oil companies active in the Arctic and in late 2011 was awarded its first true Arctic contract offshore Greenland, with operations to commence in Summer 2012. The Company has already successfully undertaken contract seismic operations in 2010 within the Barents Sea, offshore northern Norway.

Advanced data processingIn line with the Company’s pure play strategy, Polarcus has entered into an agreement with a reputable and non-aligned processing company GX Technology Corporation (GXT) in order to offer a ‘full service’ operation to clients. Under this agreement GX Technology provides seismic data quality control and data processing services onboard the Polarcus vessels, and advanced onshore seismic data processing capacity and services at one of their global Data Processing Centers as and when such services are part of the scope of surveys awarded to or required by the Company. The syn-ergies from the partnership have been recognized in a number of projects, both Contract Seismic Services and Multi-Client Projects, where the seamless project execution over the full acquisition and data processing cycle has delivered important value benefits for the clients.

SERVICEOFFERING

11

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

GlobalConsiderable attention has been placed on the Company’s sales and marketing efforts with regional Polarcus marketing offices now open, in Houston, Rio de Janeiro, London and Singapore, staffed by senior experienced industry profession-als. The Company has also engaged a number of commercial agents worldwide to assist in the development of regional markets such as Brazil, India, and some of the African and Asian countries where such agents are a normal requirement for business development.

Polarcus is a core member of the International Association of Geophysical Contractors (IAGC) and the Company’s CEO is a member of the IAGC Board of Directors. Polarcus has been successfully audited by a number of leading interna-tional oil and gas companies and is pre-qualified to tender on acquisition services by the vast majority of oil and gas companies worldwide. The Company is an approved supplier under the Achilles joint supplier qualification system for Norway and a Verified Supplier within the FPAL (First Point Assessment) supplier database for the United Kingdom.

12

Our VisionTo be a pioneer in an industry where the frontiers of seis-mic exploration are responsibly expanded without harm to our world.

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

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

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

Innovation – in business and in operations

Excellence – in delivery for shareholders and clients alike

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

StrategyTo achieve the Company’s corporate goal a seven point business strategy has been defined comprising the fol-lowing key elements:

• Pioneer the environmental agenda

• Optimize fleet configuration and composition

• Recruit, develop and retain the highest caliber indus-try professionals

• Develop a world-class service offering

• Maximize operational performance

• Develop and maintain an effective marketing and sales organization

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

• Secure and optimize start-up financing requirements

• Establish an optimal organizational structure and cost control programs

Corporate Structureas of 31 Dec 2011

Polarcus 6 Ltd. Cayman Islands

Polarcus Samur Ltd.

Cayman Islands



Polarcus Selma Ltd.

Cayman Islands “Polarcus Selma”

Polarcus US Inc. USD Polarcus

Egypt Ltd. Polarcus

Do Brasil Ltda.

Polarcus Norway AS Norway

Polarcus MC Ltd. Cayman Islands

Polarcus Multi-Client (CY) Limited

Cyprus

Polarcus UK Limited United Kingdom

Polarcus Seismic Limited

Cayman Islands

Polarcus DMCC Dubai

Polarcus Nadia AS Norway

Polarcus Naila AS Norway

Polarcus Asima AS Norway

“Polarcus Nadia” “Polarcus Naila”

Polarcus Alima AS Norway

“Polarcus Alima”

70% 1% 3 0% 99%

Polarcus Limited Cayman Islands

Sabaro Investments Ltd.

50% 50%

“Polarcus Asima”

“Polarcus Samur”

Hull 293

Hull 292

13

The Company’s business is defined in the Articles clause 3:

“The objects for which the Company is established are to carry on, undertake, engage or invest, directly or indirectly, by itself or through subsidiaries or part-owned companies, partnerships or other forms of entities, on a worldwide ba-sis, in any commercial activity within the international oil and oil services business, including oil and gas exploration, production and participation, seismic data services and general offshore energy related business, and whatever else may be considered incidental or conductive thereto, including without limitation the acquisition, construction, equipment, leasing, chartering, operation, agency and manning of any kind of vessels and everything incidental thereto, and the Company shall have full power and au-thority to carry out any other object not prohibited by the Companies Law of the Cayman Islands (as amended) (the “Law”).”

14

Polarcus Nadia & Polarcus Naila 12 streamer 3D/4D seismic vessels

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

Polarcus Samur & V. Tikhonov 8 streamer Arctic-ready 3D/4D seismic vessel

Delivered Q1 and Q3 2011 respectively POLARCUS SAMUR and V. Tikhonov are Arctic-ready 8 streamer 3D vessels built to the ULSTEIN SX133 design and capable of towing both conventional and wide tow spreads, in-cluding the Polarcus First Pass™ 3D technique requir-ing lateral streamer separations of 200m. POLARCUS SAMUR, whose name derives from the Arabic meaning ‘swift’ and V. Tikhonov has an LOA of 84.2m, a draft of 6.7m and a maximum speed of 17 knots, and carries the high ice class notation, ICE-1A, enabling operations with the utmost safety in the Arctic Ocean. The vessels are also amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, double hull and advanced ballast water treatment / bilge water cleaning systems.

Polarcus Asima & Polarcus Alima 12 streamer Arctic-ready 3D/4D seismic vessels

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

Polarcus Amani & Polarcus Adira 12-14 streamer Arctic-ready 3D/4D seismic vessels

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

POLARCUSFLEET

16

Peter M. RiggChairman of the Board

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

Shareholding in Polarcus: 284,000 Independent of the Company and management and independent of ma-jor hareholders

Carl-Gustav ZickermanNon-Executive Director

Carl-Gustav (born 1948) has substan-tial experience in the seismic industry gained from his involvement in the startup of Eastern Echo Ltd where he was also a Member of the Board and prior to that, as Director and Partner with SeaBird Exploration Ltd.

Shareholding in Polarcus: 40,571,476Warrants: 7,500,000Representing Zickerman Holding Ltd

Tore KarlssonNon-Executive Director, Deputy chair man of the board

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

Shareholding in Polarcus: 405,814Independent of the Company and management and independent of ma-jor shareholders

Jogeir RomestrandNon-Executive Director

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

Shareholding in Polarcus: 548,880Independent of the Company and management and independent of major shareholders

Hege SjoNon-Executive Director

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

Shareholding in Polarcus: 349,880 Independent of the Company and management and independent of major shareholders

BOARDOFDIRECTORS

17

Carl-Peter ZickermanExecutive Director

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

Shareholding in Polarcus: 22,948,081 Warrants: 7,500,000Part of the Executive Management team of the Company and represent-ing Zickerman Group Ltd

Ali A. bin Towaih Al SuwaidiNon-Executive Director

Ali A. bin Towaih Al Suwaidi has over 18 years experience within the oil and gas industry and is currently Vice Pres-ident of Business Development, Strat-egy and Administration at Drydocks World - Dubai. Prior to this he has held several senior positions at major com-panies in the region operating within the oil and gas sector. Ali holds a de-gree in Electronics Engineering Tech-nology from the Wentworth Institute of Technology in Boston.

Kitty HallNon-Executive Director

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

Shareholding in Polarcus: 387,880 Independent of the Company and management and independent of major shareholders

Mohammad RizalNon-Executive Director

Mohammad Rizal Bin Abdullah has over 32 years of experience in ship-building and ship repair and is cur-rently Production Director at Drydocks World - Dubai. Mohammad has prior to this held several senior positions within the shipbuilding and ship repair sector.

Mr Rizal resigned from the board of directors as of 24 November 2011.

Erik HenriksenNon-Executive Director

Erik Henriksen holds considerable experience from the shipping and off-shore industry. He has founded sev-eral companies both in UK and Nor-way including Trader Navigation and Discoverer ASA. He has also been involved in developing various com-panies, including Telecomputing ASA and Intelecom ASA. Mr Henriksen holds a diploma in International Ship-ping from the London School of For-eign Trade.

Mr Henriksen joined the board of directors as of 24 November 2011.

18

Eirin M. InderbergGeneral Counsel

Eirin (born 1968) has over 16 years experience as a lawyer and was for-merly General Counsel of Eastern Echo Ltd. Prior to this she worked for the law firm Wikborg Rein & Co. in Oslo and London, and as a lawyer at the Oslo Stock Exchange. Her ex-pertise includes Norwegian securities law, company law and ship financing.

Tom Henrik SundbyChief Financial Officer

Tom Henrik (born 1967) has over 18 years financial management and busi-ness development experience gained from the consulting services and com-modities industries. He started his ca-reer with KPMG Norway, first as an auditor and then as a management consultant. Tom then joined TINE Nor-way, a top 25 industrial company in Norway, where he was Head of Con-trolling department and Head of M&A. Most recently he was Managing Direc-tor of TINE UK Limited, based in Lon-don.

Christian FenwickSenior VP Corporate Marketing & Multi Client

Christian (born 1960) has over 29 years of industry experience and has held senior positions at Merlin Geo-physical, Schlumberger Geco-Prakla, Schlumberger Information Solutions, and most recently was the Vice Presi-dent Multi Client & Business Develop-ment at Eastern Echo Ltd. His expe-rience covers business development, marketing, sales, operations and proj-ect management.

Christopher GriffinVP Environment, Health, Safety & Quality

Christopher (born 1961) has over 25 years of industry experience both on-shore and offshore with Western Geo-physical, Horizon Exploration, PGS and, most recently with Eastern Echo Ltd where he held the position of Vice President Environment, Health, Safety & Quality. His experience covers both onshore operations and project man-agement, including 12 years in the field and 6 years in EHS&Q manage-ment.

Paul Lionel HannaSenior VP Human Resources

Paul (born 1964) has over 24 years of industry experience and has held senior positions in various divisions of the Schlumberger group, including Connectivity Services Manager and Career Planning Manager for Schlum-berger Information Solutions, London, UK; Data Services Business Manager for Data Consulting Services, Cairo, Egypt; and Area/Vessel Operations Manager for WesternGeco Gatwick, UK. His experience includes the tech-nical, personnel and operational man-agement of marine seismic vessels.

Trygve RekstenSenior VP Contract Sales

Trygve (born 1963) has over 19 years of industry experience and held sev-eral management positions at PGS, most recently as Head of Contract Sales Asia Pacific Region, prior to joining Eastern Echo Ltd as Senior Vice President Contract Sales. His experience covers onboard technical roles, operations, sales, business de-velopment, procurement and market analysis.

Rolf RønningenChief Executive Officer

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

Duncan Eley Senior VP Marine Acqusition

Duncan (born 1972) has over 13 years of experience in the seismic industry. He worked with WesternGeco for 10 years supporting marine seismic op-erations in Europe, West Africa and North America. He also held positions in technology development and sup-port in WesternGeco. Prior to joining Polarcus in 2009, Duncan worked for several years with strategy consultan-cy firm, L.E.K. Consulting, across the energy, transport and natural resourc-es sectors.

Carl-Peter ZickermanExecutive VP & Head of Strategic Investments

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

EXECUTIVEMANAGEMENT

19

Phil Fontana Chief Geophysisist

Phil (born 1952) has over 33 years of experience in the field of marine geo-physics. During that time he has held several senior level technical positions in marine seismic data acquisition at Western Geophysical, WesternGeco, Veritas DGC, and CGGVeritas. His experience includes design and eval-uation of marine acquisition technolo-gies including seismic sources, towed streamers, ocean bottom systems, and navigation and positioning sys-tems. He has also managed regional and global geophysical and navigation support groups. Prior to joining Polar-cus in December of 2008, Phil held the position of Geophysical Manager for CGGVeritas’ marine acquisition product line.

Magnus ObergVP IT

Magnus (born 1970) has over 22 years of experience managing IT sys-tems in large and medium size mari-time companies. He joined Polarcus from Eastern Echo where he was VP Information Technology, and prior to that he held several senior manage-ment positions within Gulf Agency Company before becoming the Group IT Research & Development Manager based in Dubai. His expertise includes networking, security, and high-avail-ability infrastructure solutions.

20

BOARDOFDIRECTORSREPORT

Polarcus (OAX: PLCS) is a pure play marine geophysical company with a pioneering environmental agenda, special-izing in high-end towed streamer data acquisition from Pole to Pole. Polarcus operates a fleet of high performance 3D seismic vessels incorporating an innovative design and advanced maritime technologies for improved safety and efficiency. Polarcus offers contract seismic surveys and multi-client projects worldwide and employs over 500 profes-sionals. The Company’s principal office is in Dubai, United Arab Emirates. For more information, visit www.polarcus.com

1. Key developments 2011• Revenues of USD 298.6 million, EBITDA of USD 76.3 million and operating profit of USD 15.5 million• Positive net cash flow from operating activities of USD 47.6 million• Doubled the fleet from 3 to 6 vessels• Growing client list inclusive of oil supermajors and strategic Arctic awards• Strong operational performance• Secured fleet bank facility• Secured strategic 5 year bareboat charter with Russia’s OAO Sovcomflot

2. Environmental, health, safety and quality (EHSQ)EHSQ is at the core of Polarcus’ activities and its risk management commitments have been important factors in ena-bling the Company to become a major player in the marine seismic acquisition market.

2011 proved to be another active year with a strong focus being given to assuring a robust EHSQ performance as the Company took delivery of POLARCUS SAMUR, POLARCUS ALIMA and POLARCUS SELMA. POLARCUS SAMUR is an ultra-modern and Arctic-ready 8 streamer 3D seismic vessel of the ULSTEIN SX133 design. POLARCUS ALIMA is an ultra-modern and Arctic-ready 12 streamer 3D seismic vessel of the ULSTEIN SX134 design.

POLARCUS SELMA, also to the Arctic ready Ulstein SX133 design, was placed immediately on delivery into a 5 year bareboat charter with OAO Sovcomflot of Russia as part of a developing strategic relationship. As part of the charter agreement POLARCUS SELMA was subsequently renamed M/V Vyacheslav Tikhonov in a naming ceremony attended by Prime Minister Vladimir Putin, now President of the Russian Federation.

After achieving certification in 2010 to International Standards for EHSQ Management, the Company was able in April 2011 to receive a Statement of Qualification from Det Norske Veritas (DNV) qualifying the Company’s Arctic operating procedures according to industry best practice and relevant standards. The Statement of Qualification was presented to the Company at the 7th Annual Arctic Shipping Summit in Helsinki, Finland.

With the doubling of Polarcus’ fleet in 2011, the Company also doubled its EHSQ exposure. However, recordable injury statistics were reduced by almost 70% compared to 2010. During 2011 Polarcus also maintained the “Zero Spills” objec-tive with regards to potential oil pollution of the marine environment.

IAGC Reporting Categories Additional CategoriesLost Time Incidents (LTI): 1Medical Treatment Case (MTC): 1Restricted Work Case (RWC): 0

Lost Time Incident Frequency (LTIF): 0.36True Recordable Case Frequency (TRCF): 0.72

First Aid Cases (FAC): 47Non-Conformance-Corrective Action-Preventive Action (NCCAPA): 8847Near Miss (NM): 243Improvement Suggestions (IS): 3321

Also in 2011 POLARCUS ALIMA was able to effectively utilize her high Ice Class 1A rating to secure a permit to transit to the Asia-Pacific Region via the Northern Sea Route. The vessel departed from Hammerfest in Norway after comple-tion of seismic operations in the Barents Sea, transiting a 3,000 nautical mile route along the northern coast of Russia, to Cape Dezhnev in the Bering Straits. This was the first known passage of a 3D seismic vessel along the Northern Sea Route and was achieved through careful planning and the expertise of our Arctic- experienced Master and Crew. The

21

transit enabled the Company to save between 8 and 13 days compared to the normal transit routes between Europe and Asia-Pacific, further reducing the environmental footprint of the passage POLARCUS ALIMA was thereby placed into the highly visible and demanding region of the Southern Oceans around New Zealand where environmental, health and safety issues are at the forefront of every project. Whilst operating in this region the vessel has continued to perform to the highest standards. Polarcus believes that the Company’s focus on its Arctic credentials has subsequently been a major contributor to securing certain key Arctic projects in environmentally sensitive areas for execution in 2012.

3. Operations and marketsDuring 2011, Polarcus doubled its operational fleet from three to six high-end 3D seismic vessels. The Company deliv-ered significant improvements in technical performance throughout the year resulting in technical downtime of just 5.8% by year end. The vessel utilization on contract of 79% is lower than the Company’s aspirations but with two vessels being delivered from the yard in 2012 and a fleet size closer to critical mass, utilization is expected to improve going forward.

Polarcus has increased its market share amongst all client segments including super-majors. Being a newcomer in a flat seismic market where clients seek a proven track record is always a challenge but the Company nevertheless suc-ceeded in adding more than thirty customers to its client list. The Company’s outstanding quality of delivered data has been commented on by a number of clients.

Whilst POLARCUS SELMA (now M/V Vyacheslav Tikhonov) was for strategic reasons placed on a 5 year bareboat charter agreement with Russian shipping company OAO Sovcomflot the rest of the Company’s 5 vessels presently in operation are active in the global contract market where they compete with five main seismic companies in the high-end market segment.

Seismic operations in general are split between contract seismic, where data is acquired exclusively for an oil company, and multi-client, where seismic companies plan and undertake a survey for its own account, subsequently marketing the final fully processed project data to multiple customers on a non-exclusive license basis. Unlike the contract model, the seismic companies own the acquired data, or are granted exclusive marketing rights for it, for a period of ten or sometimes more years. In Q3 2011 Polarcus launched its inaugural 3D multi-client project in UK Quad 28, completing seismic acquisition in November 2011 and the subsequent data processing in Q1 2012. The survey, named the “Catcher project”, encompasses the recent significant Catcher oil discovery and several adjacent open blocks that are on offer in the current UK 27th Round that opened in January 2012. The project has attracted strong industry interest and saw increasing prefunding commitments through the year. The survey was undertaken through a 50/50 joint venture with Sabaro Investments Limited.

Polarcus saw contract prices being stable in H1 2011, despite the disruptions seen post Macondo in the Gulf of Mexico a year earlier, that also coincided with new vessel capacity entering the market. However, in Q3 2011 implied day rates on new contracts signed were higher than day rates previously achieved. The Company believes this reflected a strength-ening of certain regional markets. Following this slight strengthening in Q3 2011 the market environment for seismic became highly competitive again in Q4 2011 as an estimated 23 vessels transited from NW Europe at the end of the traditional operating season. With a limited number of new contract opportunities immediately available at that time there was consequently renewed pressure on day rates.

During 2011 the Company announced projects in Asia-Pacific that broadened the global footprint of the Polarcus fleet, a key strategic objective. Further, included in the current backlog are two Arctic projects secured offshore Greenland for three vessels in 2012. These three vessels all have the high ICE 1A or 1A* class and the contracts are considered by the Company to be a strong endorsement of the investment it has made into leading-edge Arctic technologies, systems and procedures.

22

4. Financial results for 2011The consolidated financial statements of Polarcus Limited as well as the financial statements for the parent company are prepared in accordance with International Financial Reporting Standards.

The increased activity reflected in the 2011 figures compared to 2010 is mainly a reflection of the increase of three ves-sels in operation in 2011 compared to 2010.

Operating revenues increased by 148% to USD 295.3 million in 2011 compared to USD 119.3 million in 2010, mainly driven by the increased fleet of vessels. 2011 was the first year with multi-client revenues which amounted to USD 20.6 million or approximately 7% of operating revenues.

In addition, the Company recorded other income of USD 3.2 million in 2011 compared to USD 3.5 million in 2010 related to insurance claims.

Vessel operating expenses increased by 182% to USD 188.9 million in 2011, compared to USD 67.1 million in 2010. Again, the increase is largely due to the increased fleet but operating costs were also higher in 2011 compared to 2010 when all vessels were new from the yard and thus benefited from lower operating expenses during the first few quarters of operation. Operating expenses fluctuate significantly depending on geographical location of vessels. These geo-graphic fluctuations reflect regional operational requirements and generally also reflect increased revenue.

Sales, general and administrative costs increased by 33% to USD 33.3 million in 2011 from USD 25.1 million in 2010, as a result of increased headcount to meet growth. The workforce increased from 373 to 536 employees during the year.

EBITDA was USD 76.3 million in 2011, up 151% from USD 30.5 million in 2010. EBITDA margin in 2011 was 25.5%, up from 24.9% in 2010. The slightly increased EBITDA margin for the year was impacted positively by multi-client sales and negatively by increased operating costs.

Depreciation and Amortization amounted to USD 60.8 million in 2011 compared to USD 26.8 million in 2010. The in-crease was mainly due to the expansion of the fleet and amortization of the multi-client projects library.

Amortization of the multi-client library in 2011 of USD 10.5 million reflects an average 50% amortization of multi-client revenue for the two projects in 2011.

Total operating profit in 2011 was USD 15.5 million compared to USD 2.6 million in 2010.

Total interest expense increased to USD 53.5 million in 2011 from USD 38.4 million in 2010 largely as a function of ad-ditional net interest bearing debt and a reduction in interest capitalized to vessels under construction.

The total finance cost for the full year 2011 is further increased by a higher unrealized exchange loss due to devaluation of NOK funds held in cash as the NOK depreciated against the USD between the financing carried out in October 2011 and year end 2011.

Total finance income was USD 5.8 million in 2011 compared to USD 4.6 million in 2010. The increase is mainly due to an unrealized exchange gain on devaluation of the NOK bond as a result of depreciation in the NOK against the USD.

The increased finance cost has partly been offset by changes to the fair value of financial instruments which has resulted in a gain of USD 6.7 million in 2011 compared to a loss of USD 3.6 million in 2010. This fair value change is a non-cash item and relates to the gain on revaluation of the liability for warrants to founding shareholders. At year end 2011 the total value of this financial instrument is USD 48,000.

In 2011 tax expenses were USD 24,000 related to a Norwegian subsidiary. The Company has chosen to hold the ves-sels in companies taxable under the Norwegian tonnage tax system. The tonnage tax is classified as an operational expense. As a function of its multinational operations the Company is subject to taxation in many jurisdictions around the world with increasingly complex tax laws and interpretations. The Company recognizes liabilities for anticipated tax issues based on estimates of whether it is probable that additional taxes will be due.

The total net loss for 2011 amounted to USD 31.5 million compared to USD 28.3 million in 2010.

Total assets increased to USD 1,108 million in 2011 from USD 974 million in 2010. Total liabilities increased to USD 678 million in 2011 from USD 582 million in 2010. Total equity increased to USD 430 million in 2011 from USD 392 million in 2010. At year end 2011 the equity ratio had fallen slightly to 39% from 40%.

Net interest bearing debt at year end 2011 was USD 619 million up from USD 523 million in 2010.

23

The Board confirms that the 2011 consolidated financial statements have been prepared based on the assumption of going concern and that the assumption of going concern is appropriate.

5. Allocation of the parent Company’s loss for 2011The parent company loss for the period was USD 3.4 million for 2011 compared to a loss of USD 6.7 million in 2010. The Board proposes to allocate the 2011 loss for the period to retained earnings/loss. Terms of certain of the financing agreements include restrictions on dividend payments from the Company resulting in no dividend currently being avail-able for distribution.

6. Cash flows from operating activities and liquidityDuring 2011, net cash flow from operating activity was USD 47.6 million, up from USD 11.7 million in 2010. Cash and cash equivalents as of 31 December 2011 were USD 60.3 million compared to USD 86.8 million at year end 2010.

During 2011, the Company secured long term financing of its new build program, and with the private placement com-pleted in March 2012, the Board of Directors believes that the Company’s liquidity position is adequate. Please refer to note 1.1 Financing of the consolidated financial statements for a further description of the financing of the Company.

7. New build programPolarcus took delivery of three new vessels in 2011. After being upgraded from an original six streamer arrangement to an eight streamer configuration, POLARCUS SAMUR was delivered on 02 March 2011 with a total capital expenditure of USD 133 million, inclusive of 6 x 6,000 meter seismic streamers.

POLARCUS ALIMA was reacquired in October 2010 after a successful fundraising and was delivered on 21 March 2011 with a total capital expenditure of USD 169 million including 12 x 6,000 meter seismic streamers.

Polarcus Selma Ltd, a member of the Polarcus Group, took delivery on 08 August 2011 of the vessel subsequently named M/V Vyacheslav Tikhonov, the sixth 3D seismic vessel to date to join the Polarcus fleet. The vessel is the sister ship of POLARCUS SAMUR, delivered to the Polarcus Group in March 2011.

In November 2010, Polarcus signed shipbuilding contracts with Ulstein Verft AS for two additional high-end 3D seismic vessels for delivery in March and June 2012 respectively. The two new builds are being constructed to the ULSTEIN SX134 design. The vessels will be capable of towing up to 14 seismic streamers in various configurations. POLARCUS AMANI will be delivered 29 March 2012 with a total capital expenditure of USD 170 million including 12 x 6,000 meter seismic streamers. Construction of POLARCUS ADIRA remains on schedule, with delivery expected in June 2012. The Company has a separate site team on location overseeing the building of these two vessels. After taking delivery in 2012, the Company’s fleet will comprise eight vessels.

8. Capital investments and financingIn April 2011, Polarcus exercised its option to repurchase POLARCUS SELMA (M/V Vyacheslav Tikhonov) after raising USD 125 million in a convertible bond issue with a coupon of 2.875% and a conversion premium of 32.5%. The refer-ence price for the conversion is USD 1.46.

In October 2011 the Company entered into a loan facility of USD 410 million with DNB and DVB Bank SE, Nordic Branch, together with Garanti-instituttet for Eksportkreditt (GIEK) and Eksportfinans ASA (the “Fleet Bank Facility”). The Company also entered into an amended and restated bond agreement for the Polarcus Alima AS 10/15 12.5% USD 80 million second lien bond issue (ISIN: NO0010590300) (the “Bond Issue”) and entered into an inter-creditor agreement coordinating the security interests between the Fleet Bank Facility and the Bond Issue. The Fleet Bank Facility will be drawn down in five tranches and used to refinance existing debt related to POLARCUS ALIMA, POLARCUS ASIMA and POLARCUS SAMUR and to partly finance the new buildings POLARCUS AMANI and POLARCUS ADIRA. The drawing of the tranches will happen sequentially:

• Tranche 1 and Tranche 2 were drawn on 15 November 2011. This triggered a repayment of the earlier USD 80 million loan facility and the USD 55 million bank loan facility granted by DVB Bank SE, Nordic Branch, together with GIEK and Eksportfinans ASA.

• Tranche 3 will be drawn upon delivery of POLARCUS AMANI on 29 March 2012 and will be used to partly fi-nance the vessel.

• Tranche 4 will be drawn upon delivery of POLARCUS ADIRA expected to take place in Q2 2012 and will be used to partly finance the vessel.

• Tranche 5 will partly refinance the USD 55 million 13.0% Senior Secured Callable Bond (ISIN NO 0010445935), expected to take place in Q2/Q3 2012.

24

In respect of the drawdown of Tranche 3, Tranche 4 and Tranche 5 in the Fleet Bank Facility, a capital structure satisfac-tory to the lending banks is a condition precedent to drawdown.

The new financing from Eksportfinans ASA included in the Fleet Bank Facility has a fixed interest rate of 2.85% in ad-dition to 2.75% guarantee commission to GIEK and the commercial banks. When the Fleet Bank Facility is fully drawn, the average nominal interest rate for Polarcus will be approximately 7.5%.

On 11 October 2011 the Company issued 57,500,000 new shares through a private placement to Sabaro Investments Limited. The new shares were subscribed for at a price of NOK 4.00 per share. Total gross proceeds from the Pri-vate Placement amounted to NOK 230 million (USD 41.1 million). Following the Private Placement, the Company had 467,196,179 shares outstanding at 31 December 2011.

On 27 October 2011 the Company issued NOK 230 million of unsecured bonds with maturity in November 2014. The bonds were issued with a coupon of 14.00% p.a.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounted to NOK 232 million (USD 40.7 million). Following the Private Placement, the Company has 507,196,179 shares outstanding.

9. Strategy The Company’s maritime and technology strategy is now yielding positive results. Polarcus set an ambitious environ-mental agenda at launch that aimed to minimize the Company’s environmental footprint. Consequently it invested in new-build high-end, ice-class vessels incorporating clean technology and advanced seismic and navigation systems intended to ensure that the fleet is at the forefront of the industry. Recent project announcements in the Arctic for three of the Company’s Ice-Class 1A/1A* vessels mark another milestone in becoming the preferred supplier to the industry in new frontier and environmentally sensitive sea areas.

The move into the multi-client business is intended take advantage of attractive opportunities in the market, to improve the balance of the Company’s business and to provide increased operational flexibility.

During 2011, Polarcus signed a five year Bareboat Charter Party Agreement (BBCP) with a subsidiary of OAO Sov-comflot (SCF) of Russia. Under the terms of the BBCP Sovcomflot is chartering M/V Vyacheslav Tikhonov, previously POLARCUS SELMA, inclusive of an eight streamer seismic equipment package, from Polarcus at a rate of USD 69,500 per day. The Company will work to develop further its relationship with Sovcomflot based on the success of its pioneer-ing Arctic and environmental offering.

Going green demands global solutionsThe challenges of climate change, sustainable development and the protection of species have become global con-cerns. Whilst alternative energy solutions are sought, our world remains dependent on energy from hydrocarbons. Our industry has a key stewardship role to play in making every effort to operate in an environmentally responsible manner. Regulators and other stakeholders are demanding new levels of environmental performance, reflecting the increasing world-wide concern for both the local and global environment.

Polarcus approaches this from the perspective of a concerned citizen and the Company as a whole seeking global solutions. The Company believes that we must be willing to invest now in order to avoid negative future consequences of inaction. There is a significant opportunity within the maritime sphere of the seismic industry to perform operational work in a cleaner and greener fashion. The Company believes its strategy has demonstrated that making the necessary investment can create a real and lasting competitive advantage.

Polarcus fleet 2011 full year emission report:The Company’s seismic vessels are all constructed according to DNV’s CLEAN-DESIGN notation, not to be confused with the more common but less stringent CLEAN notation. The CLEAN-DESIGN notation recognizes that the Compa-ny has systems in place to control and limit operational emissions and discharges to air and water. It also recognizes our investment in defensive design elements such as a double hull.

Polarcus estimates its annual fleet emissions as follows;

CO2 121,753 t approximately 14% less than industry average SOx 134 t 85% below the IMO ECA legislative areas NOx 719 t one third of the level permitted by IMO regulations Black Carbon reduced by ~ 20 - 30%

25

10. OrganizationPolarcus’ headquarters are in Dubai, United Arab Emirates and at year end 2011 the Company also had additional marketing offices in Houston, London, Rio de Janeiro, and Singapore. At end 2011 Polarcus had 536 employees from over 40 different nationalities. Approximately 420 of these work in the field as seismic and maritime crew onboard the vessels. 10% of the workforce is female (30% office and 3% field) and of the nine Directors on the Board, two are female. The number of days lost due to illness in the office in 2011 was 352 days, which represents an absence rate of 1.5%. Polarcus is committed to being the employer of choice in the marine seismic business and to maintaining a human resource system that is open and fair. Polarcus aims to be a workplace with equal opportunities and has included in its policies regulations to prevent discrimination regarding salary, promotion and recruiting.

11. Risk11.1 Financial risk factorsFinancial leverage and breach of covenants

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

Fluctuations in Exchange rates and currency risks

The Group’s costs are primarily in USD and to a lesser extent NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD.

The new-build POLARCUS ADIRA has a total estimated project capital cost, based on a USDNOK exchange rate of 6.0, of USD 168 million; including seismic equipment but excluding capitalized interest costs. The project is slightly below budget, however some risk of a negative currency effect remains. A change of NOK 0.1 from NOK 6.0 in the USDNOK exchange rate will have a capital expenditure effect of approximately USD 2.0 million.

Except for a Bond issue of NOK 230 million (USD 40.6 million), the long term financing of the Group is in USD.Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the Company’s functional currency, which is USD.

The Company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

Interest rate risk

The Group has interest-bearing assets which results in the Group’s income and operating cash flows being dependent on changes in market interest rates. The interest-bearing assets with variable interest rates expose the Group to cash flow interest rate risk. Interest earned and received on these balances fluctuates with changes in market interest rates. During the period, the Group’s financial assets at variable rates were denominated in USD and NOK.

The Group is subject to interest rate risk on debt, including capital leases. The risk is managed using a combination of fixed and variable rate debt.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and having availability of funding through an adequate amount of committed credit facilities. Management constantly reviews the forecast of the Group’s liquidity reserve on the basis of expected cash flows.

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

26

11.2 Operational RisksVariability of operating results

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

Supply and Demand risks

Demand for offshore geophysical services depends on the demand / supply balance for oil and gas and on the invest-ments by oil and gas companies in exploration and development projects. Low demand or oversupply of oil and gas can lead to reduced capital expenditures by oil and gas companies that in turn may reduce the demand for the Group’s products and services. Other factors that may reduce the demand for the Group’s products and services include, but are not limited to, fluctuations in productions levels and disappointing exploration results.If the Group fails to obtain short or long term contracts for one or more of the vessels, it could incur financial losses due to there being fewer operating vessels to allocate fixed costs to.

Future contract awards

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

Operating and financial history

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

Access to personnel

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

Dependence on few assets

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

Insurance protection

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

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

12. Internal ControlThe Group has established appropriate internal control routines to cater for the operation of the Company. Polarcus management follows up its financial status on a daily basis leading into a formal monthly management report includ-ing critical factors relating to financial covenants, cash flow, comparison to budget and other key figures. The quarterly financial statements are presented and approved by the Board of Directors with a detailed comparison year on year. The Company has implemented an electronic invoice control system, a detailed authority matrix for financial disposi-tions and payment routines. In order to sufficiently manage accounts receivables, monthly invoicing routines and weekly monitoring are in place. The Company’s costs are monitored monthly and necessary accruals made. The Company has expanded its organization to include personnel with responsibility for ensuring compliance with international, national and local tax, fees and filing requirements.

27

13. Corporate GovernanceThe Company believes that focus on corporate governance is critical to its success and long-term growth. Polarcus is committed to maintaining high standards of corporate governance. The governance structure of Polarcus is designed to ensure sound and efficient decision making and to be appropriate to shareholders’ expectations and to the size, busi-ness and history of the Polarcus Group. It also is designed to adhere to the Norwegian Code of Practice for Corporate Governance (the “Code”) at any time applicable, Cayman Islands law and practice and the Memorandum and Articles of Association of Polarcus.

A report on Corporate Governance in accordance with the Norwegian Accounting Act 3-3b and details regarding Polar-cus’ compliance with the Code are provided in the document “Corporate Governance Report for the year 2011 input the exact link reference.

The Board of Directors has issued separate Terms of Reference that in detail set out the authorities, responsibilities and duties of the Board, the chairman, the deputy chairman, a director, the company secretary and board committees. Furthermore, job descriptions have been prepared for the CEO and all members of the executive management team. In accordance with its Terms of Reference, the Board has established a plan for its work for 2012 and has carried out an evaluation of its performance and expertise in 2011.

The Board has appointed a deputy chairman who normally will chair agenda items in which the chairman has been actively involved.

The Board of Directors has held five physical meetings, five phone meetings and executed four written resolutions in 2011. The attendance of the board meetings in 2011 by the various directors is reflected in the table below:

Board Member No. of Physical Meetings No. of Phone MeetingsPeter Rigg 5 5Tore Karlsson 5 5Ali Bin Towaih 4 2Kitty Hall 5 5Carl Gustav Zickerman 4 5Mohammad Rizal 4 2Carl Peter Zickerman 5 5Hege Sjo 4 5Jogeir Romestrand 5 5

Three committees have been established by the Board; (i) a corporate governance and remuneration committee, (ii) a nomination committee and (iii) an audit committee.

Corporate Governance and Remuneration Committee

The corporate governance and remuneration committee consists of Mr. Tore Karlsson, Mrs. Hege Sjo and Mrs. Kath-erine Hall. The committee is mandated to regularly review and update the Company’s governance commitments and structure and to review proposals from the executive management on bonus schemes and other benefits as well as general principles for the Group’s salary and allowance program.

Nomination Committee

The current nomination committee consists of Mr. Morten Garman, Mrs. Hege Sjo and Mr. Thomas Raaschou. The com-mittee is mandated to evaluate and submit a recommendation to the AGM on the composition of the Board of Directors, nominees for election as members and possibly alternate members of the Board and the Chairman and remuneration of the Board and the members of committees and amendments to the committees’ terms of reference. The 2011 AGM approved the appointment of the members of the nomination committee and the relevant Terms of Reference

Audit Committee

The audit committee consists of Mr. Jogeir Romestrand, Mrs. Hege Sjo, Ms. Marika Svardstrom and Mr. Peter Rigg. The committee is mandated to regularly review the Company’s proposals for quarterly accounts and various issues related to the accounts, review new and changes to existing accounting principles, supervise the budget process, review and eval-uate the Company’s internal financial control and on behalf of the Board of Directors liaise with the Company’s auditor.

28

Corporate Social Responsibility (CSR)

Polarcus has defined its vision and core values as well as a set of commitments for its business operation (the “Com-mitments”) and this material constitutes the foundation of Polarcus’ CSR.

Polarcus’ vision is:

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

The vision is rooted in the Company’s core values of Responsibility, Commitments and Excellence.

The core values are reflected in the Company’s commitments consisting of sixteen overriding commitments within the following areas: (i) environment sustainability, (ii) health, safety and security, and (iii) ethics in business and the respect and promotion of human rights.

To ensure compliance with the Polarcus Commitments, Polarcus has developed procedures, checklists and manuals, which provide the necessary reference, standards and instruction for responsibly carrying out daily tasks. All these tools are included in the Company’s management system, in order to ensure a well-functioning operation, and elements are included in evaluation of employees.

14. OutlookThe market environment for seismic was highly competitive in Q4 2011, with an estimated 23 vessels transiting from NW Europe at the end of the traditional operating season. With a limited number of new contract opportunities tendered in Q4 there has been a consequent pressure on day rates. This situation has continued into Q1 2012 but increased tendering activity and recent awards signal a strengthening market from Q2 2012, with demand outstripping supply. Despite the current challenging market environment in Q1 2012 the Company believes that average day rates in 2012 will be higher than 2011. This is further supported through various announcements that both national and international oil companies are further increasing their E&P budgets for 2012. As the correlation between oil price and demand for seismic activity is strong, the continued high oil price may further strengthen the demand for seismic contract work in general, and specifically for work in new frontier areas.

With the expanded Polarcus technology offering and the industry recognition of the company’s capabilities, the Board believes Polarcus is well positioned in a seismic sector expected to recover.

30

SHAREINFORMATION

0

5

10

15

20

25

30

35

40

45

50

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

Mill

ions

Shares in Polarcus are listed on the Oslo Axess under the ticker symbol ‘PLCS’. During the year of 2011, a total of 704 million Polarcus shares were traded at a value of NOK 3.9 billion. This means that 170 percent of the total number of shares outstanding in Polarcus were traded during the period and more than 123 thousand share transactions were completed in Polarcus shares. At the end of the year 2011, Polarcus had a market capitalization of NOK 1.3 billion.

Share capitalAs of 31 December 2011 the issued share capital of Polarcus amounted to USD 9,343,923.58 divided into 467,196,179 shares of par value USD 0.02 each. All shares are of the same class and carry equal rights in all respects and each share carries one vote.

Polarcus shareholdersAt year-end 2011 Polarcus had 2175 shareholders. The company’s largest shareholder is Sabaro Investments Limited with 17 percent. The 20 largest shareholders at year end 2011 held 62 percent of the shares in Polarcus.

32

POLARCUS LIMITED AND SUBSIDIARIESCONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive IncomeConsolidated Statement of Financial PositionConsolidated Statement of Cash Flow Consolidated Statement of Changes in EquityNotes to the Consolidated Financial Statements

For the year ended 31 December 2011

Consolidated Statement of Comprehensive Income

01 January - 31 December (In thousands of USD) Notes 2011 2010 Revenues Contract revenue 5 274,757 119,256 Multi-client revenue 5 20,571 - Other income 3,248 3,478 Total Revenues 298,577 122,734

Operating Expenses Vessel Operating expenses 26 (188,932) (67,134) Sales, general and administrative costs 27 (33,327) (25,141) Depreciation and amortization 28 (60,802) (26,849) Impairment of vessels under construction - (1,000) Total Operating Expenses (283,061) (120,124)

Operating profit/(loss) 15,516 2,610

Financial Expenses Finance costs 29 (59,472) (31,983) Finance income 30 5,761 4,594 Changes in fair value of financial instruments 31 6,720 (3,561) Net Financial Expenses (46,991) (30,950)

Profit/(loss) for the period before tax (31,475) (28,341) Income tax expense (24) - Profit/(loss) for the period (31,499) (28,341)

Other comprehensive income Other comprehensive income/(loss) for the period - - Total comprehensive income/(loss) for the period (31,499) (28,341)

Profit/(Loss) per share for loss attributable to the equity holders during the period (In USD) - Basic 32 (0.075) (0.100) - Diluted 32 (0.086) (0.100)

33

Consolidated Statement of Comprehensive Income

01 January - 31 December (In thousands of USD) Notes 2011 2010 Revenues Contract revenue 5 274,757 119,256 Multi-client revenue 5 20,571 - Other income 3,248 3,478 Total Revenues 298,577 122,734

Operating Expenses Vessel Operating expenses 26 (188,932) (67,134) Sales, general and administrative costs 27 (33,327) (25,141) Depreciation and amortization 28 (60,802) (26,849) Impairment of vessels under construction - (1,000) Total Operating Expenses (283,061) (120,124)

Operating profit/(loss) 15,516 2,610

Financial Expenses Finance costs 29 (59,472) (31,983) Finance income 30 5,761 4,594 Changes in fair value of financial instruments 31 6,720 (3,561) Net Financial Expenses (46,991) (30,950)

Profit/(loss) for the period before tax (31,475) (28,341) Income tax expense (24) - Profit/(loss) for the period (31,499) (28,341)

Other comprehensive income Other comprehensive income/(loss) for the period - - Total comprehensive income/(loss) for the period (31,499) (28,341)

Profit/(Loss) per share for loss attributable to the equity holders during the period (In USD) - Basic 32 (0.075) (0.100) - Diluted 32 (0.086) (0.100)

34

Consolidated Statement of Financial Position

(In thousands of USD) Notes 31-Dec-11 31-Dec-10 ASSETS Non-Current Assets Property, plant and equipment 6 866,922 478,544 Vessels under construction 7 5,291 200,531 Vessels buyback options - 19,907 Vessel prepayments 7 28,060 28,060 Multi-client data library 8 10,470 - Intangible assets 9 712 2,633 Total Non-Current Assets 911,454 729,675

Current Assets Prepaid expenses 10 4,792 2,440 Other current assets 11 52,189 26,052 Accounts receivable 55,425 18,357 Restricted cash - short term 12 23,683 110,749 Cash and bank 13 60,336 86,836 Total Current Assets 196,425 244,435

TOTAL ASSETS 1,107,879 974,110

EQUITY and LIABILITIES Equity Issued share capital 14 9,344 8,194 Share premium 14 463,692 423,822 Other reserves 16 37,981 9,308 Retained earnings/(loss) (81,261) (49,762) Total Equity 429,756 391,563

Non-Current Liabilities Senior bonds 17 168,145 130,850 Convertible bonds 18 131,110 31,269 Long-term finance lease 19 170,603 194,407 Other long-term debt 20 110,992 72,953 Liability for warrants 14, 31 48 6,768 Employee pension accrual 27 333 292 Total Non-Current Liabilities 581,231 436,540

Current Liabilities Interest payable 21 9,072 8,766 Employee accruals and payables 22 4,245 6,586 Other accrued expenses 23 16,946 7,166 Deferred payments to vendors - 59,874 Long-term finance lease current portion 19 24,943 22,388 Other long-term debt current portion 20 13,331 10,936 Accounts payable 28,355 30,291 Total Current Liabilities 96,892 146,008 TOTAL EQUITY and LIABILITIES 1,107,879 974,110

Consolidated Statement of Cash Flows 01 January - 31 December

(In thousands of USD) Notes 2011 2010 Cash flows from operating activities Profit/(loss) for the period (31,499) (28,341) Adjustment for: Depreciation and amortization 28 60,802 26,849 Impairment of vessels under construction - 1,000 Changes in fair value of financial instruments 31 (6,720) 3,561 Stock Options compensation provision 14 2,069 2,053 Interest expense 29 53,528 26,844 Interest income 30 (251) (157) Working capital adjustments: Decrease/(Increase) in current assets (59,418) (31,406) Increase in trade and other payables and accruals 29,050 11,337 Net cash flows from operating activities 47,561 11,741

Cash flows from investing activities Decrease/(Increase) in restricted cash 12 87,066 (74,224) Payments for property, plant and equipment (303,579) (207,621) Payments for multi-client data library 8 (17,282) - Payments to acquire intangible assets (219) (443) Interest income - 10 Net cash flows used in investing activities (234,013) (282,278)

Cash flows from financing activities Proceeds from the issuance of ordinary shares 14 41,117 129,672 Transaction costs on issuance of shares 14 (96) (6,503) Proceeds from the issuance of senior bonds 17 40,634 80,000 Proceeds from the issuance of convertible bonds 18 125,000 - Transaction costs on issuance of bonds (5,292) (3,071) Receipt from sale lease-back fund - 22,255 Net receipt from loans 20 53,695 76,081 Repayment of lease liabilities 19 (22,769) (14,904) Repayment of other long-term debt 20 (13,227) (3,981) Interest paid (53,222) (37,660) Other finance costs paid 11 (6,139) - Interest income 30 251 157 Net cash flows from financing activities 159,951 242,048

Net increase/(decrease) in cash and cash equivalents (26,501) (28,489) Cash and cash equivalents at the beginning of the period 86,836 115,323 Cash and cash equivalents at the end of the period 60,336 86,836

35

Consolidated Statement of Financial Position

(In thousands of USD) Notes 31-Dec-11 31-Dec-10 ASSETS Non-Current Assets Property, plant and equipment 6 866,922 478,544 Vessels under construction 7 5,291 200,531 Vessels buyback options - 19,907 Vessel prepayments 7 28,060 28,060 Multi-client data library 8 10,470 - Intangible assets 9 712 2,633 Total Non-Current Assets 911,454 729,675

Current Assets Prepaid expenses 10 4,792 2,440 Other current assets 11 52,189 26,052 Accounts receivable 55,425 18,357 Restricted cash - short term 12 23,683 110,749 Cash and bank 13 60,336 86,836 Total Current Assets 196,425 244,435

TOTAL ASSETS 1,107,879 974,110

EQUITY and LIABILITIES Equity Issued share capital 14 9,344 8,194 Share premium 14 463,692 423,822 Other reserves 16 37,981 9,308 Retained earnings/(loss) (81,261) (49,762) Total Equity 429,756 391,563

Non-Current Liabilities Senior bonds 17 168,145 130,850 Convertible bonds 18 131,110 31,269 Long-term finance lease 19 170,603 194,407 Other long-term debt 20 110,992 72,953 Liability for warrants 14, 31 48 6,768 Employee pension accrual 27 333 292 Total Non-Current Liabilities 581,231 436,540

Current Liabilities Interest payable 21 9,072 8,766 Employee accruals and payables 22 4,245 6,586 Other accrued expenses 23 16,946 7,166 Deferred payments to vendors - 59,874 Long-term finance lease current portion 19 24,943 22,388 Other long-term debt current portion 20 13,331 10,936 Accounts payable 28,355 30,291 Total Current Liabilities 96,892 146,008 TOTAL EQUITY and LIABILITIES 1,107,879 974,110

Consolidated Statement of Cash Flows 01 January - 31 December (In thousands of USD) Notes 2011 2010 Cash flows from operating activities Profit/(loss) for the period (31,499) (28,341) Adjustment for: Depreciation and amortization 28 60,802 26,849 Impairment of vessels under construction - 1,000 Changes in fair value of financial instruments 31 (6,720) 3,561 Stock Options compensation provision 14 2,069 2,053 Interest expense 29 53,528 26,844 Interest income 30 (251) (157) Working capital adjustments: Decrease/(Increase) in current assets (59,418) (31,406) Increase in trade and other payables and accruals 29,050 11,337 Net cash flows from operating activities 47,561 11,741

Cash flows from investing activities Decrease/(Increase) in restricted cash 12 87,066 (74,224) Payments for property, plant and equipment (303,579) (207,621) Payments for multi-client data library 8 (17,282) - Payments to acquire intangible assets (219) (443) Interest income - 10 Net cash flows used in investing activities (234,013) (282,278)

Cash flows from financing activities Proceeds from the issuance of ordinary shares 14 41,117 129,672 Transaction costs on issuance of shares 14 (96) (6,503) Proceeds from the issuance of senior bonds 17 40,634 80,000 Proceeds from the issuance of convertible bonds 18 125,000 - Transaction costs on issuance of bonds (5,292) (3,071) Receipt from sale lease-back fund - 22,255 Net receipt from loans 20 53,695 76,081 Repayment of lease liabilities 19 (22,769) (14,904) Repayment of other long-term debt 20 (13,227) (3,981) Interest paid (53,222) (37,660) Other finance costs paid 11 (6,139) - Interest income 30 251 157 Net cash flows from financing activities 159,951 242,048

Net increase/(decrease) in cash and cash equivalents (26,501) (28,489) Cash and cash equivalents at the beginning of the period 86,836 115,323 Cash and cash equivalents at the end of the period 60,336 86,836

36

Consolidated Statement of Changes in Equity

(In thousands of USD except for number of shares) Number of Shares

Issued Share capital

(Note: 14)

Share Premium (Note: 14)

Other Reserves (Note: 16)

Retained Earnings/

(Loss)

Total Equity

Balance as at 31 December 2009 263,174,820 5,263 303,582 7,255 (21,422) 294,678

Profit/(loss) for the period - - - (28,340) (28,340) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (28,340) (28,340) Employee stock options - - 2,053 - 2,053 Issue of share capital 19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 - - 60,411

24 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 - - 64,344

21 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 - - 4,917

Transaction costs on issue of shares - (6,503) - - (6,503) Balance as at 31 December 2010 409,696,179 8,194 423,821 9,307 (49,762) 391,561 Profit/(loss) for the period - - - (31,499) (31,499) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (31,499) (31,499) Issue of convertible bonds - - 26,604 - 26,604 Employee stock options - - 2,069 - 2,069 Issue of share capital 21 October 2011 at NOK 4.00 (USD 0.72) per share 57,500,000 1,150 39,967 - - 41,117

Transaction costs on issue of shares - (96) - - (96) Balance as at 31 December 2011 467,196,179 9,344 463,692 37,981 (81,261) 429,756

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

Notes to the Consolidated Financial Statements

1 General information and financing The consolidated financial statements of Polarcus Limited (the “Company”) and its subsidiaries (together the “Group”) for the period ended 31 December 2011 were authorized for issue in accordance with a resolution of the Board of Directors on 28 March 2012.

Polarcus Limited is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole.

Polarcus Limited is incorporated in the Cayman Islands with its registered office at Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands. The Group has its main administration office in Dubai, United Arab Emirates which is the domicile of the Group.

The Group has six high end 3D vessels, Polarcus Nadia, Polarcus Naila, Polarcus Asima, Polarcus Samur, Polarcus Alima and Vyacheslav Tikhonov that are currently operational. Shipbuilding contracts have been signed for a further two vessels, Polarcus Amani and Polarcus Adira, with delivery in the first half of 2012.

1.1 Financing In October 2011 the Company entered into a loan facility of USD 410 million with DNB and DVB Bank SE, Nordic Branch, together with Garanti-instituttet for Eksportkreditt (GIEK) and Eksportfinans ASA (the “Fleet Bank Facility”). The Company also entered into an amended and restated bond agreement for the Polarcus Alima AS 10/15 12.5% USD 80 million second lien bond issue (ISIN: NO0010590300) (the “Bond Issue”) and entered into an inter-creditor agreement coordinating the security interests between the Fleet Bank Facility and the Bond Issue. The Fleet Bank Facility will be drawn down in 5 tranches and used to refinance existing debt related to Polarcus Alima, Polarcus Asima and Polarcus Samur and to partly finance the new buildings Polarcus Amani and Polarcus Adira. The drawing of the tranches will happen sequentially:

Tranche 1 and Tranche 2 were drawn on 15 November 2011. This triggered a repayment of the earlier USD 80 million loan facility and the USD 55 million bank loan facility granted by DVB Bank SE, Nordic Branch, together with GIEK and Eksportfinans ASA.

Tranche 3 will be drawn upon delivery of Polarcus Amani expected to take place on 29 March 2012 and will be used to partly finance the vessel.

Tranche 4 will be drawn upon delivery of Polarcus Adira expected to take place in Q2 2012 and will be used to partly finance the vessel.

Tranche 5 will partly refinance the USD 55 million 13.0% Senior Secured Callable Bond (ISIN NO 0010445935), expected to take place in Q2/Q3 2012.

In respect of the drawdown of Tranche 3, Tranche 4 and Tranche 5 in the Fleet Bank Facility, a capital structure satisfactory to the leading banks is a condition precedent to drawdown.

The new financing from Eksportfinans ASA included in the Fleet Bank Facility has a fixed interest rate of 2.85% in addition to 2.75% guarantee commission to GIEK and the commercial banks. When the Fleet Bank Facility is fully drawn, the average nominal interest rate for Polarcus will be approximately 7.5%.

The new-build POLARCUS ADIRA has a total estimated project capital expenditure, based on a USDNOK exchange rate of 6.0, of USD 168 million; including seismic equipment but excluding capitalized interest costs. The project is slightly below budget, however some risk of a negative currency effect remains. A change of NOK 0.1 from NOK 6.0 in the USDNOK exchange rate will have a capital expenditure effect of approximately USD 2.0 million.

On 11 October 2011 the Company issued 57,500,000 new shares through a private placement to Sabaro Investments Limited. The new shares were subscribed for at a price of NOK 4.00 per share. Total gross proceeds from the Private Placement amounts to NOK 230 million (USD 41.1 million). Following the Private Placement, the Company had 467,196,179 shares outstanding as of 31 December 2011

On 27 October 2011 the Company issued NOK 230 million unsecured bond with maturity in November 2014. The bonds were issued with a coupon of 14.00% p.a.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million). Following the Private Placement, the Company has 507,196,179 shares outstanding.

37

Consolidated Statement of Changes in Equity

(In thousands of USD except for number of shares) Number of Shares


(Note: 14)

Share Premium (Note: 14)

Other Reserves (Note: 16)

Retained Earnings/

(Loss)

Total Equity

Balance as at 31 December 2009 263,174,820 5,263 303,582 7,255 (21,422) 294,678

Profit/(loss) for the period - - - (28,340) (28,340) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (28,340) (28,340) Employee stock options - - 2,053 - 2,053 Issue of share capital 19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 - - 60,411

24 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 - - 64,344

21 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 - - 4,917

Transaction costs on issue of shares - (6,503) - - (6,503) Balance as at 31 December 2010 409,696,179 8,194 423,821 9,307 (49,762) 391,561 Profit/(loss) for the period - - - (31,499) (31,499) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (31,499) (31,499) Issue of convertible bonds - - 26,604 - 26,604 Employee stock options - - 2,069 - 2,069 Issue of share capital 21 October 2011 at NOK 4.00 (USD 0.72) per share 57,500,000 1,150 39,967 - - 41,117

Transaction costs on issue of shares - (96) - - (96) Balance as at 31 December 2011 467,196,179 9,344 463,692 37,981 (81,261) 429,756

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

Notes to the Consolidated Financial Statements

1 General information and financing The consolidated financial statements of Polarcus Limited (the “Company”) and its subsidiaries (together the “Group”) for the period ended 31 December 2011 were authorized for issue in accordance with a resolution of the Board of Directors on 28 March 2012.

Polarcus Limited is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole.

Polarcus Limited is incorporated in the Cayman Islands with its registered office at Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands. The Group has its main administration office in Dubai, United Arab Emirates which is the domicile of the Group.

The Group has six high end 3D vessels, Polarcus Nadia, Polarcus Naila, Polarcus Asima, Polarcus Samur, Polarcus Alima and Vyacheslav Tikhonov that are currently operational. Shipbuilding contracts have been signed for a further two vessels, Polarcus Amani and Polarcus Adira, with delivery in the first half of 2012.

1.1 Financing In October 2011 the Company entered into a loan facility of USD 410 million with DNB and DVB Bank SE, Nordic Branch, together with Garanti-instituttet for Eksportkreditt (GIEK) and Eksportfinans ASA (the “Fleet Bank Facility”). The Company also entered into an amended and restated bond agreement for the Polarcus Alima AS 10/15 12.5% USD 80 million second lien bond issue (ISIN: NO0010590300) (the “Bond Issue”) and entered into an inter-creditor agreement coordinating the security interests between the Fleet Bank Facility and the Bond Issue. The Fleet Bank Facility will be drawn down in 5 tranches and used to refinance existing debt related to Polarcus Alima, Polarcus Asima and Polarcus Samur and to partly finance the new buildings Polarcus Amani and Polarcus Adira. The drawing of the tranches will happen sequentially:

Tranche 1 and Tranche 2 were drawn on 15 November 2011. This triggered a repayment of the earlier USD 80 million loan facility and the USD 55 million bank loan facility granted by DVB Bank SE, Nordic Branch, together with GIEK and Eksportfinans ASA.

Tranche 3 will be drawn upon delivery of Polarcus Amani expected to take place on 29 March 2012 and will be used to partly finance the vessel.

Tranche 4 will be drawn upon delivery of Polarcus Adira expected to take place in Q2 2012 and will be used to partly finance the vessel.

Tranche 5 will partly refinance the USD 55 million 13.0% Senior Secured Callable Bond (ISIN NO 0010445935), expected to take place in Q2/Q3 2012.

In respect of the drawdown of Tranche 3, Tranche 4 and Tranche 5 in the Fleet Bank Facility, a capital structure satisfactory to the leading banks is a condition precedent to drawdown.

The new financing from Eksportfinans ASA included in the Fleet Bank Facility has a fixed interest rate of 2.85% in addition to 2.75% guarantee commission to GIEK and the commercial banks. When the Fleet Bank Facility is fully drawn, the average nominal interest rate for Polarcus will be approximately 7.5%.


On 11 October 2011 the Company issued 57,500,000 new shares through a private placement to Sabaro Investments Limited. The new shares were subscribed for at a price of NOK 4.00 per share. Total gross proceeds from the Private Placement amounts to NOK 230 million (USD 41.1 million). Following the Private Placement, the Company had 467,196,179 shares outstanding as of 31 December 2011

On 27 October 2011 the Company issued NOK 230 million unsecured bond with maturity in November 2014. The bonds were issued with a coupon of 14.00% p.a.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million). Following the Private Placement, the Company has 507,196,179 shares outstanding.

38

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

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

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

2.3 Changes in accounting policies 2.3.1 Current changes in accounting policies and disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 01 January 2011:

IAS 24 Related Party Disclosures (amendment) effective 01 January 2011

IAS 32 Financial Instruments: Presentation (amendment) effective 01 February 2010

IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 01 January 2011

Improvements to IFRSs (May 2010)

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

2.3.2 Future changes in accounting policies and disclosures Certain new standards, amendments and interpretations of existing standards have been published that are mandatory for the Group’s accounting period beginning on 01 January 2012 or later periods but which the Group has not early adopted. The new standards, amendments and interpretations are not expected to have a significant impact on the financial position of performance of the Group, except as listed below;

IFRS 9 Financial Instruments

IFRS 9 as issued reflects the first phase of the IASBs work on replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. According to IFRS 9 financial assets with basic loan features shall be measured at amortized cost, unless one opts to measure these assets at fair value. All other financial assets shall be measured at fair value. The classification and measurement of financial liabilities under IFRS 9 is a continuation from IAS 39, with the exception of financial liabilities designated at fair value through profit or loss (fair value option), where change in fair value relating to own credit risk shall be separated and shall be presented in other comprehensive income. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets.

The adoption could potentially impact the classification and measurement of the Group’s financial assets and financial liabilities. The Group will quantify the effect in conjunction with the other phases of the new standard, when issued, to present a comprehensive picture.

IFRS 9 is effective for annual periods beginning on or after 01 January 2015, but the standard is not yet approved by the EU. The Group expects to apply IFRS 9 as of 01 January 2015.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.

The application of this new standard will impact the financial position of the Group. This is due to the cessation of proportionate consolidation of the joint venture in Polarcus MC Limited (refer to Note 24 Interest in joint venture) and replacement by the equity method of accounting for this investment.

This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 11 as of 01 January 2013.

IFRS 12 Disclosure of Involvement with Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 12 as of 01 January 2013.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 13 as of 01 January 2013.

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

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs incurred are expensed and included as sales, general and administrative costs. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in sales, general and administrative costs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating

39

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

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

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

2.3 Changes in accounting policies 2.3.1 Current changes in accounting policies and disclosures The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 01 January 2011:

IAS 24 Related Party Disclosures (amendment) effective 01 January 2011

IAS 32 Financial Instruments: Presentation (amendment) effective 01 February 2010

IFRIC 14 Prepayments of a Minimum Funding Requirement (amendment) effective 01 January 2011

Improvements to IFRSs (May 2010)

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

2.3.2 Future changes in accounting policies and disclosures Certain new standards, amendments and interpretations of existing standards have been published that are mandatory for the Group’s accounting period beginning on 01 January 2012 or later periods but which the Group has not early adopted. The new standards, amendments and interpretations are not expected to have a significant impact on the financial position of performance of the Group, except as listed below;

IFRS 9 Financial Instruments

IFRS 9 as issued reflects the first phase of the IASBs work on replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. According to IFRS 9 financial assets with basic loan features shall be measured at amortized cost, unless one opts to measure these assets at fair value. All other financial assets shall be measured at fair value. The classification and measurement of financial liabilities under IFRS 9 is a continuation from IAS 39, with the exception of financial liabilities designated at fair value through profit or loss (fair value option), where change in fair value relating to own credit risk shall be separated and shall be presented in other comprehensive income. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets.

The adoption could potentially impact the classification and measurement of the Group’s financial assets and financial liabilities. The Group will quantify the effect in conjunction with the other phases of the new standard, when issued, to present a comprehensive picture.

IFRS 9 is effective for annual periods beginning on or after 01 January 2015, but the standard is not yet approved by the EU. The Group expects to apply IFRS 9 as of 01 January 2015.

IFRS 11 Joint Arrangements

IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities — Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method.

The application of this new standard will impact the financial position of the Group. This is due to the cessation of proportionate consolidation of the joint venture in Polarcus MC Limited (refer to Note 24 Interest in joint venture) and replacement by the equity method of accounting for this investment.

This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 11 as of 01 January 2013.

IFRS 12 Disclosure of Involvement with Other Entities

IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 12 as of 01 January 2013.

IFRS 13 Fair Value Measurement

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 01 January 2013, but is not yet approved by the EU. The Group expects to apply IFRS 13 as of 01 January 2013.

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

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisition costs incurred are expensed and included as sales, general and administrative costs. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at fair value at the acquisition date and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in sales, general and administrative costs.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability will be recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it will not be remeasured.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating

40

units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated but considered as an impairment indicator of the asset transferred.

2.4.2 Interest in joint venture Joint venture is a contractual arrangement whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of a venture. The arrangement requires unanimous agreement for financial and operating decisions among the venturers. The Group recognizes its interest in joint ventures using the proportionate consolidation method. The Group combines its proportionate share of each of the assets, liabilities, income and expenses of joint ventures with similar items, line by line, in its consolidated financial statements. The financial statements of joint ventures are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

In the Group’s consolidated financial statements the Group’s share of intra-group balances, transactions and unrealized gains and losses on such transactions between the Group and its jointly controlled entities are eliminated. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. Joint ventures are proportionately consolidated until the date on which the Group ceases to have joint control.

Upon loss of joint control the Group measures and recognizes its remaining investment in the joint venture at its fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as an investment in an associate.

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

2.5.2 Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges.

Translation differences on non-monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss.

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

The Group’s revenue recognition policy on different types of revenue is described below;

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

Late sales The Group grants a license to a customer, which entitles the customer to have access to a specifically defined portion of the multi-client data library. The customer's license payment is fixed and determinable and typically is required at the time that the license is granted. The Company recognizes revenue for late sales when the customer executes a valid license agreement and has received the underlying data or has the right to access the licensed portion of the data and collection is reasonably assured.

2.6.2 Proprietary sales/contract sales The Company performs seismic services under contract for a specific customer, whereby the seismic data is owned by that customer. The Company recognizes proprietary/contract revenue as the services are performed and become chargeable to the customer on a proportionate performance basis over the term of each contract. Progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project's progress to date, provided that all other revenue recognition criteria are satisfied. 2.6.3 Other services Revenue from other services is recognized as the services are performed, provided all other recognition criteria are satisfied.

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

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

Seismic vessels 30 Years Seismic equipment 3-30 Years

Maritime equipment 5-30 Years Furniture and fixtures 3-5 Years Office IT equipment 3-5 Years

Each component of the vessels with a cost significant to the total cost is separately identified and depreciated on a straight-line basis over that component’s economic life. Subsequent expenditures and major renovations and inspections are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Dry-docking and classification costs for vessels are capitalized and depreciated over the period until the next expected dry-docking, normally 30 months. When vessels are acquired or constructed a proportion of the acquisition cost is capitalized as dry-docking and depreciated over the period until next expected dry-docking.

The assets’ residual values and useful lives are reviewed and adjusted if appropriate at least every balance sheet date. Adjustments, where applicable, are made on a prospective basis. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are presented net in the income statement.

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

41

units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated but considered as an impairment indicator of the asset transferred.

2.4.2 Interest in joint venture Joint venture is a contractual arrangement whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of a venture. The arrangement requires unanimous agreement for financial and operating decisions among the venturers. The Group recognizes its interest in joint ventures using the proportionate consolidation method. The Group combines its proportionate share of each of the assets, liabilities, income and expenses of joint ventures with similar items, line by line, in its consolidated financial statements. The financial statements of joint ventures are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

In the Group’s consolidated financial statements the Group’s share of intra-group balances, transactions and unrealized gains and losses on such transactions between the Group and its jointly controlled entities are eliminated. Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. Joint ventures are proportionately consolidated until the date on which the Group ceases to have joint control.

Upon loss of joint control the Group measures and recognizes its remaining investment in the joint venture at its fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as an investment in an associate.

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

2.5.2 Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as qualifying cash flow hedges.

Translation differences on non-monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss.

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

The Group’s revenue recognition policy on different types of revenue is described below;

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

Late sales The Group grants a license to a customer, which entitles the customer to have access to a specifically defined portion of the multi-client data library. The customer's license payment is fixed and determinable and typically is required at the time that the license is granted. The Company recognizes revenue for late sales when the customer executes a valid license agreement and has received the underlying data or has the right to access the licensed portion of the data and collection is reasonably assured.

2.6.2 Proprietary sales/contract sales The Company performs seismic services under contract for a specific customer, whereby the seismic data is owned by that customer. The Company recognizes proprietary/contract revenue as the services are performed and become chargeable to the customer on a proportionate performance basis over the term of each contract. Progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project's progress to date, provided that all other revenue recognition criteria are satisfied. 2.6.3 Other services Revenue from other services is recognized as the services are performed, provided all other recognition criteria are satisfied.

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

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

Seismic vessels 30 Years Seismic equipment 3-30 Years

Maritime equipment 5-30 Years Furniture and fixtures 3-5 Years Office IT equipment 3-5 Years

Each component of the vessels with a cost significant to the total cost is separately identified and depreciated on a straight-line basis over that component’s economic life. Subsequent expenditures and major renovations and inspections are included in the asset’s carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Dry-docking and classification costs for vessels are capitalized and depreciated over the period until the next expected dry-docking, normally 30 months. When vessels are acquired or constructed a proportion of the acquisition cost is capitalized as dry-docking and depreciated over the period until next expected dry-docking.

The assets’ residual values and useful lives are reviewed and adjusted if appropriate at least every balance sheet date. Adjustments, where applicable, are made on a prospective basis. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are presented net in the income statement.

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

42

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

2.8.1 Group as a lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased asset, are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and lease term.

Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term.

2.8.2 Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income.

2.9 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement or capitalized in accordance with the accounting policy for borrowing costs as mentioned below, over the period of the borrowings using the effective interest method.

Interest payable on borrowings is classified as a current liability unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.9.1 Convertible bonds Convertible bonds are separated into a debt liability and an equity component based on the terms of the contract.

On issuance of the convertible bonds, the fair value of the debt liability excluding conversion option is measured at the fair value of expected cash flows at inception and is recorded under non-current liabilities in the balance sheet. The debt liability component is amortized to the redemption value over the bond life, accruing interest at the effective rate. The rest of the convertible bond issue proceeds are recorded as equity.

Transaction costs are apportioned between the debt liability and equity components of the convertible bonds based on the allocation of the proceeds of the debt liability and equity components when the instruments are initially recognized.

2.10 Borrowing costs Borrowing costs are recognized as an expense in the period in which they are incurred, except for borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred from the borrowing during the period less any investment income on the temporary investment of those borrowings.

To the extent that funds are borrowed generally and used for the purpose of obtaining qualifying assets, the amount of borrowing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on those assets. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period does not exceed the amount of borrowing costs incurred during that period.

2.11 Transit costs Transit costs are costs related to moving a vessel from one location to another. The transit costs related to multi-client survey are capitalized as part of the multi-client projects library. Transit costs on exclusive surveys are deferred and charged to expense based upon the percentage of completion of the project.

Both for multi-client and exclusive projects, the estimated probable future economic inflows which are documented at inception should cover the costs that are capitalized or deferred. If the projects are not able to cover all of the costs which could be capitalized or deferred, only the costs that are recoverable are capitalized or deferred.

2.12 Multi-client projects library The multi-client projects library comprises seismic surveys to be licensed to customers on a nonexclusive basis. All costs directly incurred in acquiring, processing and otherwise completing seismic surveys are capitalized into the multi-client projects library. Also included are transit costs (moving a vessel from one location to another) and capitalized borrowing costs, when applicable. Multi-client data is valued at cost less accumulated amortization, or at recoverable amount, if lower. The Group reviews the multi-client projects library for potential impairment at each balance sheet date at the relevant level.

When establishing amortization rates for the multi-client projects library, management bases its views on estimated future sales of each individual project. Sales estimates are adjusted over time in relation to the development of the market. The principle on which the multi-client project is amortized is based on the assumption that the cost of the project will be recoverable by future revenue earned from the future sale of the data licenses. The amortization rate is calculated by dividing the net costs (net book value plus expected future costs) of the project by the expected future revenues from sales of the data licenses. Each project is placed into one of four amortization categories with amortization rates of 90%, 75%, 60% or 45% as per the table below.

Calculated amortization rate Amortization category >76% 90%

61%-75% 75% 46%-60% 60%

<45% 45%

A project remains in the same amortization category unless subsequent changes to the amount of expected future revenue from a project would result in a different amortization rate becoming appropriate, in which case the project is moved to the relevant category.

The Group also applies a minimum amortization policy. This policy specifies the maximum net book value allowed for a project as a percentage of its original book value at the end of each calendar year following completion. All surveys have a 5-year amortization profile starting in the year after completion, as shown below:

Year after survey completion Maximum net book value Year 0 * 100%

Year 1 80% Year 2 60% Year 3 40% Year 4 Year 5

20% 0%

* Year 0 is the calendar year in which the project is completed.

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

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

Computer software not yet available for use is tested annually for impairment.

43

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

2.8.1 Group as a lessee Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased asset, are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and lease term.

Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term.

2.8.2 Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as rental income.

2.9 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement or capitalized in accordance with the accounting policy for borrowing costs as mentioned below, over the period of the borrowings using the effective interest method.

Interest payable on borrowings is classified as a current liability unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.9.1 Convertible bonds Convertible bonds are separated into a debt liability and an equity component based on the terms of the contract.

On issuance of the convertible bonds, the fair value of the debt liability excluding conversion option is measured at the fair value of expected cash flows at inception and is recorded under non-current liabilities in the balance sheet. The debt liability component is amortized to the redemption value over the bond life, accruing interest at the effective rate. The rest of the convertible bond issue proceeds are recorded as equity.

Transaction costs are apportioned between the debt liability and equity components of the convertible bonds based on the allocation of the proceeds of the debt liability and equity components when the instruments are initially recognized.

2.10 Borrowing costs Borrowing costs are recognized as an expense in the period in which they are incurred, except for borrowing costs which are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred from the borrowing during the period less any investment income on the temporary investment of those borrowings.

To the extent that funds are borrowed generally and used for the purpose of obtaining qualifying assets, the amount of borrowing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on those assets. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period does not exceed the amount of borrowing costs incurred during that period.

2.11 Transit costs Transit costs are costs related to moving a vessel from one location to another. The transit costs related to multi-client survey are capitalized as part of the multi-client projects library. Transit costs on exclusive surveys are deferred and charged to expense based upon the percentage of completion of the project.

Both for multi-client and exclusive projects, the estimated probable future economic inflows which are documented at inception should cover the costs that are capitalized or deferred. If the projects are not able to cover all of the costs which could be capitalized or deferred, only the costs that are recoverable are capitalized or deferred.

2.12 Multi-client projects library The multi-client projects library comprises seismic surveys to be licensed to customers on a nonexclusive basis. All costs directly incurred in acquiring, processing and otherwise completing seismic surveys are capitalized into the multi-client projects library. Also included are transit costs (moving a vessel from one location to another) and capitalized borrowing costs, when applicable. Multi-client data is valued at cost less accumulated amortization, or at recoverable amount, if lower. The Group reviews the multi-client projects library for potential impairment at each balance sheet date at the relevant level.

When establishing amortization rates for the multi-client projects library, management bases its views on estimated future sales of each individual project. Sales estimates are adjusted over time in relation to the development of the market. The principle on which the multi-client project is amortized is based on the assumption that the cost of the project will be recoverable by future revenue earned from the future sale of the data licenses. The amortization rate is calculated by dividing the net costs (net book value plus expected future costs) of the project by the expected future revenues from sales of the data licenses. Each project is placed into one of four amortization categories with amortization rates of 90%, 75%, 60% or 45% as per the table below.

Calculated amortization rate Amortization category >76% 90%

61%-75% 75% 46%-60% 60%

<45% 45%

A project remains in the same amortization category unless subsequent changes to the amount of expected future revenue from a project would result in a different amortization rate becoming appropriate, in which case the project is moved to the relevant category.

The Group also applies a minimum amortization policy. This policy specifies the maximum net book value allowed for a project as a percentage of its original book value at the end of each calendar year following completion. All surveys have a 5-year amortization profile starting in the year after completion, as shown below:

Year after survey completion Maximum net book value Year 0 * 100%

Year 1 80% Year 2 60% Year 3 40% Year 4 Year 5

20% 0%

* Year 0 is the calendar year in which the project is completed.

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

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

Computer software not yet available for use is tested annually for impairment.

44

2.14 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Cash and cash equivalents that are restricted for the Group’s use are disclosed separately in the consolidated balance sheets and are classified as current or non-current depending on the nature of the restrictions. For the purpose of the cash flow statements, changes in restricted cash are disclosed as part of the “Investing activities”.

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

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

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

2.18 Employee benefits 2.18.1 Pension Plan The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%.

For employees who are not enrolled into the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee.

2.18.2 Bonus plans The Group recognizes a provision for bonuses where bonuses are a contractual obligation or where there is a past practice that has created a constructive obligation.

The Group recognizes a liability and an expense for bonuses prescribed in the employment contracts.

2.18.3 Share-based compensation The Group has a share option plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted measured at grant date.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

2.19 Derivative financial instruments and hedging The Group uses derivative financial instruments to reduce risk exposure related to fluctuations in foreign currency rates and interest rates. Such derivative financial instruments are initially recognized in the consolidated balance sheet at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and any ineffective hedges are taken directly to the income statement.

The Group applies either fair value or cash flow hedge accounting when a transaction meets the specified criteria. To qualify for hedge accounting, the instrument should be designated as a hedge at inception of a hedge relationship. At the time a financial instrument is designated as a hedge, the Group documents the relationship between the hedging instrument and the hedged item. Documentation includes risk management objectives and strategy in undertaking the hedge transaction, together with the methods

that will be used to assess the effectiveness of the hedging relationship. Accordingly, the Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been “highly effective” in offsetting changes in the fair value or cash flows of the hedged item. Hedge accounting will be discontinued when (a) the Company determines that a derivative is not, or has ceased to be, highly effective as a hedge, (b) the derivative expires, or is sold, terminated or exercised, (c) the hedged item matures or is sold or repaid, or (d) a forecast transaction is no longer deemed highly probable.

2.19.1 Fair value hedges The Group applies fair value hedges whilst hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk).

The change in fair value of the hedging instrument is recognized in the consolidated income statement. The change in fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the consolidated income statement. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement.

2.19.2 Cash flow hedges Cash flow hedging is applied to hedge the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income (OCI), while any ineffective portion is recognized immediately in the consolidated income statement. Amounts recorded in OCI are transferred to the consolidated income statement when the hedged transaction affects profit or loss. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken into OCI are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in OCI are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in OCI remain in OCI until the forecast transaction or firm commitment occurs.

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

2.20.1 Financial assets and liabilities measured at fair value in profit or loss This includes the financial assets and liabilities held for trading and financial assets and liabilities measured at fair value upon initial recognition with change in fair value recognized through the consolidated income statement. Subsequent to initial recognition, financial assets and liabilities in this category are measured at fair value at the end of each reporting period with unrealized gains and losses being recognized through profit or loss.

Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near future. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on financial assets held for trading are recognized in profit or loss.

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

2.20.3 Financial assets and liabilities measured at fair value through other comprehensive income This category includes financial assets and liabilities that are non-derivatives and are either designated as available-for-sale or not classified in any of the other categories. After initial measurement, financial assets and liabilities in this category are measured at fair value with unrealized gains or losses being recognized in other comprehensive income. When the asset or liability is disposed of, the cumulative gain or loss previously recorded in other comprehensive income is recognized in profit or loss.

The fair values of quoted financial assets and financial liabilities are based on current bid/ask prices. If the market for a financial instrument is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and option pricing models.

45

2.14 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Cash and cash equivalents that are restricted for the Group’s use are disclosed separately in the consolidated balance sheets and are classified as current or non-current depending on the nature of the restrictions. For the purpose of the cash flow statements, changes in restricted cash are disclosed as part of the “Investing activities”.

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

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

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

2.18 Employee benefits 2.18.1 Pension Plan The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%.

For employees who are not enrolled into the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee.

2.18.2 Bonus plans The Group recognizes a provision for bonuses where bonuses are a contractual obligation or where there is a past practice that has created a constructive obligation.

The Group recognizes a liability and an expense for bonuses prescribed in the employment contracts.

2.18.3 Share-based compensation The Group has a share option plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted measured at grant date.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

2.19 Derivative financial instruments and hedging The Group uses derivative financial instruments to reduce risk exposure related to fluctuations in foreign currency rates and interest rates. Such derivative financial instruments are initially recognized in the consolidated balance sheet at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and any ineffective hedges are taken directly to the income statement.

The Group applies either fair value or cash flow hedge accounting when a transaction meets the specified criteria. To qualify for hedge accounting, the instrument should be designated as a hedge at inception of a hedge relationship. At the time a financial instrument is designated as a hedge, the Group documents the relationship between the hedging instrument and the hedged item. Documentation includes risk management objectives and strategy in undertaking the hedge transaction, together with the methods

that will be used to assess the effectiveness of the hedging relationship. Accordingly, the Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been “highly effective” in offsetting changes in the fair value or cash flows of the hedged item. Hedge accounting will be discontinued when (a) the Company determines that a derivative is not, or has ceased to be, highly effective as a hedge, (b) the derivative expires, or is sold, terminated or exercised, (c) the hedged item matures or is sold or repaid, or (d) a forecast transaction is no longer deemed highly probable.

2.19.1 Fair value hedges The Group applies fair value hedges whilst hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk).

The change in fair value of the hedging instrument is recognized in the consolidated income statement. The change in fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the consolidated income statement. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement.

2.19.2 Cash flow hedges Cash flow hedging is applied to hedge the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income (OCI), while any ineffective portion is recognized immediately in the consolidated income statement. Amounts recorded in OCI are transferred to the consolidated income statement when the hedged transaction affects profit or loss. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken into OCI are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in OCI are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in OCI remain in OCI until the forecast transaction or firm commitment occurs.

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

2.20.1 Financial assets and liabilities measured at fair value in profit or loss This includes the financial assets and liabilities held for trading and financial assets and liabilities measured at fair value upon initial recognition with change in fair value recognized through the consolidated income statement. Subsequent to initial recognition, financial assets and liabilities in this category are measured at fair value at the end of each reporting period with unrealized gains and losses being recognized through profit or loss.

Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near future. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on financial assets held for trading are recognized in profit or loss.

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

2.20.3 Financial assets and liabilities measured at fair value through other comprehensive income This category includes financial assets and liabilities that are non-derivatives and are either designated as available-for-sale or not classified in any of the other categories. After initial measurement, financial assets and liabilities in this category are measured at fair value with unrealized gains or losses being recognized in other comprehensive income. When the asset or liability is disposed of, the cumulative gain or loss previously recorded in other comprehensive income is recognized in profit or loss.

The fair values of quoted financial assets and financial liabilities are based on current bid/ask prices. If the market for a financial instrument is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and option pricing models.

46

The Company assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments designated as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is considered as an indicator that the instrument is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit and loss – is removed from shareholders’ equity and recognized in profit or loss. Impairment losses recognized in profit and loss on equity instruments are not reversed through the profit or loss.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through the profit or loss.

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

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

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

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

2.25 Taxation Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax is provided using the liability method and temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

The Norwegian subsidiaries are taxed in compliance with the tonnage tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on dividends from companies within the scheme. Tonnage tax paid under the tonnage tax regime is

classified as an operational expense. Net finance income for companies taxed under the tonnage tax regime is adjusted in accordance with the regime regulations and taxed at a rate of 28%.

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

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

Fluctuations in Exchange rates and currency risks The Group’s costs are primarily in USD, though there are also some smaller costs in foreign currencies, particularly NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD. However, the impact of a reasonably possible change in the USD exchange rate, with all other variables held constant, on the Group’s financial performance and financial position are not expected to be significant.


Except for a loan of NOK 230 million (USD 40.6 million), the long term financing of the Group is in USD.

Except for cash deposits of NOK 134.93 million (USD 22.5 million) and EUR 2.33 million (USD 3 million), the cash deposits are in USD.

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, which is USD.

The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

Interest rate risk The Group has interest-bearing assets which results in the Group’s income and operating cash flows being dependent on changes in market interest rates. The interest-bearing assets with variable interest rates expose the Group to cash flow interest rate risk. Interest earned and received on these balances fluctuates with changes in market interest rates. During the period, the Group ’s financial assets at variable rates were denominated in USD and NOK.

47

The Company assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments designated as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is considered as an indicator that the instrument is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit and loss – is removed from shareholders’ equity and recognized in profit or loss. Impairment losses recognized in profit and loss on equity instruments are not reversed through the profit or loss.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through the profit or loss.

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

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

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

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

2.25 Taxation Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax is provided using the liability method and temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

The Norwegian subsidiaries are taxed in compliance with the tonnage tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on dividends from companies within the scheme. Tonnage tax paid under the tonnage tax regime is

classified as an operational expense. Net finance income for companies taxed under the tonnage tax regime is adjusted in accordance with the regime regulations and taxed at a rate of 28%.

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

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

Fluctuations in Exchange rates and currency risks The Group’s costs are primarily in USD, though there are also some smaller costs in foreign currencies, particularly NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD. However, the impact of a reasonably possible change in the USD exchange rate, with all other variables held constant, on the Group’s financial performance and financial position are not expected to be significant.


Except for a loan of NOK 230 million (USD 40.6 million), the long term financing of the Group is in USD.

Except for cash deposits of NOK 134.93 million (USD 22.5 million) and EUR 2.33 million (USD 3 million), the cash deposits are in USD.

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, which is USD.

The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

Interest rate risk The Group has interest-bearing assets which results in the Group’s income and operating cash flows being dependent on changes in market interest rates. The interest-bearing assets with variable interest rates expose the Group to cash flow interest rate risk. Interest earned and received on these balances fluctuates with changes in market interest rates. During the period, the Group ’s financial assets at variable rates were denominated in USD and NOK.

48


(In thousands of USD) 31-Dec-11 31-Dec-10 Total interest bearing debt 619,124 522,678 Interest bearing debt with variable interest rates 121,413 76,292 % of interest bearing debt with variable interest rates 20% 15%

As the portion of the overall debt that is subject to a variable interest rate is small the Group’s exposure to interest rate risk is reduced and any reasonably possible change to the variable interest rate are not expected to have a significant impact on the Group’s financial performance or position.

The interest rate and maturity analysis of the Group’s borrowings as per the reporting date are shown in the table below:

(In thousands of USD) Effective

interest rate (%)

Maturity 31-Dec-11 31-Dec-10

Current Deferred payments to the shipyard 7 15-Mar-11 - 59,874 Liability for streamer systems (refer to Note: 20) 8 15-Nov-12 2,911 7,596 Total current 2,911 67,470

Non-current 13% Senior Secured Bonds (refer to Note: 17) 14.49 30-Jul-13 54,246 53,846 12.5% Senior Secured Bonds (refer to Note: 17) 14.04 15-Oct-15 77,190 77,004 14% Senior Unsecured Bond (refer to Note: 17) 16.53 14-Nov-14 36,709 - 8.5% Convertible Bond (refer to Note: 18) 13.39 30-Jul-13 32,567 31,269 2.875% Convertible Bond (refer to Note: 18) 9.05 27-Apr-16 98,542 - Long-term finance lease for vessels (refer to Note: 19) 12.19 Q4 2019 170,904 175,323 Long-term finance lease for streamer systems (refer to Note: 19) 8 Q3 2013 24,641 41,472 Fleet bank facility Tranche 1 (refer to Note: 20) 8.05 31-Aug-22 47,901 52,431 Fleet bank facility Tranche 1 (refer to Note: 20) 6.4 31-Aug-22 22,189 23,861 Fleet bank facility Tranche 2 (refer to Note: 20) 5.76 21-Mar-23 51,322 - Total non-current 616,213 455,207

Shifts in market interest rates will impact the fair value of the warrants to shareholders and hence impact the Group’s income statement. The susceptibility of the value of warrants to a possible shift in the risk-free market interest rate is disclosed in Note 4.3 Warrants.

3.1.2 Risk factors particular to the vessels construction project Construction risk The Company has entered into two shipbuilding contracts with Ulstein Verft AS for the construction of Polarcus Amani and Polarcus Adira. Any material delays related to the construction contracts for these vessels or other contracts of importance for the construction and equipment of these vessels might have a material adverse effect on the Company and its financial position. Furthermore, cost overruns and technical problems might be experienced during construction and testing of the vessels which might impact the expected delivery time of the vessels as well as the expected financial performance. A potential default or delay by the shipyard or other counterparties will have an adverse effect on the Company and its financial position.

The Group is dependent on the ability of sub-contractors to provide key seismic equipment which meets the specifications, quality standards and delivery schedules of the Company. Failure to meet these requirements might have a material adverse impact on the Company’s operating results and financial position.

3.1.3 Credit risk Credit risk is managed on a Group basis. The Group’s credit risk arises mainly from trade receivables, cash and cash equivalents deposited with banks and financial institutions and from advance payments made to the suppliers. The Group provides its services only to recognized, credit worthy clients who are primarily multinational oil and gas companies, including companies owned in whole or in part by governments. It is Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. For banks and financial institutions, only independently rated parties with a minimum rating of investment grade or higher are accepted by the Group. The Group’s maximum exposure to credit risk for the components of the balance sheet is shown in the table below:

(In thousands of USD) 31-Dec-11 31-Dec-10 Financial assets Cash and short-term deposits 60,510 197,804 Accounts receivable 55,425 18,357 Vessel prepayments 28,060 28,060 Total 143,995 244,221

3.1.4 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and having availability of funding through an adequate amount of committed credit facilities. Management constantly manages the forecast of the group’s liquidity reserve on the basis of expected cash flows.

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

The table below analyses the Group’s financial liabilities broken into different maturity groups based on the remaining period from 31 December 2011 to the date of contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows.

(In thousands of USD) Less than 1

Year Between Between

Over 5 Years Total 1 - 2 Years 3 - 5 Years

Bond loan borrowings (refer to Note 17 and 18) - 90,000 243,387 - 333,387 Interest payment on bond loan borrowings 29,093 48,061 15,391 - 92,544 Finance lease liabilities (refer to Note: 19) 24,943 16,697 24,467 129,439 195,545 Interest payment on finance lease liabilities 21,790 39,211 52,253 26,306 139,560 Other long term liabilities (refer to Note: 20) 13,982 22,619 33,929 58,839 129,369 Interest payments on other long term liabilities 7,000 12,257 13,530 9,647 42,433 Trade and Other payables 58,618 - - - 58,618 Total 155,425 228,845 574,569 224,231 1,183,070

As of 31 December 2011 the Group had six vessels under operation. Two additional vessels, Polarcus Amani and Polarcus Adira will be delivered in the first half of 2012. The vessels are expected to generate revenues to support the Group’s operations and service the debts.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million).

49


(In thousands of USD) 31-Dec-11 31-Dec-10 Total interest bearing debt 619,124 522,678 Interest bearing debt with variable interest rates 121,413 76,292 % of interest bearing debt with variable interest rates 20% 15%

As the portion of the overall debt that is subject to a variable interest rate is small the Group’s exposure to interest rate risk is reduced and any reasonably possible change to the variable interest rate are not expected to have a significant impact on the Group’s financial performance or position.

The interest rate and maturity analysis of the Group’s borrowings as per the reporting date are shown in the table below:

(In thousands of USD) Effective

interest rate (%)

Maturity 31-Dec-11 31-Dec-10

Current Deferred payments to the shipyard 7 15-Mar-11 - 59,874 Liability for streamer systems (refer to Note: 20) 8 15-Nov-12 2,911 7,596 Total current 2,911 67,470

Non-current 13% Senior Secured Bonds (refer to Note: 17) 14.49 30-Jul-13 54,246 53,846 12.5% Senior Secured Bonds (refer to Note: 17) 14.04 15-Oct-15 77,190 77,004 14% Senior Unsecured Bond (refer to Note: 17) 16.53 14-Nov-14 36,709 - 8.5% Convertible Bond (refer to Note: 18) 13.39 30-Jul-13 32,567 31,269 2.875% Convertible Bond (refer to Note: 18) 9.05 27-Apr-16 98,542 - Long-term finance lease for vessels (refer to Note: 19) 12.19 Q4 2019 170,904 175,323 Long-term finance lease for streamer systems (refer to Note: 19) 8 Q3 2013 24,641 41,472 Fleet bank facility Tranche 1 (refer to Note: 20) 8.05 31-Aug-22 47,901 52,431 Fleet bank facility Tranche 1 (refer to Note: 20) 6.4 31-Aug-22 22,189 23,861 Fleet bank facility Tranche 2 (refer to Note: 20) 5.76 21-Mar-23 51,322 - Total non-current 616,213 455,207

Shifts in market interest rates will impact the fair value of the warrants to shareholders and hence impact the Group’s income statement. The susceptibility of the value of warrants to a possible shift in the risk-free market interest rate is disclosed in Note 4.3 Warrants.

3.1.2 Risk factors particular to the vessels construction project Construction risk The Company has entered into two shipbuilding contracts with Ulstein Verft AS for the construction of Polarcus Amani and Polarcus Adira. Any material delays related to the construction contracts for these vessels or other contracts of importance for the construction and equipment of these vessels might have a material adverse effect on the Company and its financial position. Furthermore, cost overruns and technical problems might be experienced during construction and testing of the vessels which might impact the expected delivery time of the vessels as well as the expected financial performance. A potential default or delay by the shipyard or other counterparties will have an adverse effect on the Company and its financial position.

The Group is dependent on the ability of sub-contractors to provide key seismic equipment which meets the specifications, quality standards and delivery schedules of the Company. Failure to meet these requirements might have a material adverse impact on the Company’s operating results and financial position.

3.1.3 Credit risk Credit risk is managed on a Group basis. The Group’s credit risk arises mainly from trade receivables, cash and cash equivalents deposited with banks and financial institutions and from advance payments made to the suppliers. The Group provides its services only to recognized, credit worthy clients who are primarily multinational oil and gas companies, including companies owned in whole or in part by governments. It is Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. For banks and financial institutions, only independently rated parties with a minimum rating of investment grade or higher are accepted by the Group. The Group’s maximum exposure to credit risk for the components of the balance sheet is shown in the table below:

(In thousands of USD) 31-Dec-11 31-Dec-10 Financial assets Cash and short-term deposits 60,510 197,804 Accounts receivable 55,425 18,357 Vessel prepayments 28,060 28,060 Total 143,995 244,221

3.1.4 Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and having availability of funding through an adequate amount of committed credit facilities. Management constantly manages the forecast of the group’s liquidity reserve on the basis of expected cash flows.

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

The table below analyses the Group’s financial liabilities broken into different maturity groups based on the remaining period from 31 December 2011 to the date of contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows.

(In thousands of USD) Less than 1

Year Between Between

Over 5 Years Total 1 - 2 Years 3 - 5 Years

Bond loan borrowings (refer to Note 17 and 18) - 90,000 243,387 - 333,387 Interest payment on bond loan borrowings 29,093 48,061 15,391 - 92,544 Finance lease liabilities (refer to Note: 19) 24,943 16,697 24,467 129,439 195,545 Interest payment on finance lease liabilities 21,790 39,211 52,253 26,306 139,560 Other long term liabilities (refer to Note: 20) 13,982 22,619 33,929 58,839 129,369 Interest payments on other long term liabilities 7,000 12,257 13,530 9,647 42,433 Trade and Other payables 58,618 - - - 58,618 Total 155,425 228,845 574,569 224,231 1,183,070

As of 31 December 2011 the Group had six vessels under operation. Two additional vessels, Polarcus Amani and Polarcus Adira will be delivered in the first half of 2012. The vessels are expected to generate revenues to support the Group’s operations and service the debts.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million).

50

3.2 Capital management Capital includes equity attributable to the equity holders of the parent company.

The Group’s objectives when managing capital are to maximize shareholder value by maintaining an optimal capital structure which will reduce the cost of capital and safeguard the Group’s ability to continue as a going concern.

In order to maintain or adjust the capital structure, the Group may (i) return capital to shareholders, (ii) issue new shares or (iii) sell assets to reduce debt.

The Company is subject to dividend restrictions under certain of its financing arrangements. Due to these dividend restrictions and the current phase of the Company, Polarcus will not propose any dividends to the shareholders for the fiscal year 2011.

The Group is subject to externally imposed capital requirements as part of certain financing arrangements. The covenants of some of the financing arrangement require the Group to maintain minimum absolute levels of equity as well as minimum book equity ratios. Management ensures that the Group has complied with the requirements during the period

The Group aims to have equity capital of a level appropriate to its objectives, strategy and risk profile. The Group monitors its capital structure on the basis of total equity to total assets ratio. As of 31 December 2011 the Group has a book equity ratio of 39%. It is the Group’s objective that the said ratio shall be approximately 40% during its current early growth stage.

4 Critical accounting estimates, assumptions and judgments

The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in the Group’s future operating plans and the inherent imprecision associated with estimates.

Certain amounts included in or affecting the financial statements and related disclosure must be estimated, requiring the Group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. A ‘‘critical accounting estimate’’ is one which is both important to the portrayal of the Group’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The management evaluates such estimates on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods considered reasonable in the particular circumstances, as well as forecasts as to how these might change in the future.

The following is a summary of which estimates and judgments could have a material effect on the Group’s financial statements.

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

4.2 The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The primary assumptions used in the valuations are interest rates, share price, expected life of instruments, volatility and likelihood of certain events happening.

The employee stock options are priced using a Black Scholes formula for equity options. For the simulation of “Change of Control”, the events are drawn from a uniform distribution in the simulations.

4.3 WarrantsThe Group has issued 21,250,000 warrants where the strike price might vary dependent upon circumstances outside of the control of the Group. The warrants are classified as a liability and measured at fair value through profit or loss. No cash outflows will arise in relation to the warrants.

Financial instruments carried at fair value include warrants issued to founding shareholders. Assumptions used in the calculations of fair value of the financial instrument that are more sensitive are the following:

- Market price of the Company’s shares (warrants) - Volatility of the share price (warrants) - Probability of change of control event (warrants)

As of 31 December 2011, the value of the warrants was calculated to be USD 48,346 using 67% volatility and a share price of USD 0.47 (NOK 2.8 at USD exchange rate of 5.96).

The table below presents a calculation of the sensitivities related to the valuation of warrants. The table shows the effect on net income based on 10% change (plus or minus) in volatility, share price and risk-free market interest rate. The fair value of the warrants, and consequently the liability relating to the change of control clause, is strongly dependent on the value and the volatility in the shares.

(In thousands of USD except for share price) Volatility Effect of Share Price Effect of Interest Rate Effect of

used at 31-Dec-2011 -10% 10% used at 31.12.2011 -10% 10% used at 31.12.2011 -10% 10%

67% 10 (60) $0.47 - - 0.75% - -

The effect of change in fair value of the warrant liability on net income is not linear to changes in the share price. The table below shows the effect on net income based on increased share price in NOK 3 increments.

(In thousands of USD except for share price) Share price Effect of share price being

used at 31-Dec-2011 NOK 6 NOK 9 NOK 12

NOK 2.80 ($0.47) (3,227) (13,518) (28,009)

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

4.5 For the purpose of applying the Company’s accounting policies, management is required to exercise a judgment as to whether lease arrangements should be considered an operating or finance lease. Current lease arrangement for vessels and seismic equipment as a lessee are determined to be financial leases and current lease arrangement for vessels and seismic equipment as a lessor is determined to be operating lease.

4.6 Amortization of the multi-client projects library In determining the annual amortization rates applied to the multi-client projects library, management considers expected future sales and market developments and past experience. The estimates of future sales depend on variables such as political risk, license periods, geographic location, general economic conditions, etc. Changes in these variables may potentially affect the estimated future sales and the amortization rates significantly from year to year.

To the extent that such revenue estimates prove to be higher than actual revenue, for example due to reliance on too optimistic assumptions, the Group’s subsequent operations will reflect lower profitability resulting from increased amortization rates applied to the multi-client projects library in later years, or from the multi-client projects library being subject to minimum amortization and/or impairment.

51

3.2 Capital management Capital includes equity attributable to the equity holders of the parent company.

The Group’s objectives when managing capital are to maximize shareholder value by maintaining an optimal capital structure which will reduce the cost of capital and safeguard the Group’s ability to continue as a going concern.

In order to maintain or adjust the capital structure, the Group may (i) return capital to shareholders, (ii) issue new shares or (iii) sell assets to reduce debt.

The Company is subject to dividend restrictions under certain of its financing arrangements. Due to these dividend restrictions and the current phase of the Company, Polarcus will not propose any dividends to the shareholders for the fiscal year 2011.

The Group is subject to externally imposed capital requirements as part of certain financing arrangements. The covenants of some of the financing arrangement require the Group to maintain minimum absolute levels of equity as well as minimum book equity ratios. Management ensures that the Group has complied with the requirements during the period

The Group aims to have equity capital of a level appropriate to its objectives, strategy and risk profile. The Group monitors its capital structure on the basis of total equity to total assets ratio. As of 31 December 2011 the Group has a book equity ratio of 39%. It is the Group’s objective that the said ratio shall be approximately 40% during its current early growth stage.

4 Critical accounting estimates, assumptions and judgments

The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in the Group’s future operating plans and the inherent imprecision associated with estimates.

Certain amounts included in or affecting the financial statements and related disclosure must be estimated, requiring the Group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. A ‘‘critical accounting estimate’’ is one which is both important to the portrayal of the Group’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The management evaluates such estimates on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods considered reasonable in the particular circumstances, as well as forecasts as to how these might change in the future.

The following is a summary of which estimates and judgments could have a material effect on the Group’s financial statements.

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

4.2 The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The primary assumptions used in the valuations are interest rates, share price, expected life of instruments, volatility and likelihood of certain events happening.

The employee stock options are priced using a Black Scholes formula for equity options. For the simulation of “Change of Control”, the events are drawn from a uniform distribution in the simulations.

4.3 WarrantsThe Group has issued 21,250,000 warrants where the strike price might vary dependent upon circumstances outside of the control of the Group. The warrants are classified as a liability and measured at fair value through profit or loss. No cash outflows will arise in relation to the warrants.

Financial instruments carried at fair value include warrants issued to founding shareholders. Assumptions used in the calculations of fair value of the financial instrument that are more sensitive are the following:

- Market price of the Company’s shares (warrants) - Volatility of the share price (warrants) - Probability of change of control event (warrants)

As of 31 December 2011, the value of the warrants was calculated to be USD 48,346 using 67% volatility and a share price of USD 0.47 (NOK 2.8 at USD exchange rate of 5.96).

The table below presents a calculation of the sensitivities related to the valuation of warrants. The table shows the effect on net income based on 10% change (plus or minus) in volatility, share price and risk-free market interest rate. The fair value of the warrants, and consequently the liability relating to the change of control clause, is strongly dependent on the value and the volatility in the shares.

(In thousands of USD except for share price) Volatility Effect of Share Price Effect of Interest Rate Effect of

used at 31-Dec-2011 -10% 10% used at 31.12.2011 -10% 10% used at 31.12.2011 -10% 10%

67% 10 (60) $0.47 - - 0.75% - -

The effect of change in fair value of the warrant liability on net income is not linear to changes in the share price. The table below shows the effect on net income based on increased share price in NOK 3 increments.

(In thousands of USD except for share price) Share price Effect of share price being

used at 31-Dec-2011 NOK 6 NOK 9 NOK 12

NOK 2.80 ($0.47) (3,227) (13,518) (28,009)

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

4.5 For the purpose of applying the Company’s accounting policies, management is required to exercise a judgment as to whether lease arrangements should be considered an operating or finance lease. Current lease arrangement for vessels and seismic equipment as a lessee are determined to be financial leases and current lease arrangement for vessels and seismic equipment as a lessor is determined to be operating lease.

4.6 Amortization of the multi-client projects library In determining the annual amortization rates applied to the multi-client projects library, management considers expected future sales and market developments and past experience. The estimates of future sales depend on variables such as political risk, license periods, geographic location, general economic conditions, etc. Changes in these variables may potentially affect the estimated future sales and the amortization rates significantly from year to year.

To the extent that such revenue estimates prove to be higher than actual revenue, for example due to reliance on too optimistic assumptions, the Group’s subsequent operations will reflect lower profitability resulting from increased amortization rates applied to the multi-client projects library in later years, or from the multi-client projects library being subject to minimum amortization and/or impairment.

52

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

5.1 Geographic information The Group’s revenue is earned from external customers worldwide are grouped as per below based on the territory of services provided;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Africa 85,642 42,421 South America 24,195 6,226 Europe 145,964 70,610 Asia Pacific 39,527 - Total revenue 295,328 119,256

At the end of the period reported, the property, plant and equipment and the vessels under construction were geographically located as per below:

(In thousands of USD) 31-Dec-11 31-Dec-10 Africa 435,323 134,566 South America 122,472 282,993 Middle East 1,173 261,516 Europe 138,455 - Asia Pacific 174,790 - Total 872,213 679,075

The Group had six vessels in operation during the year ended 31 December 2011 and included in the property, plant and equipment as of 31 December 2011. All six vessels were located in different jurisdictions due to the location of the contracts. Other non-current assets included in the property, plant and equipment are furniture and fixtures, office equipment and were all located at the Group’s office in Dubai, United Arab Emirates. The two vessels under construction at the period end were located at the shipyard in Norway.

5.2 Revenues from key customers During the year ended 31 December 2011, the Group provided its services to 34 different customers worldwide (10 in 2010). Revenue earned from largest two of these customers amounted to 20% of the Group’s total revenue earned during the year:

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Customer 1 36,146 43,173 Customer 2 22,214 24,656 Other customers 236,968 51,427 Total revenue 295,328 119,256

Group’s total revenue earned during the year ended 31 December was from contract sales and multi-client sales as per below;

(In thousands of USD)

Year ended

31-Dec-11 31-Dec-10 Contract revenues 274,757 119,256 Multi-client revenue - Prefunding 20,571 - - Late sales - - Total 295,328 119,256

53

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

5.1 Geographic information The Group’s revenue is earned from external customers worldwide are grouped as per below based on the territory of services provided;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Africa 85,642 42,421 South America 24,195 6,226 Europe 145,964 70,610 Asia Pacific 39,527 - Total revenue 295,328 119,256

At the end of the period reported, the property, plant and equipment and the vessels under construction were geographically located as per below:

(In thousands of USD) 31-Dec-11 31-Dec-10 Africa 435,323 134,566 South America 122,472 282,993 Middle East 1,173 261,516 Europe 138,455 - Asia Pacific 174,790 - Total 872,213 679,075

The Group had six vessels in operation during the year ended 31 December 2011 and included in the property, plant and equipment as of 31 December 2011. All six vessels were located in different jurisdictions due to the location of the contracts. Other non-current assets included in the property, plant and equipment are furniture and fixtures, office equipment and were all located at the Group’s office in Dubai, United Arab Emirates. The two vessels under construction at the period end were located at the shipyard in Norway.

5.2 Revenues from key customers During the year ended 31 December 2011, the Group provided its services to 34 different customers worldwide (10 in 2010). Revenue earned from largest two of these customers amounted to 20% of the Group’s total revenue earned during the year:

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Customer 1 36,146 43,173 Customer 2 22,214 24,656 Other customers 236,968 51,427 Total revenue 295,328 119,256

Group’s total revenue earned during the year ended 31 December was from contract sales and multi-client sales as per below;


Year ended

31-Dec-11 31-Dec-10 Contract revenues 274,757 119,256 Multi-client revenue - Prefunding 20,571 - - Late sales - - Total 295,328 119,256

54

6 Property, plant and equipment (In thousands of USD)

Seismic vessels and

equipment Furniture and

fixtures Office and IT

equipment Total

Year ended 31 December 2010 Costs Balance as of 01 January 2010 159,692 551 647 160,890 Additional capital expenditures 185,132 1,142 61 186,335 Assets under finance leases 157,383 - - 157,383 Retirement and disposals (2,433) (57) - (2,490) Balance as of 31 December 2010 499,774 1,636 708 502,118

Depreciation and impairment losses Balance as of 01 January 2010 417 149 165 731 Depreciation for the period 22,646 227 142 23,015 Retirement and disposals (172) - - (172) Balance as of 31 December 2010 22,891 376 307 23,574

Carrying amounts As of 01 January 2010 159,275 402 482 160,159 As of 31 December 2010 476,883 1,260 401 478,544 Carrying amounts held under finance lease as of 31 December 2010 274,822 - - 274,822

Year ended 31 December 2011 Costs Balance as of 01 January 2011 499,774 1,636 708 502,118 Additional capital expenditures 441,568 43.91 - 441,612 Additions under finance leases 1,519 - - 1,519 Retirement and disposals (3,908) (1) - (3,909) Balance as of 31 December 2011 938,953 1,679 708 941,339

Depreciation and impairment losses Balance as of 01 January 2011 22,891 376 307 23,574 Depreciation for the period 50,741 391 139 51,271 Retirement and disposals (427) - - (427) Balance as of 31 December 2011 73,205 766 446 74,417

Carrying amounts As of 01 January 2011 476,883 1,260 401 478,544 As of 31 December 2011 865,748 912 262 866,922 Carrying amounts held under finance lease as of 31 December 2011 253,500 - - 253,500

Pledged assets as of 31 December 2011 863,833 - - 863,833

On 3 March 2011, the Group took delivery of Polarcus Samur. The cost of the vessel incurred up to delivery was USD 133.08 million. Polarcus Samur is pledged as security for a 13% USD 55 million senior secured bond and interest accrued thereon. Also refer to Note 7 Vessels under construction and Note 17 Senior bonds.

On 21 March 2011, the Group took delivery of Polarcus Alima. The cost of the vessel incurred up to delivery was USD 140.03 million. Polarcus Alima has been pledged as a 1st priority security towards a USD 80 million loan facility and a USD 55 million loan facility together with Polarcus Asima. Also refer to Note 7 Vessels under construction and Note 20 Other long term debt. Polarcus Alima and Polarcus Asima are furthermore pledged as 2nd priority security for a 12.5% USD 80 million senior secured bond and interest accrued thereon. Also refer to Note 17 Senior bonds.

On 8 August 2011, the Group took delivery of Vyacheslav Tikhonov (previously Polarcus Selma). The cost of the vessel incurred up to delivery was USD 135.64 million. Vyacheslav Tikhonov has been pledged as a 1st priority security towards a 2.875% USD 125 million senior secured convertible bond and interest accrued thereon. Also refer to Note 7 Vessels under construction and Note 18 Convertible bonds.

55

6 Property, plant and equipment (In thousands of USD)

Seismic vessels and

equipment Furniture and

fixtures Office and IT

equipment Total

Year ended 31 December 2010 Costs Balance as of 01 January 2010 159,692 551 647 160,890 Additional capital expenditures 185,132 1,142 61 186,335 Assets under finance leases 157,383 - - 157,383 Retirement and disposals (2,433) (57) - (2,490) Balance as of 31 December 2010 499,774 1,636 708 502,118

Depreciation and impairment losses Balance as of 01 January 2010 417 149 165 731 Depreciation for the period 22,646 227 142 23,015 Retirement and disposals (172) - - (172) Balance as of 31 December 2010 22,891 376 307 23,574

Carrying amounts As of 01 January 2010 159,275 402 482 160,159 As of 31 December 2010 476,883 1,260 401 478,544 Carrying amounts held under finance lease as of 31 December 2010 274,822 - - 274,822

Year ended 31 December 2011 Costs Balance as of 01 January 2011 499,774 1,636 708 502,118 Additional capital expenditures 441,568 43.91 - 441,612 Additions under finance leases 1,519 - - 1,519 Retirement and disposals (3,908) (1) - (3,909) Balance as of 31 December 2011 938,953 1,679 708 941,339

Depreciation and impairment losses Balance as of 01 January 2011 22,891 376 307 23,574 Depreciation for the period 50,741 391 139 51,271 Retirement and disposals (427) - - (427) Balance as of 31 December 2011 73,205 766 446 74,417

Carrying amounts As of 01 January 2011 476,883 1,260 401 478,544 As of 31 December 2011 865,748 912 262 866,922 Carrying amounts held under finance lease as of 31 December 2011 253,500 - - 253,500

Pledged assets as of 31 December 2011 863,833 - - 863,833

On 3 March 2011, the Group took delivery of Polarcus Samur. The cost of the vessel incurred up to delivery was USD 133.08 million. Polarcus Samur is pledged as security for a 13% USD 55 million senior secured bond and interest accrued thereon. Also refer to Note 7 Vessels under construction and Note 17 Senior bonds.

On 21 March 2011, the Group took delivery of Polarcus Alima. The cost of the vessel incurred up to delivery was USD 140.03 million. Polarcus Alima has been pledged as a 1st priority security towards a USD 80 million loan facility and a USD 55 million loan facility together with Polarcus Asima. Also refer to Note 7 Vessels under construction and Note 20 Other long term debt. Polarcus Alima and Polarcus Asima are furthermore pledged as 2nd priority security for a 12.5% USD 80 million senior secured bond and interest accrued thereon. Also refer to Note 17 Senior bonds.

On 8 August 2011, the Group took delivery of Vyacheslav Tikhonov (previously Polarcus Selma). The cost of the vessel incurred up to delivery was USD 135.64 million. Vyacheslav Tikhonov has been pledged as a 1st priority security towards a 2.875% USD 125 million senior secured convertible bond and interest accrued thereon. Also refer to Note 7 Vessels under construction and Note 18 Convertible bonds.

56

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

Naila Polarcus Asima

Polarcus Samur

Polarcus Alima

Polarcus Selma

Polarcus Amani

Polarcus Adira Total

Vessel Type SX 124 SX 133 SX 133 SX 134 SX 133 SX 134 SX 134 Year ended 31 December 2010 Balance as at 01 January 2010 94,033 92,458 71,990 - - 3,769 3,769 266,019 Additions during the year: Vessel and equipment 16,674 54,362 21,555 84,442 - 10,760 10,760 198,555 Project Overheads 561 2,933 3,416 1,252 - - - 8,162 Project Financing costs 3,598 3,125 8,010 9,866 - - - 24,598 Disposals - - - - - (500) (500) (1,000) Transfers to property, plant & equipment (114,866) (152,878) - - - - - (267,744) Payments treated as advance to suppliers - - - - - (14,029) (14,029) (28,059) Work in progress value per vessel as of 31 December 2010 - - 104,971 95,560 - - - 200,531

Year ended 31 December 2011 Additions during the year: Vessel and equipment - - 26,503 41,370 126,024 1,940 2,123 197,960 Project Overheads - - 193 548 1,617 614 614 3,586 Project Financing costs - - 1,412 2,553 8,001 - - 11,966 Disposals - - - - - - - - Transfers to property, plant & equipment - - (133,080) (140,030) (135,642) - - (408,752) Work in progress value per vessel as of 31 December 2011 - - - - - 2,554 2,737 5,291

The vessel Polarcus Samur was delivered on 03 March 2011. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel Polarcus Alima was delivered on 21 March 2011. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel Vyacheslav Tikhonov (previously Polarcus Selma) was delivered on 08 August 2011.

In addition to the project overheads capitalized for vessels Polarcus Amani and Polarcus Adira as per above, the Group has made advance payments of USD 28.06 million (USD 14.03 per vessel) to the shipyard for construction of these vessels. The remaining commitments for these vessels under construction as of 31 December 2011 are USD 146.64 million for Polarcus Amani and USD 141.61 million for Polarcus Adira, all payable within one year from the reporting date.

8 Multi-client projects library (In thousands of USD) 31-Dec-11 31-Dec-10 Balance as of 01 January - - Cash investments 17,282 - Capitalized depreciation * 3,734 - Amortization * (10,545) - Balance as of 31 December 10,470 -

*Also refer to Note 28 Depreciation and Amortization.

9 Intangible assets (In thousands of USD)

ERP

System

Industry specific

applications

Industry specific

applications under

development

Consideration for vessel buyback options

Total

Year ended 31 December 2010 Costs Balance as at 01 January 2010 344 - 609 3,400 4,353 Additions 199 743 170 - 1,111 Buyback option exercised - - - (1,700) (1,700) Capitalized during the year - - (743) - (743) Balance as at 31 December 2010 543 743 36 1,700 3,021

Amortization and impairment losses Balance as at 01 January 2010 74 - - - 74 Amortization for the period 134 180 - - 314 Balance as at 31 December 2010 208 180 - - 388

Carrying amounts As at 01 January 2010 270 - 609 3,400 4,279 As at 31 December 2010 334 563 36 1,700 2,633 Year ended 31 December 2011 Costs Balance as at 01 January 2011 543 743 36 1,700 3,021 Additions 53 42 123 - 219 Buyback option exercised - - - (1,700) (1,700) Capitalized during the year - - - - - Balance as at 31 December 2011 596 785 160 - 1,540

Amortization and impairment losses Balance as at 01 January 2011 208 180 - - 388 Amortization for the period 185 256 - - 441 Balance as at 31 December 2011 394 435 - - 829

Carrying amounts As at 01 January 2011 334 563 36 1,700 2,633 As at 31 December 2011 202 350 160 - 712

57

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

Naila Polarcus Asima

Polarcus Samur

Polarcus Alima

Polarcus Selma

Polarcus Amani

Polarcus Adira Total

Vessel Type SX 124 SX 133 SX 133 SX 134 SX 133 SX 134 SX 134 Year ended 31 December 2010 Balance as at 01 January 2010 94,033 92,458 71,990 - - 3,769 3,769 266,019 Additions during the year: Vessel and equipment 16,674 54,362 21,555 84,442 - 10,760 10,760 198,555 Project Overheads 561 2,933 3,416 1,252 - - - 8,162 Project Financing costs 3,598 3,125 8,010 9,866 - - - 24,598 Disposals - - - - - (500) (500) (1,000) Transfers to property, plant & equipment (114,866) (152,878) - - - - - (267,744) Payments treated as advance to suppliers - - - - - (14,029) (14,029) (28,059) Work in progress value per vessel as of 31 December 2010 - - 104,971 95,560 - - - 200,531

Year ended 31 December 2011 Additions during the year: Vessel and equipment - - 26,503 41,370 126,024 1,940 2,123 197,960 Project Overheads - - 193 548 1,617 614 614 3,586 Project Financing costs - - 1,412 2,553 8,001 - - 11,966 Disposals - - - - - - - - Transfers to property, plant & equipment - - (133,080) (140,030) (135,642) - - (408,752) Work in progress value per vessel as of 31 December 2011 - - - - - 2,554 2,737 5,291

The vessel Polarcus Samur was delivered on 03 March 2011. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel Polarcus Alima was delivered on 21 March 2011. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel Vyacheslav Tikhonov (previously Polarcus Selma) was delivered on 08 August 2011.

In addition to the project overheads capitalized for vessels Polarcus Amani and Polarcus Adira as per above, the Group has made advance payments of USD 28.06 million (USD 14.03 per vessel) to the shipyard for construction of these vessels. The remaining commitments for these vessels under construction as of 31 December 2011 are USD 146.64 million for Polarcus Amani and USD 141.61 million for Polarcus Adira, all payable within one year from the reporting date.

8 Multi-client projects library (In thousands of USD) 31-Dec-11 31-Dec-10 Balance as of 01 January - - Cash investments 17,282 - Capitalized depreciation * 3,734 - Amortization * (10,545) - Balance as of 31 December 10,470 -

*Also refer to Note 28 Depreciation and Amortization.

9 Intangible assets (In thousands of USD)

ERP

System

Industry specific

applications

Industry specific

applications under

development

Consideration for vessel buyback options

Total

Year ended 31 December 2010 Costs Balance as at 01 January 2010 344 - 609 3,400 4,353 Additions 199 743 170 - 1,111 Buyback option exercised - - - (1,700) (1,700) Capitalized during the year - - (743) - (743) Balance as at 31 December 2010 543 743 36 1,700 3,021

Amortization and impairment losses Balance as at 01 January 2010 74 - - - 74 Amortization for the period 134 180 - - 314 Balance as at 31 December 2010 208 180 - - 388

Carrying amounts As at 01 January 2010 270 - 609 3,400 4,279 As at 31 December 2010 334 563 36 1,700 2,633 Year ended 31 December 2011 Costs Balance as at 01 January 2011 543 743 36 1,700 3,021 Additions 53 42 123 - 219 Buyback option exercised - - - (1,700) (1,700) Capitalized during the year - - - - - Balance as at 31 December 2011 596 785 160 - 1,540

Amortization and impairment losses Balance as at 01 January 2011 208 180 - - 388 Amortization for the period 185 256 - - 441 Balance as at 31 December 2011 394 435 - - 829

Carrying amounts As at 01 January 2011 334 563 36 1,700 2,633 As at 31 December 2011 202 350 160 - 712

58

The useful lives of ERP system and industry specific applications are considered to be finite and these assets are amortized over three years from the date when these assets are ready for its intended use.

10 Prepaid expenses (In thousands of USD) 31-Dec-11 31-Dec-10 Prepaid rent 292 295 Prepaid insurance 3,884 1,787 Other prepaid miscellaneous expenses 616 357 Total 4,792 2,440

11 Other current assets (In thousands of USD) 31-Dec-11 31-Dec-10 Inventories onboard the vessels 7,248 5,668 Deferred transit cost 4,773 3,292 Insurance claims 5,127 4,106 Accrued revenue 20,699 6,387 Deposits 174 218 Advance to employees 1,078 1,130 Withholding taxes 3,837 - VAT claimable 39 9 Advance to suppliers 2,546 4,713 Investment in shares 529 529 Financing costs paid in advance 6,139 - Total 52,189 26,052

12 Restricted cash - short term (In thousands of USD) 31-Dec-11 31-Dec-10 Letter of credit Escrow account to secure payment to suppliers 514 344 Senior secured bond loan escrow account - 91,550 Long term loan installment retention account 5,360 - Other short term deposits 17,809 18,856 Total 23,683 110,749

Other short term deposits consist of USD 12 million cash collateral pledged in favor of lenders. The remaining amount is deposited as cash collateral to secure different bank guarantees including performance guarantees in favor of customers.

13 Cash and cash equivalents Cash and cash equivalents include cash-in hand, deposits held at call with banks, other short-term highly liquid investments.

(In thousands of equivalent USD) 31-Dec-11 31-Dec-10 USD 32,895 56,357 EUR 3,024 4,585 NOK 22,521 10,300 GBP 959 361 Other currencies 937 15,233 Total 60,336 86,836

14 Share capital, share options and warrants 14.1 Share capital The Company’s authorized share capital is USD 13,190,000 divided into 659,500,000 shares at par value of USD 0.02.

The total issued share capital of the Company as of 31 December 2011 is USD 9,343,924 divided into 467,196,179 shares at par value of USD 0.02. All issued shares have been paid in as of 31 December 2011.

As of 31 December 2010 the Company had issued and paid-in share capital of USD 8,193,924 divided into 409,696,179 shares at par value of USD 0.02.

On 11 October 2011 the Company issued 57,500,000 shares in connection with a private placement at par value of USD 0.02. These shares were fully paid in on 21 October 2011.

(In thousands of USD except for number of shares)

Number of

shares

Issued share

capital

Share premium Total

Proceeds from shares issued 203,571,855 2,036 209,936 211,972 Transaction cost of share issue - - (2,578) (2,578) Warrants to founding shareholders - - (18,716) (18,716) Balance as at 31 December 2008 203,571,855 2,036 188,642 190,678 Consolidation of share capital (on 11 September 2009 at 2:1 from USD 0.01 to USD 0.02 per share) (101,785,928) - - - Shares issued to avoid fractional shares after consolidation 3.50 - - - Proceeds from shares issued 161,388,889 3,228 121,397 124,625 Transaction cost of share issue - - (6,456) (6,456) Balance as at 31 December 2009 263,174,820 5,264 303,583 308,847 Proceeds from shares issued on 19 October 2010 67,421,359 1,348 59,063 60,411 Proceeds from shares issued on 24 November 2010 73,400,000 1,468 62,876 64,344 Proceeds from shares issued on 21 December 2010 5,700,000 114 4,803 4,917 Transaction cost of share issue - - (6,503) (6,503) Balance as at 31 December 2010 409,696,179 8,194 423,822 432,016 Proceeds from shares issued on 11 October 2011 57,500,000 1,150 39,967 41,117 Transaction cost of share issue - - (97) (97) Balance as at 31 December 2011 467,196,179 9,344 463,692 473,036

Assuming full conversion of convertible bond loan, warrants and share options, the total number of Shares issued would increase by 110,418,649 Shares.

Dilutive Instrument Number of equivalent

shares Shares associated with convertible debt 75,418,649 Shares associated with the warrants 21,250,000 Shares associated with the stock options 13,750,000 Total 110,418,649

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

14.2 Warrants The Group has issued 21,250,000 warrants to the founding shareholders, each giving the right to subscribe for one new ordinary share. All the warrants were issued on 14 March 2008 and no further warrants were issued during the year ended 31 December 2011. The warrants are exercisable at a price of USD 0.02 on or before 31 December 2012 and can only be exercised if the shares

59

The useful lives of ERP system and industry specific applications are considered to be finite and these assets are amortized over three years from the date when these assets are ready for its intended use.

10 Prepaid expenses (In thousands of USD) 31-Dec-11 31-Dec-10 Prepaid rent 292 295 Prepaid insurance 3,884 1,787 Other prepaid miscellaneous expenses 616 357 Total 4,792 2,440

11 Other current assets (In thousands of USD) 31-Dec-11 31-Dec-10 Inventories onboard the vessels 7,248 5,668 Deferred transit cost 4,773 3,292 Insurance claims 5,127 4,106 Accrued revenue 20,699 6,387 Deposits 174 218 Advance to employees 1,078 1,130 Withholding taxes 3,837 - VAT claimable 39 9 Advance to suppliers 2,546 4,713 Investment in shares 529 529 Financing costs paid in advance 6,139 - Total 52,189 26,052

12 Restricted cash - short term (In thousands of USD) 31-Dec-11 31-Dec-10 Letter of credit Escrow account to secure payment to suppliers 514 344 Senior secured bond loan escrow account - 91,550 Long term loan installment retention account 5,360 - Other short term deposits 17,809 18,856 Total 23,683 110,749

Other short term deposits consist of USD 12 million cash collateral pledged in favor of lenders. The remaining amount is deposited as cash collateral to secure different bank guarantees including performance guarantees in favor of customers.

13 Cash and cash equivalents Cash and cash equivalents include cash-in hand, deposits held at call with banks, other short-term highly liquid investments.

(In thousands of equivalent USD) 31-Dec-11 31-Dec-10 USD 32,895 56,357 EUR 3,024 4,585 NOK 22,521 10,300 GBP 959 361 Other currencies 937 15,233 Total 60,336 86,836

14 Share capital, share options and warrants 14.1 Share capital The Company’s authorized share capital is USD 13,190,000 divided into 659,500,000 shares at par value of USD 0.02.

The total issued share capital of the Company as of 31 December 2011 is USD 9,343,924 divided into 467,196,179 shares at par value of USD 0.02. All issued shares have been paid in as of 31 December 2011.

As of 31 December 2010 the Company had issued and paid-in share capital of USD 8,193,924 divided into 409,696,179 shares at par value of USD 0.02.

On 11 October 2011 the Company issued 57,500,000 shares in connection with a private placement at par value of USD 0.02. These shares were fully paid in on 21 October 2011.

(In thousands of USD except for number of shares)

Number of

shares

Issued share

capital

Share premium Total

Proceeds from shares issued 203,571,855 2,036 209,936 211,972 Transaction cost of share issue - - (2,578) (2,578) Warrants to founding shareholders - - (18,716) (18,716) Balance as at 31 December 2008 203,571,855 2,036 188,642 190,678 Consolidation of share capital (on 11 September 2009 at 2:1 from USD 0.01 to USD 0.02 per share) (101,785,928) - - - Shares issued to avoid fractional shares after consolidation 3.50 - - - Proceeds from shares issued 161,388,889 3,228 121,397 124,625 Transaction cost of share issue - - (6,456) (6,456) Balance as at 31 December 2009 263,174,820 5,264 303,583 308,847 Proceeds from shares issued on 19 October 2010 67,421,359 1,348 59,063 60,411 Proceeds from shares issued on 24 November 2010 73,400,000 1,468 62,876 64,344 Proceeds from shares issued on 21 December 2010 5,700,000 114 4,803 4,917 Transaction cost of share issue - - (6,503) (6,503) Balance as at 31 December 2010 409,696,179 8,194 423,822 432,016 Proceeds from shares issued on 11 October 2011 57,500,000 1,150 39,967 41,117 Transaction cost of share issue - - (97) (97) Balance as at 31 December 2011 467,196,179 9,344 463,692 473,036

Assuming full conversion of convertible bond loan, warrants and share options, the total number of Shares issued would increase by 110,418,649 Shares.

Dilutive Instrument Number of equivalent

shares Shares associated with convertible debt 75,418,649 Shares associated with the warrants 21,250,000 Shares associated with the stock options 13,750,000 Total 110,418,649

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

14.2 Warrants The Group has issued 21,250,000 warrants to the founding shareholders, each giving the right to subscribe for one new ordinary share. All the warrants were issued on 14 March 2008 and no further warrants were issued during the year ended 31 December 2011. The warrants are exercisable at a price of USD 0.02 on or before 31 December 2012 and can only be exercised if the shares

60

of the Company being traded on an internationally recognized marketplace or stock exchange at a volume weighted average price per share of at least NOK 22.00 (or equivalent) for more than 30 trading days.

In the event of a change of control of the Company prior to the warrant expiration date, the shareholders may, regardless of whether or not the previous conditions are met, exercise the warrants at a price per share of;

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

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

The warrants have been determined to be a liability because they fail to meet the IAS 32 classification requirements for equity instruments as they are not exchangeable for a fixed amount of cash or fixed amount of the Company’s own shares. Consequently, the fair value of the warrants at the issue date of USD 18.7 million has been recorded as a distribution to shareholders directly in Equity. Subsequent to issuance, the liability is recorded at fair value at each balance sheet date and the resulting change in fair value is recognized in the income statement within changes in fair value of financial instruments – net. A gain of USD 6.7 million has been recorded during the year ended 31 December 2011. During the year 2010 a loss of USD 3.6 million was recorded. Also refer to Note 31 Changes in fair value of financial instruments.

As of 31 December 2011 no warrants were exercisable.

14.3 Stock options The Company in 2008 implemented an employee share option scheme under which 6,250,000 shares may be issued to employees of companies within the Group. As of 31 December 2011 the Group has issued 6,065,000 options under this scheme of which 695,000 were issued during the year ended 31 December 2011. The exercise price of options is based on the weighted average price of the shares for the 30 days prior to acceptance of employment offer. The options vest three years after grant date and can be exercised up to five years after the grant date. The exercise of the options is conditional on the employee completing three years of service (the vesting period) and being an employee of the Group at the exercise date. The options are only available for settlement in equity.

The total fair value of options granted up to 31 December 2011 under the 2008 scheme is USD 4.89 million calculated using the Black-Scholes model, assuming all options will be exercised. As of 31 December 2011 3,560,000 options under this scheme were exercisable however none of them were exercised.

The following table shows the number, weighted average exercise price (WAEP) of and movements in the share options under 2008 scheme;

2008 Stock option plan Year ended 31-Dec-2011 Year ended 31-Dec-2010

Number WAEP (USD) Number WAEP

(USD) Outstanding at 01 January 5,585,000 1.65 4,525,000 1.86 Granted during the year 695,000 1.28 1,245,000 0.92 Forfeited during the year (215,000) - (185,000) - Outstanding as of 31 December 6,065,000 1.63 5,585,000 1.65 Exercisable as at 31 December 3,560,000 2 - - Exercised during the year - - - -

The range of exercise prices for options outstanding under 2008 Scheme as of 31 December 2011 is USD 0.61 – USD 2.60. The weighted average remaining contractual life as of 31 December 2011 is 2.25 years.

The following table lists the inputs to the models used for the valuation of 2008 share option plan;

31-Dec-11 31-Dec-10 Dividend yield (%) - - Expected volatility (%) 58% 60.7% Risk-free interest rate (%) 4.1% 2.67% Expected life of option (years) 5 5 Weighted average share price (USD) 1.28 0.87

In the 2010 annual general meeting, a new employee share option scheme was approved under which a total of 7,500,000 shares may be issued to employees within the Polarcus Group. The program has a 6-year duration with part exercise possibility at the first, second and third anniversary after the grant of the options. The exercise price for each option is set to the volume weighted average price for which the shares have been traded at Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10% for options exercisable after one year, plus 20% for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan. The options are exercisable upon a change of control event (above 50%). As of 31 December 2011 the Group has issued 7,500,000 options under this plan.



Number WAEP (NOK) Number WAEP

(NOK) Outstanding at 01 January 5,211,400 7.29 - - Granted during the year 2,306,000 9.32 5,211,400 7.29 Forfeited during the year (17,400) - - - Outstanding as of 31 December 7,500,000 7.91 5,211,400 7.29 Exercisable as at 31 December 1,737,133 6.68 - - Exercised during the year - - - -

The range of exercise prices for options outstanding under the 2010 Scheme as of 31 December 2011 is NOK 6.68 to NOK 10.1 (USD 1.12 – USD 1.69). The weighted average remaining contractual life as of 31 December 2011 is 4.63 years.


31-Dec-11 31-Dec-10 Dividend yield (%) - - Expected volatility (%) 56.8% 59% Risk-free interest rate (%) 4.29% 3.98% Expected life of option (years) 6 6 Weighted average share price (NOK) 7.15 6.73

The value of the options under both 2008 and 2010 plans is estimated by a tree implementation of the Black Scholes formula for the pricing of equity call options.

The expected life of the options is based on the maturity date and is not necessarily indicative of exercise patterns that may occur. The expected volatility is based on the historical volatility of the share price since the Company shares were available for public purchase and reflects the assumption that historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

For the year ended 31 December 2011, the Group has expensed USD 2.07 million (2010 – USD 2.05 million) towards stock options granted as employee compensation.

61

of the Company being traded on an internationally recognized marketplace or stock exchange at a volume weighted average price per share of at least NOK 22.00 (or equivalent) for more than 30 trading days.

In the event of a change of control of the Company prior to the warrant expiration date, the shareholders may, regardless of whether or not the previous conditions are met, exercise the warrants at a price per share of;

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

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

The warrants have been determined to be a liability because they fail to meet the IAS 32 classification requirements for equity instruments as they are not exchangeable for a fixed amount of cash or fixed amount of the Company’s own shares. Consequently, the fair value of the warrants at the issue date of USD 18.7 million has been recorded as a distribution to shareholders directly in Equity. Subsequent to issuance, the liability is recorded at fair value at each balance sheet date and the resulting change in fair value is recognized in the income statement within changes in fair value of financial instruments – net. A gain of USD 6.7 million has been recorded during the year ended 31 December 2011. During the year 2010 a loss of USD 3.6 million was recorded. Also refer to Note 31 Changes in fair value of financial instruments.

As of 31 December 2011 no warrants were exercisable.

14.3 Stock options The Company in 2008 implemented an employee share option scheme under which 6,250,000 shares may be issued to employees of companies within the Group. As of 31 December 2011 the Group has issued 6,065,000 options under this scheme of which 695,000 were issued during the year ended 31 December 2011. The exercise price of options is based on the weighted average price of the shares for the 30 days prior to acceptance of employment offer. The options vest three years after grant date and can be exercised up to five years after the grant date. The exercise of the options is conditional on the employee completing three years of service (the vesting period) and being an employee of the Group at the exercise date. The options are only available for settlement in equity.


The following table shows the number, weighted average exercise price (WAEP) of and movements in the share options under 2008 scheme;


Number WAEP (USD) Number WAEP

(USD) Outstanding at 01 January 5,585,000 1.65 4,525,000 1.86 Granted during the year 695,000 1.28 1,245,000 0.92 Forfeited during the year (215,000) - (185,000) - Outstanding as of 31 December 6,065,000 1.63 5,585,000 1.65 Exercisable as at 31 December 3,560,000 2 - - Exercised during the year - - - -

The range of exercise prices for options outstanding under 2008 Scheme as of 31 December 2011 is USD 0.61 – USD 2.60. The weighted average remaining contractual life as of 31 December 2011 is 2.25 years.


31-Dec-11 31-Dec-10 Dividend yield (%) - - Expected volatility (%) 58% 60.7% Risk-free interest rate (%) 4.1% 2.67% Expected life of option (years) 5 5 Weighted average share price (USD) 1.28 0.87

In the 2010 annual general meeting, a new employee share option scheme was approved under which a total of 7,500,000 shares may be issued to employees within the Polarcus Group. The program has a 6-year duration with part exercise possibility at the first, second and third anniversary after the grant of the options. The exercise price for each option is set to the volume weighted average price for which the shares have been traded at Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10% for options exercisable after one year, plus 20% for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan. The options are exercisable upon a change of control event (above 50%). As of 31 December 2011 the Group has issued 7,500,000 options under this plan.



Number WAEP (NOK) Number WAEP

(NOK) Outstanding at 01 January 5,211,400 7.29 - - Granted during the year 2,306,000 9.32 5,211,400 7.29 Forfeited during the year (17,400) - - - Outstanding as of 31 December 7,500,000 7.91 5,211,400 7.29 Exercisable as at 31 December 1,737,133 6.68 - - Exercised during the year - - - -

The range of exercise prices for options outstanding under the 2010 Scheme as of 31 December 2011 is NOK 6.68 to NOK 10.1 (USD 1.12 – USD 1.69). The weighted average remaining contractual life as of 31 December 2011 is 4.63 years.


31-Dec-11 31-Dec-10 Dividend yield (%) - - Expected volatility (%) 56.8% 59% Risk-free interest rate (%) 4.29% 3.98% Expected life of option (years) 6 6 Weighted average share price (NOK) 7.15 6.73

The value of the options under both 2008 and 2010 plans is estimated by a tree implementation of the Black Scholes formula for the pricing of equity call options.

The expected life of the options is based on the maturity date and is not necessarily indicative of exercise patterns that may occur. The expected volatility is based on the historical volatility of the share price since the Company shares were available for public purchase and reflects the assumption that historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

For the year ended 31 December 2011, the Group has expensed USD 2.07 million (2010 – USD 2.05 million) towards stock options granted as employee compensation.

62

15 Other financial assets and liabilities 15.1 Financial assets and liabilities at fair value and amortized cost Financial assets measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Vessels prepayments 28,060 28,060 Accounts receivables 55,425 18,357 Total assets measured at amortized cost 83,485 46,417

Financial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Liability for warrants (refer to Note: 14 and 31) 48 6,768 Total financial liabilities at fair value through profit and loss 48 6,768

Financial liabilities measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Bond loans 13% Senior Secured Bonds (refer to Note: 17) 54,246 53,846 12.5% Senior Secured Bonds (refer to Note: 17) 77,190 77,004 14% Senior Unsecured Bond (refer to Note: 17) 36,709 - 8.5% Convertible Bonds (refer to Note: 18) 32,567 31,269 2.875% Convertible Bond (refer to Note: 18) 98,542 - Total bond loans 299,255 162,119 Other long-term debt Eksportfinans loan - USD 80 million (refer to Note: 20) 70,091 76,292 Eksportfinans loan - USD 55 million (refer to Note: 20) 51,322 - Other debt for streamer systems (refer to Note: 20) 2,911 7,597 Total other long-term debt 124,323 83,889 Other financial liabilities Finance lease liabilities (refer to Note: 19) 195,545 216,796 Deferred payments to vendors - 59,874 Accounts Payable 28,355 30,291 Total other financial liabilities 223,900 306,961 Total financial liabilities measured at amortized cost 647,478 552,969

Also refer to Note 3.1.4 Liquidity risk.

15.2 Fair values 31-Dec-11 31-Dec-10

(in thousands of USD) Carrying Amount Fair value Carrying

Amount Fair value

Financial assets Cash and deposits (refer to Note: 12 and 13) 84,019 84,019 197,586 197,586 Vessel prepayments (refer to Note: 7) 28,060 28,060 28,060 28,060 Accounts receivables 55,425 55,425 18,357 18,357 Total 167,504 167,504 244,003 244,003 Financial liabilities Accounts payable 28,355 28,355 30,291 30,291 Liability for warrants (refer to Note: 14 and 31) 48 48 6,768 6,768 13% Senior secured bonds (refer to Note: 17) 54,246 60,363 53,846 59,675 12.5% Senior secured bonds (refer to Note: 17) 77,190 77,200 77,004 81,800 14% Senior Unsecured Bond (refer to Note: 17) 36,709 36,468 - - 8.5% Convertible bonds (refer to Note: 18) 32,567 32,813 31,269 31,325 2.875% Convertible Bond (refer to Note: 18) 98,542 90,625 - - Finance lease liabilities (refer to Note: 19) 195,545 195,545 216,796 216,796 Other long-term debt (refer to Note: 20) 124,323 124,323 83,889 83,889 Deferred payments to vendors - - 59,874 59,874 Total 647,527 647,835 559,737 570,418

Cash and deposits, accounts receivables and payable, prepayments and deferred payments to vendors approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair values of senior secured and convertible bonds are measured at a rate prescribed by The Norwegian Securities Dealers Association based upon the secondary market prices of the respective securities.

The carrying value of the liability for warrants is measured at fair value, see Note 31 Changes in fair value of financial instruments for more information.

The fair value of finance lease liabilities and other long-term debt approximates their carrying amounts as there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As of 31 December 2011, the Group held the following financial instruments measured at fair value:

(in thousands of USD) 31-Dec-11 31-Dec-10 Financial liabilities at fair value through profit & loss: Warrants (Refer to Note: 14)

Level 1 - - Level 2 - - Level 3 48 6,768

Total 48 6,768

63

15 Other financial assets and liabilities 15.1 Financial assets and liabilities at fair value and amortized cost Financial assets measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Vessels prepayments 28,060 28,060 Accounts receivables 55,425 18,357 Total assets measured at amortized cost 83,485 46,417

Financial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Liability for warrants (refer to Note: 14 and 31) 48 6,768 Total financial liabilities at fair value through profit and loss 48 6,768


(in thousands of USD) 31-Dec-11 31-Dec-10 Bond loans 13% Senior Secured Bonds (refer to Note: 17) 54,246 53,846 12.5% Senior Secured Bonds (refer to Note: 17) 77,190 77,004 14% Senior Unsecured Bond (refer to Note: 17) 36,709 - 8.5% Convertible Bonds (refer to Note: 18) 32,567 31,269 2.875% Convertible Bond (refer to Note: 18) 98,542 - Total bond loans 299,255 162,119 Other long-term debt Eksportfinans loan - USD 80 million (refer to Note: 20) 70,091 76,292 Eksportfinans loan - USD 55 million (refer to Note: 20) 51,322 - Other debt for streamer systems (refer to Note: 20) 2,911 7,597 Total other long-term debt 124,323 83,889 Other financial liabilities Finance lease liabilities (refer to Note: 19) 195,545 216,796 Deferred payments to vendors - 59,874 Accounts Payable 28,355 30,291 Total other financial liabilities 223,900 306,961 Total financial liabilities measured at amortized cost 647,478 552,969

Also refer to Note 3.1.4 Liquidity risk.

15.2 Fair values 31-Dec-11 31-Dec-10

(in thousands of USD) Carrying Amount Fair value Carrying

Amount Fair value

Financial assets Cash and deposits (refer to Note: 12 and 13) 84,019 84,019 197,586 197,586 Vessel prepayments (refer to Note: 7) 28,060 28,060 28,060 28,060 Accounts receivables 55,425 55,425 18,357 18,357 Total 167,504 167,504 244,003 244,003 Financial liabilities Accounts payable 28,355 28,355 30,291 30,291 Liability for warrants (refer to Note: 14 and 31) 48 48 6,768 6,768 13% Senior secured bonds (refer to Note: 17) 54,246 60,363 53,846 59,675 12.5% Senior secured bonds (refer to Note: 17) 77,190 77,200 77,004 81,800 14% Senior Unsecured Bond (refer to Note: 17) 36,709 36,468 - - 8.5% Convertible bonds (refer to Note: 18) 32,567 32,813 31,269 31,325 2.875% Convertible Bond (refer to Note: 18) 98,542 90,625 - - Finance lease liabilities (refer to Note: 19) 195,545 195,545 216,796 216,796 Other long-term debt (refer to Note: 20) 124,323 124,323 83,889 83,889 Deferred payments to vendors - - 59,874 59,874 Total 647,527 647,835 559,737 570,418

Cash and deposits, accounts receivables and payable, prepayments and deferred payments to vendors approximate their carrying amounts largely due to the short-term maturities of these instruments.


The carrying value of the liability for warrants is measured at fair value, see Note 31 Changes in fair value of financial instruments for more information.

The fair value of finance lease liabilities and other long-term debt approximates their carrying amounts as there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:




As of 31 December 2011, the Group held the following financial instruments measured at fair value:



Total 48 6,768

64

During the year ended 31 December 2011, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

Reconciliation of opening and closing balances of Level 3 financial liabilities is as per below;

(in thousands of USD)

31-Dec-11 31-Dec-10 Balance at 01 January (6,768) (3,207) Value of warrants recognized in equity on recognition - - Recorded in profit and loss in the year (6,720) (3,561) Balance at 31 December (48) (6,768)

16 Other reserves (In thousands of USD) 31-Dec-11 31-Dec-10 Issue of convertible bonds - fair value of equity component (refer to Note: 18) 31,629 5,024 Employee stock options provision (refer to Note: 14) 6,352 4,284 Total 37,981 9,308

17 Senior bonds On 30 July 2008, the Company had issued 550 senior secured callable bonds at par value of USD 100,000 each, totaling USD 55 million, bearing interest of 13% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel Polarcus Samur. The interest for this loan is payable semi-annually in arrears on 30 January and 30 July each year. The bonds will mature five years from the date of issue at their nominal value.

The bonds, including accrued interest and expenses, are secured a first priority mortgage on the vessel Polarcus Samur, an assignment of insurances related to the vessel, the pledge of shares in Polarcus Samur Ltd (formerly known as Polarcus 3) as well as the up-stream guarantee form Polarcus Samur Ltd, a 100% owned subsidiary of Polarcus Limited.

On the date of issue, net proceeds of USD 53,075,000 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;

Years ended Accumulated from inception

(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 400 349 1,171 771 Interest payable expensed 7,150 7,150 24,429 17,279 Actual interest paid 7,150 7,150 21,450 14,300

On 27 October 2010, the Group issued 800 senior secured callable bonds at par value of USD 100,000 each, totaling USD 80 million, bearing an interest of 12.5% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel Polarcus Alima through the vessel owning subsidiary Polarcus 6. The interest for this loan is payable semi-annually in arrears on 29 April and 29 October each year. The bonds will mature five years from the date of issue at their nominal value.

On 05 October 2011 the Company entered into an amended and restated bond loan agreement for the above mentioned loan and entered into an inter-creditor agreement coordinating the security interests between the Fleet Bank Facility (refer to note 1.1 Financing) and the above bond loans.

The net proceeds of USD 76,579,481 were recorded under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 536 75 611 75 Interest payable expensed 10,000 1,667 11,667 1,667 Actual interest paid 10,000 - 10,000 -

As of 31 December 2011 the Group complies with the covenants set out in this loan agreement.

On 27 October 2011, the Group issued 460 senior unsecured bonds at par value of NOK 500,000 each, totaling NOK 230 million (USD 40.6 million), bearing an interest of 14% per annum. The interest for this loan is payable semi-annually in arrears on 14 May and 14 November each year. The bonds will mature five years from the date of issue at their nominal value.

On the date of issue, net proceeds of USD 38,817,049 (NOK 219.95 million) were recorded under Non-current liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 40 - 40 - Interest payable expensed 457 - 457 - Actual interest paid - - - -

The balance sheet value the above three loans are as below;

(In thousands of USD) 31-Dec-11 31-Dec-10 13% Senior secured callable bonds 54,246 53,846 12.5% Senior secured callable bonds 77,190 77,004 14% Senior unsecured bonds 36,709 - Total 168,145 130,850

18 Convertible bonds On 30 July 2008 the Company had issued 350 subordinated unsecured callable convertible bonds at a par value of USD 100,000 each totaling USD 35 million, bearing 8.5% interest per annum. The interest is payable semi-annually in arrears on 30 January and 30 July each year. The bonds mature five years from issue date at their nominal value of USD 35 million or can be converted into a total of 10,802,470 shares at the holders’ option at a conversion price of USD 3.24 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers.

On 27 April 2011 the Company issued 1250 senior secured convertible bonds at par value of USD 100,000 each totaling USD 125 million, bearing 2.875% interest per annum. The interest is payable semi-annually in arrears on 27 April and 27 October each year. The bonds mature five years from issue date at their nominal value of USD 125 million or can be converted into a total of 64,616,180 shares at the holders’ option at a conversion price of USD 1.9345 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers. Furthermore, the conversion price is subject to a particular adjustment on 27 October 2012 in the event the arithmetic average of the volume weighted average price of the shares for 20 consecutive days prior to 27 October 2012 is lower than the reference price, with a maximum of 20%.

The convertible bonds have been accounted for in two separate components – the value of the liability component has been recognized at its fair value and the remaining part as equity. In measuring fair value of the liability component, an estimated market rate for a similar debt without a conversion right has been used in discounting the cash flow under the loan agreement. The estimated market rate was based on valuations of the interest rate for a non-convertible bond at the date of drawing the loan. There will be no re-measuring of the fair value of the liability and equity components.

65


Reconciliation of opening and closing balances of Level 3 financial liabilities is as per below;



16 Other reserves (In thousands of USD) 31-Dec-11 31-Dec-10 Issue of convertible bonds - fair value of equity component (refer to Note: 18) 31,629 5,024 Employee stock options provision (refer to Note: 14) 6,352 4,284 Total 37,981 9,308

17 Senior bonds On 30 July 2008, the Company had issued 550 senior secured callable bonds at par value of USD 100,000 each, totaling USD 55 million, bearing interest of 13% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel Polarcus Samur. The interest for this loan is payable semi-annually in arrears on 30 January and 30 July each year. The bonds will mature five years from the date of issue at their nominal value.

The bonds, including accrued interest and expenses, are secured a first priority mortgage on the vessel Polarcus Samur, an assignment of insurances related to the vessel, the pledge of shares in Polarcus Samur Ltd (formerly known as Polarcus 3) as well as the up-stream guarantee form Polarcus Samur Ltd, a 100% owned subsidiary of Polarcus Limited.

On the date of issue, net proceeds of USD 53,075,000 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 400 349 1,171 771 Interest payable expensed 7,150 7,150 24,429 17,279 Actual interest paid 7,150 7,150 21,450 14,300

On 27 October 2010, the Group issued 800 senior secured callable bonds at par value of USD 100,000 each, totaling USD 80 million, bearing an interest of 12.5% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel Polarcus Alima through the vessel owning subsidiary Polarcus 6. The interest for this loan is payable semi-annually in arrears on 29 April and 29 October each year. The bonds will mature five years from the date of issue at their nominal value.

On 05 October 2011 the Company entered into an amended and restated bond loan agreement for the above mentioned loan and entered into an inter-creditor agreement coordinating the security interests between the Fleet Bank Facility (refer to note 1.1 Financing) and the above bond loans.

The net proceeds of USD 76,579,481 were recorded under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 536 75 611 75 Interest payable expensed 10,000 1,667 11,667 1,667 Actual interest paid 10,000 - 10,000 -

As of 31 December 2011 the Group complies with the covenants set out in this loan agreement.

On 27 October 2011, the Group issued 460 senior unsecured bonds at par value of NOK 500,000 each, totaling NOK 230 million (USD 40.6 million), bearing an interest of 14% per annum. The interest for this loan is payable semi-annually in arrears on 14 May and 14 November each year. The bonds will mature five years from the date of issue at their nominal value.

On the date of issue, net proceeds of USD 38,817,049 (NOK 219.95 million) were recorded under Non-current liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 Issue costs amortized 40 - 40 - Interest payable expensed 457 - 457 - Actual interest paid - - - -

The balance sheet value the above three loans are as below;

(In thousands of USD) 31-Dec-11 31-Dec-10 13% Senior secured callable bonds 54,246 53,846 12.5% Senior secured callable bonds 77,190 77,004 14% Senior unsecured bonds 36,709 - Total 168,145 130,850

18 Convertible bonds On 30 July 2008 the Company had issued 350 subordinated unsecured callable convertible bonds at a par value of USD 100,000 each totaling USD 35 million, bearing 8.5% interest per annum. The interest is payable semi-annually in arrears on 30 January and 30 July each year. The bonds mature five years from issue date at their nominal value of USD 35 million or can be converted into a total of 10,802,470 shares at the holders’ option at a conversion price of USD 3.24 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers.

On 27 April 2011 the Company issued 1250 senior secured convertible bonds at par value of USD 100,000 each totaling USD 125 million, bearing 2.875% interest per annum. The interest is payable semi-annually in arrears on 27 April and 27 October each year. The bonds mature five years from issue date at their nominal value of USD 125 million or can be converted into a total of 64,616,180 shares at the holders’ option at a conversion price of USD 1.9345 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers. Furthermore, the conversion price is subject to a particular adjustment on 27 October 2012 in the event the arithmetic average of the volume weighted average price of the shares for 20 consecutive days prior to 27 October 2012 is lower than the reference price, with a maximum of 20%.

The convertible bonds have been accounted for in two separate components – the value of the liability component has been recognized at its fair value and the remaining part as equity. In measuring fair value of the liability component, an estimated market rate for a similar debt without a conversion right has been used in discounting the cash flow under the loan agreement. The estimated market rate was based on valuations of the interest rate for a non-convertible bond at the date of drawing the loan. There will be no re-measuring of the fair value of the liability and equity components.

66

At the issue dates, the following amounts were recognized in the financial statements for each of the above convertible bonds;

(In thousands of USD) 8.5% Unsecured bonds 2.875% Secured bonds Fair value of liability component 28,751 95,271 Fair value of equity component 5,024 26,604 Net proceeds on the issue dates 33,775 121,875

Issue costs amortized and interest accrued for the above two convertible bond loans are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 USD 35 million 8.5% Convertible bonds Issue costs amortized 1,298 1,139 3,817 2,519 Interest payable expensed 2,975 2,975 10,165 7,190 Actual interest paid 2,975 2,975 8,925 5,950 USD 125 million 2.875% Convertible bonds Issue costs amortized 3,272 - 3,272 - Interest payable expensed 2,396 - 2,396 - Actual interest paid 1,797 - 1,797 -

19 Long-term finance lease Upon delivery from the shipyard, the vessels Polarcus Nadia and Polarcus Naila were sold to GSH2 Seismic Carrier I AS (the ‘lessor’) according to the sale and lease-back financing arrangement entered into on 30 June 2008 as amended on 29 July 2009. The purchase price of USD 90 million each per vessel (total USD 180 million) is fully paid by the lessor to the Group in installments throughout the vessel construction period. Immediately upon the sale of the vessels, the Group leased back the vessels from the lessor at a fixed charter rate of USD 35,000 per day, payable in arrears throughout the duration of the charter period. This arrangement falls under the category of finance lease as described under IAS 17. Accordingly at the inception of the lease USD 180 million has been recorded as a liability.

The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2011, streamer systems worth USD 56,166,181 were leased under this arrangement. The relevant streamer systems have been pledged as security for the arrangement.

Payments made towards these lease arrangements during the period reported are as follows;

(In thousands of USD) Year ended 31-Dec-11 Year ended 31-Dec-10

Principal Interest Total Principal Interest Total Lease payments made for vessel Polarcus Nadia 2,221 10,554 12,775 1,967 10,808 12,775 Lease payments made for vessel Polarcus Naila 2,198 10,577 12,775 1,947 10,828 12,775 Lease payments made for streamer systems 18,350 2,764 21,114 10,990 2,511 13,502 Total 22,769 23,895 46,664 14,904 24,147 39,052

The outstanding liability under the above mentioned arrangements are disclosed in the Group’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below (Also refer to Note 3.1.4 Liquidity risk);

(In thousands of USD) 31-Dec-11 31-Dec-10 Finance lease non-current 170,603 194,407 Finance lease current 24,943 22,388 Total 195,545 216,796

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows;

(In thousands of USD) 31-Dec-11 31-Dec-10

Minimum payments

Present value of payments

Minimum payments


Within one year 46,732 42,930 46,186 41,882 After one year but not more than five years 132,628 73,344 152,575 90,689 More than five years 155,745 79,272 181,295 84,225 Total minimum lease payments 335,106 195,545 380,056 216,796 Less amounts representing finance charges (139,560) - (163,261) - Present value of minimum lease payments 195,545 195,545 216,795 216,796

20 Other long-term debt The Group on 14 September 2009 entered into a facility agreement with Eksportfinans ASA and DVB Bank SE for a USD 80 million loan facility. The Eksportfinans tranche of the facility (USD 55 million) relates to financing of Norwegian equipment on-board the vessels Polarcus Samur and Polarcus Asima. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel Polarcus Asima. The vessels Polarcus Asima and Polarcus Alima have been pledged as security for this loan facility. The facility was drawn on 31 August 2010 post delivery of the vessel Polarcus Asima from the shipyard. As of 31 December 2011 the Group has made total repayments of USD 6,250,000 under this loan facility.

A similar loan facility of USD 55 million was entered into in January 2011 and was drawn on 21 March 2011 post delivery of Polarcus Alima. The Eksportfinans tranche of the facility (USD 33 million) relates to financing of Norwegian equipment on-board the vessels Polarcus Alima which has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 22 million) relates to financing of the vessel Polarcus Alima. The vessels Polarcus Asima and Polarcus Alima have been pledged as security for this loan facility. As of 31 December 2011 the Group has made total repayments of USD 2,291,667 under this loan facility.

On 15 November 2011, the outstanding liability under the above two loans were refinanced by Tranche 1 and Tranche 2 of the USD 410 million fleet bank facility from DNB and DVB Bank SE, Nordic Branch, together with GIEK and Eksportfinans ASA. Also refer to Note 1.1 Financing.

The Company has acquired some of its streamer systems from Sercel Inc, Houston by way of a 40% down payment. The remaining 60% of the purchase price is payable through 36 monthly installments including interest at 8% per annum. The affected streamer system has been pledged as security for this arrangement. The total value of equipment acquired under this arrangement is USD 22,631,523. As of 31 December 2011, the Company has paid USD 19,720,932 against its liability under this arrangement. The net outstanding liability at the period end is USD 2,910,591.

67

At the issue dates, the following amounts were recognized in the financial statements for each of the above convertible bonds;

(In thousands of USD) 8.5% Unsecured bonds 2.875% Secured bonds Fair value of liability component 28,751 95,271 Fair value of equity component 5,024 26,604 Net proceeds on the issue dates 33,775 121,875

Issue costs amortized and interest accrued for the above two convertible bond loans are as per below;


(In thousands of USD) 31-Dec-11 31-Dec-10 31-Dec-11 31-Dec-10 USD 35 million 8.5% Convertible bonds Issue costs amortized 1,298 1,139 3,817 2,519 Interest payable expensed 2,975 2,975 10,165 7,190 Actual interest paid 2,975 2,975 8,925 5,950 USD 125 million 2.875% Convertible bonds Issue costs amortized 3,272 - 3,272 - Interest payable expensed 2,396 - 2,396 - Actual interest paid 1,797 - 1,797 -

19 Long-term finance lease Upon delivery from the shipyard, the vessels Polarcus Nadia and Polarcus Naila were sold to GSH2 Seismic Carrier I AS (the ‘lessor’) according to the sale and lease-back financing arrangement entered into on 30 June 2008 as amended on 29 July 2009. The purchase price of USD 90 million each per vessel (total USD 180 million) is fully paid by the lessor to the Group in installments throughout the vessel construction period. Immediately upon the sale of the vessels, the Group leased back the vessels from the lessor at a fixed charter rate of USD 35,000 per day, payable in arrears throughout the duration of the charter period. This arrangement falls under the category of finance lease as described under IAS 17. Accordingly at the inception of the lease USD 180 million has been recorded as a liability.

The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2011, streamer systems worth USD 56,166,181 were leased under this arrangement. The relevant streamer systems have been pledged as security for the arrangement.

Payments made towards these lease arrangements during the period reported are as follows;


Principal Interest Total Principal Interest Total Lease payments made for vessel Polarcus Nadia 2,221 10,554 12,775 1,967 10,808 12,775 Lease payments made for vessel Polarcus Naila 2,198 10,577 12,775 1,947 10,828 12,775 Lease payments made for streamer systems 18,350 2,764 21,114 10,990 2,511 13,502 Total 22,769 23,895 46,664 14,904 24,147 39,052

The outstanding liability under the above mentioned arrangements are disclosed in the Group’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below (Also refer to Note 3.1.4 Liquidity risk);

(In thousands of USD) 31-Dec-11 31-Dec-10 Finance lease non-current 170,603 194,407 Finance lease current 24,943 22,388 Total 195,545 216,796

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows;


Minimum payments


Minimum payments


Within one year 46,732 42,930 46,186 41,882 After one year but not more than five years 132,628 73,344 152,575 90,689 More than five years 155,745 79,272 181,295 84,225 Total minimum lease payments 335,106 195,545 380,056 216,796 Less amounts representing finance charges (139,560) - (163,261) - Present value of minimum lease payments 195,545 195,545 216,795 216,796

20 Other long-term debt The Group on 14 September 2009 entered into a facility agreement with Eksportfinans ASA and DVB Bank SE for a USD 80 million loan facility. The Eksportfinans tranche of the facility (USD 55 million) relates to financing of Norwegian equipment on-board the vessels Polarcus Samur and Polarcus Asima. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel Polarcus Asima. The vessels Polarcus Asima and Polarcus Alima have been pledged as security for this loan facility. The facility was drawn on 31 August 2010 post delivery of the vessel Polarcus Asima from the shipyard. As of 31 December 2011 the Group has made total repayments of USD 6,250,000 under this loan facility.

A similar loan facility of USD 55 million was entered into in January 2011 and was drawn on 21 March 2011 post delivery of Polarcus Alima. The Eksportfinans tranche of the facility (USD 33 million) relates to financing of Norwegian equipment on-board the vessels Polarcus Alima which has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 22 million) relates to financing of the vessel Polarcus Alima. The vessels Polarcus Asima and Polarcus Alima have been pledged as security for this loan facility. As of 31 December 2011 the Group has made total repayments of USD 2,291,667 under this loan facility.

On 15 November 2011, the outstanding liability under the above two loans were refinanced by Tranche 1 and Tranche 2 of the USD 410 million fleet bank facility from DNB and DVB Bank SE, Nordic Branch, together with GIEK and Eksportfinans ASA. Also refer to Note 1.1 Financing.

The Company has acquired some of its streamer systems from Sercel Inc, Houston by way of a 40% down payment. The remaining 60% of the purchase price is payable through 36 monthly installments including interest at 8% per annum. The affected streamer system has been pledged as security for this arrangement. The total value of equipment acquired under this arrangement is USD 22,631,523. As of 31 December 2011, the Company has paid USD 19,720,932 against its liability under this arrangement. The net outstanding liability at the period end is USD 2,910,591.

68

Payments made towards principal and interest for the above loans during the period reported are as follows;


Principal Interest Total Principal Interest Total Fleet bank facility Tranche 1 6,250 5,095 11,345 - - - Fleet bank facility Tranche 2 2,292 973 3,265 - - - Liability for streamer systems 4,686 438 5,124 4,327 797 5,124 Total 13,227 6,506 19,734 4,327 797 5,124

The outstanding liability under the above mentioned arrangements is disclosed in the Group’s balance sheet as ‘Other long-term debt’ which is further classified in to long-term and short-term portions as per below (Also refer to Note 3.1.4 Liquidity risk);

(In thousands of USD) 31-Dec-11 31-Dec-10 Installments due after 12 months from the balance sheet date 110,992 72,953 Installments due within 12 months from the balance sheet date 13,331 10,936 Total 124,323 83,889

21 Interest payable Interest payable under current liabilities includes;

(In thousands of USD) 31-Dec-11 31-Dec-10 Interest accrued on senior bonds (refer to Note: 17) 5,103 4,645 Interest accrued on convertible bonds (refer to Note: 18) 1,839 1,240 Interest accrued on other long term debt (refer to Note: 20) 2,130 1,730 Interest accrued on deferred payments to the shipyard - 1,150 Total 9,072 8,766

22 Employee accruals and payables (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued salaries 2,961 1,136 Accrued bonuses 1,235 5,401 Unused balance of crew welfare fund 50 49 Total 4,245 6,586

23 Other accrued expenses (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued vessel operating expenses 8,263 3,560 Accrued taxes payable 8,195 Accrued miscellaneous expenses 487 1,906 Consideration for vessel buyback options - 1,700 Total 16,946 7,166

24 Interest in joint venture The Group has 50% interest in Polarcus MC Limited, an entity jointly controlled by the Group and Sabaro Investments Ltd (also refer to Note: 33.2). Polarcus MC Limited is engaged in one of the Group’s multi-client projects since June 2011 and as of 31 December 2011.

The Group’s share of assets and liabilities as of 31 December 2011 and income and expense for the year ended on the same date in the joint venture is proportionately consolidated in the consolidated financial statements as per below;

24.1 Share in joint venture’s statement of financial position

(In thousands of USD) 31-Dec-11 31-Dec-10 Current assets 6,200 - Non-current assets 9,361 - Current liabilities (5,006) - Non-current liabilities - - Equity 10,555 -

24.2 Share of joint ventures revenue and profit Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Revenue 11,983 - Cost of sales (5,392) - Administrative expenses (722) - Finance costs (2) - Profit before tax 5,867 - Income tax expense - - Profit for the year from continuing operations 5,867 -

25 Operating lease - Group as lessor The Group has entered into a commercial vessel lease for hire out of one of its vessels, Vyacheslav Tikhonov. The non-cancellable lease is for five years. Future minimum rental receivables (undiscounted) under non-cancellable operating leases at 31 December are as follows;

(In thousands of USD) 31-Dec-11 31-Dec-10 Within one year 25,368 - After one year but not more than five years 92,157 - More than five years - - Total 117,525 -

26 Vessel operating expenses Vessel operating expenses consist of the following;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crew salaries and other benefits 59,056 20,517 Other vessel operating expenses 129,876 46,617 Total 188,932 67,134

69

Payments made towards principal and interest for the above loans during the period reported are as follows;


Principal Interest Total Principal Interest Total Fleet bank facility Tranche 1 6,250 5,095 11,345 - - - Fleet bank facility Tranche 2 2,292 973 3,265 - - - Liability for streamer systems 4,686 438 5,124 4,327 797 5,124 Total 13,227 6,506 19,734 4,327 797 5,124

The outstanding liability under the above mentioned arrangements is disclosed in the Group’s balance sheet as ‘Other long-term debt’ which is further classified in to long-term and short-term portions as per below (Also refer to Note 3.1.4 Liquidity risk);

(In thousands of USD) 31-Dec-11 31-Dec-10 Installments due after 12 months from the balance sheet date 110,992 72,953 Installments due within 12 months from the balance sheet date 13,331 10,936 Total 124,323 83,889

21 Interest payable Interest payable under current liabilities includes;

(In thousands of USD) 31-Dec-11 31-Dec-10 Interest accrued on senior bonds (refer to Note: 17) 5,103 4,645 Interest accrued on convertible bonds (refer to Note: 18) 1,839 1,240 Interest accrued on other long term debt (refer to Note: 20) 2,130 1,730 Interest accrued on deferred payments to the shipyard - 1,150 Total 9,072 8,766

22 Employee accruals and payables (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued salaries 2,961 1,136 Accrued bonuses 1,235 5,401 Unused balance of crew welfare fund 50 49 Total 4,245 6,586

23 Other accrued expenses (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued vessel operating expenses 8,263 3,560 Accrued taxes payable 8,195 Accrued miscellaneous expenses 487 1,906 Consideration for vessel buyback options - 1,700 Total 16,946 7,166

24 Interest in joint venture The Group has 50% interest in Polarcus MC Limited, an entity jointly controlled by the Group and Sabaro Investments Ltd (also refer to Note: 33.2). Polarcus MC Limited is engaged in one of the Group’s multi-client projects since June 2011 and as of 31 December 2011.

The Group’s share of assets and liabilities as of 31 December 2011 and income and expense for the year ended on the same date in the joint venture is proportionately consolidated in the consolidated financial statements as per below;

24.1 Share in joint venture’s statement of financial position

(In thousands of USD) 31-Dec-11 31-Dec-10 Current assets 6,200 - Non-current assets 9,361 - Current liabilities (5,006) - Non-current liabilities - - Equity 10,555 -

24.2 Share of joint ventures revenue and profit Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Revenue 11,983 - Cost of sales (5,392) - Administrative expenses (722) - Finance costs (2) - Profit before tax 5,867 - Income tax expense - - Profit for the year from continuing operations 5,867 -

25 Operating lease - Group as lessor The Group has entered into a commercial vessel lease for hire out of one of its vessels, Vyacheslav Tikhonov. The non-cancellable lease is for five years. Future minimum rental receivables (undiscounted) under non-cancellable operating leases at 31 December are as follows;

(In thousands of USD) 31-Dec-11 31-Dec-10 Within one year 25,368 - After one year but not more than five years 92,157 - More than five years - - Total 117,525 -

26 Vessel operating expenses Vessel operating expenses consist of the following;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crew salaries and other benefits 59,056 20,517 Other vessel operating expenses 129,876 46,617 Total 188,932 67,134

70

27 Sales, general and administrative costs Sales, general and administrative costs consist of the following;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Salaries and other employee benefits 23,059 17,558 Other general and administrative expenses 10,267 7,583 Total 33,327 25,141

27.1 Salaries and other employee benefits Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Salaries and bonus 50,864 28,424 Social security costs 380 230 Pension costs 3,053 1,515 Other benefits 19,089 9,713 Crew travel related costs 10,748 3,766 Crew salaries and benefits included in Vessel operation expenses (refer to Note: 26) (59,056) (20,517) Project related personnel costs capitalized (2,018) (5,573) Total 23,059 17,558

The Group offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades. Refer to Note 33.3 Key management compensation.

The Group has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade.

In addition, the Group has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2011. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations.

All employees of the Group are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options.

The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2011 the Group has contributed USD 3.35 million to the pension scheme, the full amount of which is expensed as employee benefits. Total contribution made to the pension scheme during year 2010 was USD 1.73 million.

For employees who are not enrolled in the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2011 the Group has recognized a liability of USD 0.33 million towards such pension payable.

27.2 Remuneration of the auditors The total fee incurred by the Company to its auditors for the periods reported are as per below;

(In thousands of USD) 31-Dec-11 31-Dec-10 Audit fees 177 126 Audit related services 80 53 Tax advisory services 84 275 Total 341 454

28 Depreciation and amortization (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Depreciation of seismic vessels and equipment 50,741 22,317 Depreciation of office equipment 530 368 Amortization of multi-client data library 10,545 - Amortization of other intangible assets 441 314 Retirement and disposals 2,278 3,850 Depreciation capitalized to multi-client projects library (3,734) - Total 60,802 26,849

29 Finance costs (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Interest expenses on senior bond (refer to Note: 17) 18,574 9,235 Interest expenses on convertible bond (refer to Note: 18) 9,940 4,114 Interest expenses on deferred payments to the shipyard 329 3,773 Interest expenses on lease arrangements (refer to Note: 19) 23,896 22,629 Other interest expenses 7,929 7,348 Interest expenses capitalized to vessels under construction (7,140) (18,651) Net interest expenses 53,528 28,447 Realized currency exchange loss 1,507 1,373 Unrealized currency exchange loss 4,397 1,587 Other financial losses 40 576 Total 59,472 31,983

71

27 Sales, general and administrative costs Sales, general and administrative costs consist of the following;


27.1 Salaries and other employee benefits Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Salaries and bonus 50,864 28,424 Social security costs 380 230 Pension costs 3,053 1,515 Other benefits 19,089 9,713 Crew travel related costs 10,748 3,766 Crew salaries and benefits included in Vessel operation expenses (refer to Note: 26) (59,056) (20,517) Project related personnel costs capitalized (2,018) (5,573) Total 23,059 17,558

The Group offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades. Refer to Note 33.3 Key management compensation.

The Group has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade.

In addition, the Group has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2011. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations.

All employees of the Group are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options.

The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2011 the Group has contributed USD 3.35 million to the pension scheme, the full amount of which is expensed as employee benefits. Total contribution made to the pension scheme during year 2010 was USD 1.73 million.

For employees who are not enrolled in the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2011 the Group has recognized a liability of USD 0.33 million towards such pension payable.

27.2 Remuneration of the auditors The total fee incurred by the Company to its auditors for the periods reported are as per below;

(In thousands of USD) 31-Dec-11 31-Dec-10 Audit fees 177 126 Audit related services 80 53 Tax advisory services 84 275 Total 341 454

28 Depreciation and amortization (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Depreciation of seismic vessels and equipment 50,741 22,317 Depreciation of office equipment 530 368 Amortization of multi-client data library 10,545 - Amortization of other intangible assets 441 314 Retirement and disposals 2,278 3,850 Depreciation capitalized to multi-client projects library (3,734) - Total 60,802 26,849

29 Finance costs (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Interest expenses on senior bond (refer to Note: 17) 18,574 9,235 Interest expenses on convertible bond (refer to Note: 18) 9,940 4,114 Interest expenses on deferred payments to the shipyard 329 3,773 Interest expenses on lease arrangements (refer to Note: 19) 23,896 22,629 Other interest expenses 7,929 7,348 Interest expenses capitalized to vessels under construction (7,140) (18,651) Net interest expenses 53,528 28,447 Realized currency exchange loss 1,507 1,373 Unrealized currency exchange loss 4,397 1,587 Other financial losses 40 576 Total 59,472 31,983

72

30 Finance income (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Interest income from deposit with banks 251 167 Interest income offset against capitalized interest expenses - (10) Net interest income 251 157 Realized exchange gain 1,439 2,669 Unrealized exchange gain 4,071 1,768 Total 5,761 4,594

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

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

(In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Warrant liability at fair value on the balance sheet dates 48 6,768 Profit/(loss) on revaluation of the fair value of warrant liability 6,720 (3,561)

32 Earnings per Share 32.1 Basic Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares issued during the period.

Years ended (In USD) 31-Dec-11 31-Dec-10 Loss attributable to equity holders of the Company (31,499,208) (28,339,889) Weighted average number of ordinary shares issued 421,038,645 284,657,233 Basic earnings per share (0.075) (0.100)

32.2 Diluted Years ended (In USD) 31-Dec-11 31-Dec-10 Loss attributable to equity holders of the Company (31,499,208) (28,339,889) Loss/(Gain) related to warrants issued (6,719,558) 3,561,315 Net loss attributable to potential equity holders of the Company (38,218,766) (24,778,574) Weighted average number of ordinary shares issued 421,038,645 284,657,233 Share with dilutive effect for warrants issued 20,799,641 20,795,341 Weighted average number of diluted ordinary shares 441,838,286 305,452,573 Diluted earnings per share (0.086) (0.081)

The share options that have been granted to selected employees as of the end of reporting period (refer to Note: 14.3) and the convertible bonds giving the bond holders a right to convert the bonds to equity shares (refer to Note: 18) have not been included in the calculation of diluted EPS as they have an anti-dilutive effect for the reporting period.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. Following the Private Placement, the Company has 507,196,179 shares outstanding.

33 Related-party transactions 33.1 Subsidiaries This set of consolidated financial statements includes the financial statements of Polarcus Limited and the subsidiaries listed in the following table;

Name of the Subsidiary Country of Incorporation Equity

interest as at 31-Dec-2011

Polarcus DMCC UAE 100% Polarcus 1 Limited Cayman Islands 100% Polarcus 2 Limited Cayman Islands 100% Polarcus Samur Limited Cayman Islands 100% Polarcus Selma Limited (formerly known as 'Polarcus 4') Cayman Islands 100% Polarcus MC Limited (formerly known as ' Polarcus 5') Cayman Islands 50% Polarcus 6 Limited Cayman Islands 100% Polarcus Seismic Limited Cayman Islands 100% Polarcus UK Limited United Kingdome 100% Polarcus US Inc. USA 100% Polarcus Egypt Egypt 100% Polarcus Nadia AS Norway 100% Polarcus Alima AS Norway 100% Polarcus Asima AS Norway 100% Polarcus Naila AS Norway 100% Polarcus Alima AS Norway 100% Polarcus Norway AS Norway 100% Polarcus Multi-Client(CY) Limited Cyprus 100% Polarcus do Brazil Ltda Brazil 100%

33.2 Transactions with related parties

Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) hold 10.56% paid-in share capital of the Company as of 31 December 2011. Carl-Gustav Zickerman and Carl-Peter Zickerman represent ZL in the Board of Directors of the Company. Carl-Peter Zickerman is also a member of executive management of the Group.

In April 2011, the Company exercised the option of repurchasing Polarcus Selma from ZL. The Company paid USD 3.5 million to ZL towards the purchase price of shares in Polarcus Selma Ltd (formerly known as ‘Polarcus 4’), owning the rights to vessel Vyacheslav Tikhonov (previously Polarcus Selma), equal to the payments advanced by ZL in relation to the vessel.

73

30 Finance income (In thousands of USD) Year ended

31-Dec-11 31-Dec-10 Interest income from deposit with banks 251 167 Interest income offset against capitalized interest expenses - (10) Net interest income 251 157 Realized exchange gain 1,439 2,669 Unrealized exchange gain 4,071 1,768 Total 5,761 4,594


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


31-Dec-11 31-Dec-10 Warrant liability at fair value on the balance sheet dates 48 6,768 Profit/(loss) on revaluation of the fair value of warrant liability 6,720 (3,561)

32 Earnings per Share 32.1 Basic Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares issued during the period.

Years ended (In USD) 31-Dec-11 31-Dec-10 Loss attributable to equity holders of the Company (31,499,208) (28,339,889) Weighted average number of ordinary shares issued 421,038,645 284,657,233 Basic earnings per share (0.075) (0.100)

32.2 Diluted Years ended (In USD) 31-Dec-11 31-Dec-10 Loss attributable to equity holders of the Company (31,499,208) (28,339,889) Loss/(Gain) related to warrants issued (6,719,558) 3,561,315 Net loss attributable to potential equity holders of the Company (38,218,766) (24,778,574) Weighted average number of ordinary shares issued 421,038,645 284,657,233 Share with dilutive effect for warrants issued 20,799,641 20,795,341 Weighted average number of diluted ordinary shares 441,838,286 305,452,573 Diluted earnings per share (0.086) (0.081)

The share options that have been granted to selected employees as of the end of reporting period (refer to Note: 14.3) and the convertible bonds giving the bond holders a right to convert the bonds to equity shares (refer to Note: 18) have not been included in the calculation of diluted EPS as they have an anti-dilutive effect for the reporting period.

On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. Following the Private Placement, the Company has 507,196,179 shares outstanding.

33 Related-party transactions 33.1 Subsidiaries This set of consolidated financial statements includes the financial statements of Polarcus Limited and the subsidiaries listed in the following table;

Name of the Subsidiary Country of Incorporation Equity

interest as at 31-Dec-2011

Polarcus DMCC UAE 100% Polarcus 1 Limited Cayman Islands 100% Polarcus 2 Limited Cayman Islands 100% Polarcus Samur Limited Cayman Islands 100% Polarcus Selma Limited (formerly known as 'Polarcus 4') Cayman Islands 100% Polarcus MC Limited (formerly known as ' Polarcus 5') Cayman Islands 50% Polarcus 6 Limited Cayman Islands 100% Polarcus Seismic Limited Cayman Islands 100% Polarcus UK Limited United Kingdome 100% Polarcus US Inc. USA 100% Polarcus Egypt Egypt 100% Polarcus Nadia AS Norway 100% Polarcus Alima AS Norway 100% Polarcus Asima AS Norway 100% Polarcus Naila AS Norway 100% Polarcus Alima AS Norway 100% Polarcus Norway AS Norway 100% Polarcus Multi-Client(CY) Limited Cyprus 100% Polarcus do Brazil Ltda Brazil 100%

33.2 Transactions with related parties

Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) hold 10.56% paid-in share capital of the Company as of 31 December 2011. Carl-Gustav Zickerman and Carl-Peter Zickerman represent ZL in the Board of Directors of the Company. Carl-Peter Zickerman is also a member of executive management of the Group.

In April 2011, the Company exercised the option of repurchasing Polarcus Selma from ZL. The Company paid USD 3.5 million to ZL towards the purchase price of shares in Polarcus Selma Ltd (formerly known as ‘Polarcus 4’), owning the rights to vessel Vyacheslav Tikhonov (previously Polarcus Selma), equal to the payments advanced by ZL in relation to the vessel.

74

Drydocks World Dubai (“DWD”) holds 8.03% of paid-in share capital of the Company as of 31 December 2011. Below is a summary of major transactions between DWD and the Group during the year ended 31 December 2011;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Payments made under ship building contracts 29,960 40,775 Payments made under the deferred payment arrangement 145,957 33,732 Interest paid 10,514 2,235 Total payments made during the year 186,431 76,742

Payments included in Accounts payable at the period end - 13,737 Payable under the deferred payment arrangement at the period end - 59,874 Total payable - 73,612

Sabaro Investments Ltd (“Sabaro”) holds 17.04% of paid-in share capital of the Company as of 31 December 2011. Mr. Erik Henriksen who acts as an advisor to Sabaro became member of the Board of Directors of the Company on 24 November 2011.

In June 2011, the Group entered into a joint venture agreement with Sabaro Investments Limited ("Sabaro") in relation to its first multi-client project. The gross investment made by Sabaro in to the joint venture is USD 4.7 million.

33.3 Key management compensation The salaries and other benefits paid and accrued as payable to key management personnel for the periods reported are shown in the table below;


Year ended 31-Dec-11

Salary Other Allowances Pension

Share based

payments

Total salary and

allowances Rolf Ronningen Chief Executive Officer 432 126 35 133 725 Tom Henrik Sundby Chief Financial Officer 315 116 25 96 552 Carl Peter Zickerman EVP & Head of Strategic Investment 416 174 33 96 719 Other members of executive management 1,773 1,099 155 518 3,545

2,936 1,515 248 843 5,541




Share based

payments

Total salary and

allowances Rolf Ronningen Chief Executive Officer 400 340 32 167 939 Tom Henrik Sundby Chief Financial Officer 300 249 24 101 674 Carl Peter Zickerman EVP & Head of Strategic Investment 396 346 32 113 886 Other members of executive management 1,806 1,740 145 755 4,446 Total 2,902 2,674 232 1,136 6,945

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

33.4 Board remuneration The total remuneration paid by the Company to its Board of Directors for the periods reported is as per below;

(In thousands of USD) Director since Director until Paid for the year 2011 Paid for the year 2010 Peter M. Rigg, Chairman 20-Jun-08 119 103 Carl-Gustav Zickerman 17-Dec-07 47 - Carl Peter Zickerman 09-Feb-08 47 - Alan Locker 20-Jun-08 27-Apr-11 15 51 Hege Sjo 20-Jun-08 64 54 Katherine J. Hall 20-Jun-08 61 51 Tore Karlsson 20-Jun-08 60 51 Jogeir Romestrand 12-Sep-09 64 48 Ali A bin Towaih Al Suwaidi 27-Apr-11 31 - Mohammed Rizal bin Abdullah 27-Apr-11 24-Nov-11 31 - Erik Henriksen 24-Nov-11 - - Total 537 358

34 Events after the balance sheet date On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million). Following the Private Placement, the Company has 507,196,179 shares outstanding. These shares were fully paid in on 20 March 2012.

35 Authorization of financial statements The consolidated financial statements for the year ended 31 December 2011 were authorized for issue in accordance with a resolution of the directors on 28 March 2012.

75

Peter Rigg

Erik Henriksen

Carl-Gustaf Zickerman

Tore Karlsson

Carl-Peter Zickerman

Hege Sjo

Ali A. bin Towaih Al Suwaidi

Kitty Hall

Jogeir Romestrand

Drydocks World Dubai (“DWD”) holds 8.03% of paid-in share capital of the Company as of 31 December 2011. Below is a summary of major transactions between DWD and the Group during the year ended 31 December 2011;

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Payments made under ship building contracts 29,960 40,775 Payments made under the deferred payment arrangement 145,957 33,732 Interest paid 10,514 2,235 Total payments made during the year 186,431 76,742

Payments included in Accounts payable at the period end - 13,737 Payable under the deferred payment arrangement at the period end - 59,874 Total payable - 73,612

Sabaro Investments Ltd (“Sabaro”) holds 17.04% of paid-in share capital of the Company as of 31 December 2011. Mr. Erik Henriksen who acts as an advisor to Sabaro became member of the Board of Directors of the Company on 24 November 2011.

In June 2011, the Group entered into a joint venture agreement with Sabaro Investments Limited ("Sabaro") in relation to its first multi-client project. The gross investment made by Sabaro in to the joint venture is USD 4.7 million.

33.3 Key management compensation The salaries and other benefits paid and accrued as payable to key management personnel for the periods reported are shown in the table below;




Share based

payments

Total salary and

allowances Rolf Ronningen Chief Executive Officer 432 126 35 133 725 Tom Henrik Sundby Chief Financial Officer 315 116 25 96 552 Carl Peter Zickerman EVP & Head of Strategic Investment 416 174 33 96 719 Other members of executive management 1,773 1,099 155 518 3,545

2,936 1,515 248 843 5,541




Share based

payments

Total salary and

allowances Rolf Ronningen Chief Executive Officer 400 340 32 167 939 Tom Henrik Sundby Chief Financial Officer 300 249 24 101 674 Carl Peter Zickerman EVP & Head of Strategic Investment 396 346 32 113 886 Other members of executive management 1,806 1,740 145 755 4,446 Total 2,902 2,674 232 1,136 6,945

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

33.4 Board remuneration The total remuneration paid by the Company to its Board of Directors for the periods reported is as per below;

(In thousands of USD) Director since Director until Paid for the year 2011 Paid for the year 2010 Peter M. Rigg, Chairman 20-Jun-08 119 103 Carl-Gustav Zickerman 17-Dec-07 47 - Carl Peter Zickerman 09-Feb-08 47 - Alan Locker 20-Jun-08 27-Apr-11 15 51 Hege Sjo 20-Jun-08 64 54 Katherine J. Hall 20-Jun-08 61 51 Tore Karlsson 20-Jun-08 60 51 Jogeir Romestrand 12-Sep-09 64 48 Ali A bin Towaih Al Suwaidi 27-Apr-11 31 - Mohammed Rizal bin Abdullah 27-Apr-11 24-Nov-11 31 - Erik Henriksen 24-Nov-11 - - Total 537 358

34 Events after the balance sheet date On 14 March 2012 the Company issued 40,000,000 new shares through a private placement. The new shares were subscribed for at a price of NOK 5.80 per share. Total gross proceeds from the Private Placement amounts to NOK 232 million (USD 40.7 million). Following the Private Placement, the Company has 507,196,179 shares outstanding. These shares were fully paid in on 20 March 2012.

35 Authorization of financial statements The consolidated financial statements for the year ended 31 December 2011 were authorized for issue in accordance with a resolution of the directors on 28 March 2012.

76

POLARCUS LIMITEDPARENT COMPANY FINANCIAL STATEMENTS

Statement of Comprehensive IncomeStatement of Financial PositionStatement of Cash FlowsStatement of Changes in EquityNotes to the Financial Statements

For the year ended 31 December 2011

Statement of Comprehensive Income (Unconsolidated Parent Company)

01 January – 31 December (In thousands of USD) Notes 2011 2010 Revenues 2 62,308 38,336

Operating expenses Cost of sales 12 (43,249) (14,597) Sales, general and administrative costs 13 (10,690) (12,211) Depreciation and amortization 14 (8,435) (9,595) Impairment of vessels under construction - (1,000) Total Operating expenses (62,374) (37,403) Operating profit/(loss) (66) 933

Financial expenses Finance costs 15 (20,394) (16,937) Finance income 16 10,339 12,848 Changes in fair value of financial instruments 17 6,720 (3,561) Net financial income/(expenses) (3,335) (7,650)

Profit/(Loss) for the period before tax (3,401) (6,717) Income tax expense - - Profit/(Loss) for the period/Comprehensive income/(loss) after tax (3,401) (6,717)

77

Statement of Comprehensive Income (Unconsolidated Parent Company)

01 January – 31 December (In thousands of USD) Notes 2011 2010 Revenues 2 62,308 38,336

Operating expenses Cost of sales 12 (43,249) (14,597) Sales, general and administrative costs 13 (10,690) (12,211) Depreciation and amortization 14 (8,435) (9,595) Impairment of vessels under construction - (1,000) Total Operating expenses (62,374) (37,403) Operating profit/(loss) (66) 933

Financial expenses Finance costs 15 (20,394) (16,937) Finance income 16 10,339 12,848 Changes in fair value of financial instruments 17 6,720 (3,561) Net financial income/(expenses) (3,335) (7,650)

Profit/(Loss) for the period before tax (3,401) (6,717) Income tax expense - - Profit/(Loss) for the period/Comprehensive income/(loss) after tax (3,401) (6,717)

78

Statement of Financial Position (Unconsolidated Parent Company)

(In thousands of USD) Notes 31-Dec-11 31-Dec-10 ASSETS Non-current assets Property, plant and equipment 3 56,751 54,819 Vessels buyback options 18 - 19,907 Intangible assets 4 - 1,716 Long-term loan to subsidiaries 18 227,557 273,467 Investment in Subsidiaries 5 9,185 54 Total non-current assets 293,493 349,963

Current assets Prepaid expenses 1,066 42 Other current assets 6 1,017 3,399 Short-term loan to subsidiaries 18 241,236 28,200 Receivable from subsidiaries 18 167,501 132,851 Accounts Receivable 18 20,614 30,709 Restricted cash - Short term 7 16,133 28,351 Cash and bank 28,540 23,274 Total current assets 476,107 246,826 TOTAL ASSETS 769,600 596,789

EQUITY and LIABILITIES Equity Issued share capital 1 9,344 8,194 Share Premium 1 463,693 423,822 Other reserves 1 37,980 9,307 Retained earnings/(loss) (6,060) (2,659) Total equity 504,957 438,664

Non-current liabilities Senior bonds 1, 8 90,955 53,846 Convertible bonds 1, 8 131,109 31,269 Long-term finance lease 9 4,702 23,503 Liability for warrants 1, 8 48 6,768 Employee pension accrual 13 221 150 Total non-current liabilities 227,035 115,536

Current liabilities Interest payable 10 5,275 4,219 Employee accruals and payables 11 4,275 4,001 Other accrued expenses 27 2,905 Long-term finance lease current portion 9 19,939 17,969 Payable to subsidiaries 18 2,466 8,867 Accounts payable 18 5,626 4,628 Total Current Liabilities 37,608 42,589 TOTAL EQUITY and LIABILITIES 769,600 596,789

Statement of Cash Flows (Unconsolidated Parent Company)

01 January – 31 December (In thousands of USD) Notes 2011 2010 Cash flows from operating activities Profit/(loss) for the period (3,401) (6,717) Adjustment for: Depreciation and amortization 14 8,435 9,595 Impairment of vessels under construction - 1,000 Changes in fair value of financial instruments 17 (6,720) 3,561 Stock Options compensation provision 2,035 2,053 Interest expense 15 17,033 6,552 Interest income (6,938) (1,177) Working capital adjustments: Decrease/(Increase) in current assets 11,453 (25,504) Increase/(Decrease) in trade and other payables and accruals 1,865 6,366 Net cash flows from operating activities 23,762 (4,271)

Cash flows from investing activities Decrease/(Increase) in restricted cash 12,218 6,782 Purchases of property, plant and equipment (8,832) 12,374 Payments to acquire intangible assets - (16) Investment in subsidiaries (9,131) (145) Decrease/(increase) in intercompany receivables (188,270) (201,195) Net cash flows used in investing activities (194,015) (182,200)

Cash flows from financing activities Proceeds from the issuance of ordinary shares 41,117 129,672 Transaction costs on issue of shares (96) (6,503) Proceeds from the issuance of senior bonds 40,634 - Proceeds from the issuance of convertible bonds 125,000 - Transaction costs on issuance of bonds (4,942) - Repayment of long term debt - (3,606) Repayment of lease liabilities 9 (18,350) (10,990) Interest paid (14,782) (13,300) Interest income 6,938 114 Net cash flows from financing activities 175,520 95,387

Net increase/(decrease) in cash and cash equivalents 5,266 (91,084) Cash and cash equivalents at the beginning of the period 23,274 114,358 Cash and cash equivalents at the end of the period 28,540 23,274

79

Statement of Financial Position (Unconsolidated Parent Company)

(In thousands of USD) Notes 31-Dec-11 31-Dec-10 ASSETS Non-current assets Property, plant and equipment 3 56,751 54,819 Vessels buyback options 18 - 19,907 Intangible assets 4 - 1,716 Long-term loan to subsidiaries 18 227,557 273,467 Investment in Subsidiaries 5 9,185 54 Total non-current assets 293,493 349,963

Current assets Prepaid expenses 1,066 42 Other current assets 6 1,017 3,399 Short-term loan to subsidiaries 18 241,236 28,200 Receivable from subsidiaries 18 167,501 132,851 Accounts Receivable 18 20,614 30,709 Restricted cash - Short term 7 16,133 28,351 Cash and bank 28,540 23,274 Total current assets 476,107 246,826 TOTAL ASSETS 769,600 596,789

EQUITY and LIABILITIES Equity Issued share capital 1 9,344 8,194 Share Premium 1 463,693 423,822 Other reserves 1 37,980 9,307 Retained earnings/(loss) (6,060) (2,659) Total equity 504,957 438,664

Non-current liabilities Senior bonds 1, 8 90,955 53,846 Convertible bonds 1, 8 131,109 31,269 Long-term finance lease 9 4,702 23,503 Liability for warrants 1, 8 48 6,768 Employee pension accrual 13 221 150 Total non-current liabilities 227,035 115,536

Current liabilities Interest payable 10 5,275 4,219 Employee accruals and payables 11 4,275 4,001 Other accrued expenses 27 2,905 Long-term finance lease current portion 9 19,939 17,969 Payable to subsidiaries 18 2,466 8,867 Accounts payable 18 5,626 4,628 Total Current Liabilities 37,608 42,589 TOTAL EQUITY and LIABILITIES 769,600 596,789

Statement of Cash Flows (Unconsolidated Parent Company)

01 January – 31 December (In thousands of USD) Notes 2011 2010 Cash flows from operating activities Profit/(loss) for the period (3,401) (6,717) Adjustment for: Depreciation and amortization 14 8,435 9,595 Impairment of vessels under construction - 1,000 Changes in fair value of financial instruments 17 (6,720) 3,561 Stock Options compensation provision 2,035 2,053 Interest expense 15 17,033 6,552 Interest income (6,938) (1,177) Working capital adjustments: Decrease/(Increase) in current assets 11,453 (25,504) Increase/(Decrease) in trade and other payables and accruals 1,865 6,366 Net cash flows from operating activities 23,762 (4,271)

Cash flows from investing activities Decrease/(Increase) in restricted cash 12,218 6,782 Purchases of property, plant and equipment (8,832) 12,374 Payments to acquire intangible assets - (16) Investment in subsidiaries (9,131) (145) Decrease/(increase) in intercompany receivables (188,270) (201,195) Net cash flows used in investing activities (194,015) (182,200)

Cash flows from financing activities Proceeds from the issuance of ordinary shares 41,117 129,672 Transaction costs on issue of shares (96) (6,503) Proceeds from the issuance of senior bonds 40,634 - Proceeds from the issuance of convertible bonds 125,000 - Transaction costs on issuance of bonds (4,942) - Repayment of long term debt - (3,606) Repayment of lease liabilities 9 (18,350) (10,990) Interest paid (14,782) (13,300) Interest income 6,938 114 Net cash flows from financing activities 175,520 95,387

Net increase/(decrease) in cash and cash equivalents 5,266 (91,084) Cash and cash equivalents at the beginning of the period 23,274 114,358 Cash and cash equivalents at the end of the period 28,540 23,274

80

Statement of Changes in Equity (Unconsolidated Parent Company)

Number of Shares


Share Premium

Other Reserves

Retained Earnings/

(Loss)

Total Equity

(In thousands of USD except for number of shares) Balance as at 31 December 2009 263,174,820 5,264 303,582 7,255 4,058 320,159

Profit/(loss) for the period - - - (6,717) (6,717) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (6,717) (6,717) Issue of share capital - 19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 60,411 24 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 64,344 21 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 4,917 Transaction costs on issue of shares - (6,503) - - (6,503) Employee stock options - - 2,053 - 2,053 Balance as at 31 December 2010 409,696,179 8,194 423,822 9,307 (2,659) 438,664 Profit/(loss) for the period - - - (3,401) (3,401) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (3,401) (3,401) Issue of share capital - 21 October 2011 at NOK 4.00 (USD 0.72) per share 57,500,000 1,150 39,967 - - 41,117 Transaction costs on issue of shares - (96) (96) Issue of convertible bonds 26,604 26,604 Employee stock options 2,069 2,069 Balance as at 31 December 2011 467,196,179 9,344 463,693 37,980 (6,060) 504,957

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

Notes to the financial statements (Unconsolidated Parent Company)

1. General information and summary of significant accounting principles

Polarcus Limited (the “Company”) is a holding company. In addition to owning the subsidiaries, the Company conducts a part of the external debt financing of the Group and provides loans to Group companies. The Company owns and rents in-sea equipment to its subsidiaries and also employs offshore personnel who work onboard the vessels owned by other Group companies.

The Company’s accounting principles are consistent to the accounting principles of the Group, as described in Note 2 of the Group’s consolidated financial statements for the year ended 31 December 2011. Note disclosures for the Company that is similar to information in the consolidated financial statements are not repeated in these financial statements. This relates in particular to the notes in the consolidated financial statements on issued share capital and share premium (both Note 14), other reserves (Note 16), senior bonds (Note 17), convertible bonds (Note 18) and the liability for warrants (Note 14).

Shares in the subsidiaries and receivables from and loans provided to the subsidiaries are evaluated at the lower of cost and fair value. When the value of estimated future cash flows is lower than the carrying value in the subsidiaries, the Company recognizes impairment charges on investments in subsidiaries and intercompany receivables. If and when estimated recoverable amounts increase, impairment charges are reversed. There is no fixed plan for repayment of long-term intercompany receivables.

2. Revenues The Company’s revenues are earned mainly from leasing seismic equipment and provision of offshore employees’ services to other Group companies.

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crewing services provided to Group companies 44,064 17,355 In-sea equipment leased to Group companies 12,628 12,290 Miscellaneous income 5,616 8,691 Total 62,308 38,336

81

Statement of Changes in Equity (Unconsolidated Parent Company)

Number of Shares


Share Premium

Other Reserves

Retained Earnings/

(Loss)

Total Equity

(In thousands of USD except for number of shares) Balance as at 31 December 2009 263,174,820 5,264 303,582 7,255 4,058 320,159

Profit/(loss) for the period - - - (6,717) (6,717) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (6,717) (6,717) Issue of share capital - 19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 60,411 24 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 64,344 21 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 4,917 Transaction costs on issue of shares - (6,503) - - (6,503) Employee stock options - - 2,053 - 2,053 Balance as at 31 December 2010 409,696,179 8,194 423,822 9,307 (2,659) 438,664 Profit/(loss) for the period - - - (3,401) (3,401) Other comprehensive income/(loss) for the period - - - - - Total comprehensive income/(loss) for the period - - - (3,401) (3,401) Issue of share capital - 21 October 2011 at NOK 4.00 (USD 0.72) per share 57,500,000 1,150 39,967 - - 41,117 Transaction costs on issue of shares - (96) (96) Issue of convertible bonds 26,604 26,604 Employee stock options 2,069 2,069 Balance as at 31 December 2011 467,196,179 9,344 463,693 37,980 (6,060) 504,957

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

Notes to the financial statements (Unconsolidated Parent Company)

1. General information and summary of significant accounting principles

Polarcus Limited (the “Company”) is a holding company. In addition to owning the subsidiaries, the Company conducts a part of the external debt financing of the Group and provides loans to Group companies. The Company owns and rents in-sea equipment to its subsidiaries and also employs offshore personnel who work onboard the vessels owned by other Group companies.

The Company’s accounting principles are consistent to the accounting principles of the Group, as described in Note 2 of the Group’s consolidated financial statements for the year ended 31 December 2011. Note disclosures for the Company that is similar to information in the consolidated financial statements are not repeated in these financial statements. This relates in particular to the notes in the consolidated financial statements on issued share capital and share premium (both Note 14), other reserves (Note 16), senior bonds (Note 17), convertible bonds (Note 18) and the liability for warrants (Note 14).

Shares in the subsidiaries and receivables from and loans provided to the subsidiaries are evaluated at the lower of cost and fair value. When the value of estimated future cash flows is lower than the carrying value in the subsidiaries, the Company recognizes impairment charges on investments in subsidiaries and intercompany receivables. If and when estimated recoverable amounts increase, impairment charges are reversed. There is no fixed plan for repayment of long-term intercompany receivables.

2. Revenues The Company’s revenues are earned mainly from leasing seismic equipment and provision of offshore employees’ services to other Group companies.

Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crewing services provided to Group companies 44,064 17,355 In-sea equipment leased to Group companies 12,628 12,290 Miscellaneous income 5,616 8,691 Total 62,308 38,336

82

3. Property, Plant and Equipment (In thousands of USD)

Seismic equipment

Year ended 31 December 2010 Costs Balance at 01 January 2010 45,235 Additional capital expenditures 5,766 Assets under finance leases 32,130 Disposals (24,094) Balance as of 31 December 2010 59,036 Depreciation and impairment losses Balance at 01 January 2010 140 Depreciation for the period 6,770 Disposals (2,692) Balance as of 31 December 2010 4,218 Carrying amounts As of 01 January 2010 45,096 As of 31 December 2010 54,819 Carrying amounts held under finance leases as of 31 December 2010 49,053 Year ended 31 December 2011 Costs Balance at 01 January 2011 59,036 Additional capital expenditures 9,989 Assets under finance leases 1,519 Disposals (1,135) Balance as of 31 December 2011 69,409 Depreciation and impairment losses Balance at 01 January 2011 4,218 Depreciation for the period 8,516 Disposals (75) Balance as of 31 December 2011 12,658 Carrying amounts As of 01 January 2011 54,819 As of 31 December 2011 56,751 Carrying amounts held under finance leases as of 31 December 2011 42,121

4. Intangible assets (In thousands of USD)

Industry specific applications under

development

Consideration for vessel buyback

options Total

Year ended 31 December 2010 Costs Balance at 01 January 2010 - 3,400 3,400 Additions 16 - 16 Disposals - (1,700) (1,700) Balance as of 31 December 2010 16 1,700 1,716 Amortization and impairment losses Balance at 01 January 2010 - - - Amortization for the period - - - Disposals - - - Balance as of 31 December 2010 - - - Carrying amounts As of 01 January 2010 - 3,400 3,400 As of 31 December 2010 16 1,700 1,716 Year ended 31 December 2011 Costs Balance at 01 January 2011 16 1,700 1,716 Additions - - - Disposals - (1,700) (1,700) Balance as of 31 December 2011 16 - 16 Amortization and impairment losses Balance at 01 January 2011 - - - Amortization for the period (16) - (16) Disposals - - - Balance as of 31 December 2011 (16) - (16) Carrying amounts As of 01 January 2011 16 1,700 1,716 As of 31 December 2011 - - -

83

3. Property, Plant and Equipment (In thousands of USD)

Seismic equipment

Year ended 31 December 2010 Costs Balance at 01 January 2010 45,235 Additional capital expenditures 5,766 Assets under finance leases 32,130 Disposals (24,094) Balance as of 31 December 2010 59,036 Depreciation and impairment losses Balance at 01 January 2010 140 Depreciation for the period 6,770 Disposals (2,692) Balance as of 31 December 2010 4,218 Carrying amounts As of 01 January 2010 45,096 As of 31 December 2010 54,819 Carrying amounts held under finance leases as of 31 December 2010 49,053 Year ended 31 December 2011 Costs Balance at 01 January 2011 59,036 Additional capital expenditures 9,989 Assets under finance leases 1,519 Disposals (1,135) Balance as of 31 December 2011 69,409 Depreciation and impairment losses Balance at 01 January 2011 4,218 Depreciation for the period 8,516 Disposals (75) Balance as of 31 December 2011 12,658 Carrying amounts As of 01 January 2011 54,819 As of 31 December 2011 56,751 Carrying amounts held under finance leases as of 31 December 2011 42,121

4. Intangible assets (In thousands of USD)

Industry specific applications under

development

Consideration for vessel buyback

options Total

Year ended 31 December 2010 Costs Balance at 01 January 2010 - 3,400 3,400 Additions 16 - 16 Disposals - (1,700) (1,700) Balance as of 31 December 2010 16 1,700 1,716 Amortization and impairment losses Balance at 01 January 2010 - - - Amortization for the period - - - Disposals - - - Balance as of 31 December 2010 - - - Carrying amounts As of 01 January 2010 - 3,400 3,400 As of 31 December 2010 16 1,700 1,716 Year ended 31 December 2011 Costs Balance at 01 January 2011 16 1,700 1,716 Additions - - - Disposals - (1,700) (1,700) Balance as of 31 December 2011 16 - 16 Amortization and impairment losses Balance at 01 January 2011 - - - Amortization for the period (16) - (16) Disposals - - - Balance as of 31 December 2011 (16) - (16) Carrying amounts As of 01 January 2011 16 1,700 1,716 As of 31 December 2011 - - -

84

5. Investment in subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10

Unquoted equity shares at cost 9,185 54

The Company’s direct investment in different subsidiaries as of 31 December 2011 is as per below;


Name of the Subsidiary Country of Incorporation

Principal activities

Equity interest Book value Book value as of as of as of

31-Dec-11* 31-Dec-11 31-Dec-10

Polarcus DMCC UAE Administrative services 100% 54 54

Polarcus 1 Ltd Cayman Islands Seismic vessel operator 100% - -


Polarcus Samur Limited Cayman Islands Seismic vessel operator 100% 3,649 -

Polarcus Selma Limited (formerly known as 'Polarcus 4')

Cayman Islands Seismic vessel operator 100% - -

Polarcus MC Limited (formerly known as ' Polarcus 5') Cayman Islands Seismic vessel

operator 50% 4,700 -

Polarcus 6 Ltd Cayman Islands Seismic vessel operator 100% 760 -

Polarcus Seismic Limited Cayman Islands Administrative services 100% - -

Polarcus UK Limited United Kingdome Seismic vessel operator 100% - -

Polarcus Norway AS Norway Seismic vessel operator 100% 22 -

Polarcus Multi-Client (CY) Ltd Cyprus Administrative services 100% - -

Total

9,185 54

The Company is the ultimate parent company for the subsidiaries of directly owned subsidiaries. The non-direct subsidiaries as of 31 December 2011 is as per below;


Name of the Subsidiary Country of Incorporation Principal activities

Equity interest Equity interest

as of as of 31-Dec-11* 31-Dec-10

Polarcus Egypt Egypt Administrative services 100% 100% Polarcus Nadia AS Norway Seismic vessel operator 100% 100% Polarcus Asima AS Norway Seismic vessel operator 100% 100% Polarcus Naila AS Norway Seismic vessel operator 100% 100% Polarcus Alima AS Norway Seismic vessel operator 100% 100% Polarcus do Brazil Ltda Brazil Administrative services 100% 100% Polarcus US Inc. USA Administrative services 100% -

*Voting rights are equivalent to shareholding for all companies.

Polarcus US Inc. was incorporated during the year 2011.

For details of transactions and balances with subsidiaries see Note 18 Related parties.

6. Other current assets (In thousands of USD) 31-Dec-11 31-Dec-10 Insurance claims 862 3,391 Other current assets 155 8 Total 1,017 3,399

7. Restricted cash (In thousands of USD) 31-Dec-11 31-Dec-10 Senior secured bond loan escrow account - 14,346 Other short term deposits 16,133 14,005 Total 16,133 28,351

8. Other financial assets and liabilities Financial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Liability for warrants (refer to Note 14.2 in the consolidated financial statements ) 48 6,768 Total financial liabilities at fair value through profit and loss 48 6,768


(in thousands of USD) 31-Dec-11 31-Dec-10 Bond loans 13% Senior Secured Bonds (refer to Note 17 in the consolidated financial statements ) 54,246 53,846 14% Senior Unsecured Bond (refer to Note 17 in the consolidated financial statements ) 36,709 - 8.5% Convertible Bonds (refer to Note 18 in the consolidated financial statements ) 32,567 31,269 2.875% Convertible Bond (refer to Note 18 in the consolidated financial statements ) 98,542 - Total financial liabilities measured at amortized cost 222,065 85,115

8.1 Fair values 31-Dec-11 31-Dec-10 (in thousands of USD) Carrying Amount Fair value Carrying Amount Fair value Financial assets Cash and deposits 44,673 44,673 51,625 51,625 Accounts receivables 20,614 20,614 30,709 30,709 Receivable from subsidiaries 167,501 167,501 132,851 132,851 Long-term loan to subsidiaries 227,557 227,557 273,467 273,467 Short-term loan to subsidiaries 241,236 241,236 28,200 28,200 Total 701,581 701,581 516,852 516,852 Financial liabilities Accounts payable 5,626 5,626 4,628 4,628 Liability for warrants 48 48 6,768 6,768 13% Senior secured bonds 54,246 60,363 53,846 59,675 14% Senior Unsecured Bond 36,709 36,468 - - 8.5% Convertible bonds 32,567 32,813 31,269 31,325 2.875% Convertible Bond 98,542 90,625 - - Finance lease liabilities 24,641 24,641 41,472 41,472 Payable to subsidiaries 2,466 2,466 8,867 8,867 Total 254,847 253,049 146,850 152,735

Cash and deposits, accounts receivables and payable, and short-term payables, receivables and loans to subsidiaries approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of long-term loans from subsidiaries approximate their carrying amounts as the interest rates charged on the loans are at floating rates based on the prevailing market rate.

85

5. Investment in subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10

Unquoted equity shares at cost 9,185 54

The Company’s direct investment in different subsidiaries as of 31 December 2011 is as per below;


Name of the Subsidiary Country of Incorporation

Principal activities

Equity interest Book value Book value as of as of as of

31-Dec-11* 31-Dec-11 31-Dec-10

Polarcus DMCC UAE Administrative services 100% 54 54



Polarcus Samur Limited Cayman Islands Seismic vessel operator 100% 3,649 -

Polarcus Selma Limited (formerly known as 'Polarcus 4')

Cayman Islands Seismic vessel operator 100% - -

Polarcus MC Limited (formerly known as ' Polarcus 5') Cayman Islands Seismic vessel

operator 50% 4,700 -

Polarcus 6 Ltd Cayman Islands Seismic vessel operator 100% 760 -

Polarcus Seismic Limited Cayman Islands Administrative services 100% - -

Polarcus UK Limited United Kingdome Seismic vessel operator 100% - -

Polarcus Norway AS Norway Seismic vessel operator 100% 22 -

Polarcus Multi-Client (CY) Ltd Cyprus Administrative services 100% - -

Total

9,185 54

The Company is the ultimate parent company for the subsidiaries of directly owned subsidiaries. The non-direct subsidiaries as of 31 December 2011 is as per below;


Name of the Subsidiary Country of Incorporation Principal activities

Equity interest Equity interest

as of as of 31-Dec-11* 31-Dec-10

Polarcus Egypt Egypt Administrative services 100% 100% Polarcus Nadia AS Norway Seismic vessel operator 100% 100% Polarcus Asima AS Norway Seismic vessel operator 100% 100% Polarcus Naila AS Norway Seismic vessel operator 100% 100% Polarcus Alima AS Norway Seismic vessel operator 100% 100% Polarcus do Brazil Ltda Brazil Administrative services 100% 100% Polarcus US Inc. USA Administrative services 100% -

*Voting rights are equivalent to shareholding for all companies.

Polarcus US Inc. was incorporated during the year 2011.

For details of transactions and balances with subsidiaries see Note 18 Related parties.

6. Other current assets (In thousands of USD) 31-Dec-11 31-Dec-10 Insurance claims 862 3,391 Other current assets 155 8 Total 1,017 3,399

7. Restricted cash (In thousands of USD) 31-Dec-11 31-Dec-10 Senior secured bond loan escrow account - 14,346 Other short term deposits 16,133 14,005 Total 16,133 28,351

8. Other financial assets and liabilities Financial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-11 31-Dec-10 Liability for warrants (refer to Note 14.2 in the consolidated financial statements ) 48 6,768 Total financial liabilities at fair value through profit and loss 48 6,768


(in thousands of USD) 31-Dec-11 31-Dec-10 Bond loans 13% Senior Secured Bonds (refer to Note 17 in the consolidated financial statements ) 54,246 53,846 14% Senior Unsecured Bond (refer to Note 17 in the consolidated financial statements ) 36,709 - 8.5% Convertible Bonds (refer to Note 18 in the consolidated financial statements ) 32,567 31,269 2.875% Convertible Bond (refer to Note 18 in the consolidated financial statements ) 98,542 - Total financial liabilities measured at amortized cost 222,065 85,115

8.1 Fair values 31-Dec-11 31-Dec-10 (in thousands of USD) Carrying Amount Fair value Carrying Amount Fair value Financial assets Cash and deposits 44,673 44,673 51,625 51,625 Accounts receivables 20,614 20,614 30,709 30,709 Receivable from subsidiaries 167,501 167,501 132,851 132,851 Long-term loan to subsidiaries 227,557 227,557 273,467 273,467 Short-term loan to subsidiaries 241,236 241,236 28,200 28,200 Total 701,581 701,581 516,852 516,852 Financial liabilities Accounts payable 5,626 5,626 4,628 4,628 Liability for warrants 48 48 6,768 6,768 13% Senior secured bonds 54,246 60,363 53,846 59,675 14% Senior Unsecured Bond 36,709 36,468 - - 8.5% Convertible bonds 32,567 32,813 31,269 31,325 2.875% Convertible Bond 98,542 90,625 - - Finance lease liabilities 24,641 24,641 41,472 41,472 Payable to subsidiaries 2,466 2,466 8,867 8,867 Total 254,847 253,049 146,850 152,735

Cash and deposits, accounts receivables and payable, and short-term payables, receivables and loans to subsidiaries approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of long-term loans from subsidiaries approximate their carrying amounts as the interest rates charged on the loans are at floating rates based on the prevailing market rate.

86


The carrying value of the liability for warrants is measured at fair value, see Note 14.2 in the consolidated financial statements for more information.

The fair value of finance lease liabilities approximates their carrying amounts as this relates to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:




As of 31 December 2011, the Company held the following financial instruments measured at fair value:



Total 48 6,768


Reconciliation of opening and closing balances of Level 3 financial items is as per below:



9. Long–term finance lease The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2011, streamer systems worth USD 56,166,181 were leased under this arrangement. The relevant streamer systems have been pledged as security for the arrangement.

The outstanding liability under the above mentioned arrangements are disclosed in the Company’s statement of financial position as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below;

(In thousands of USD) 31-Dec-11 31-Dec-10 Finance lease – non current 4,702 23,503 Finance lease – current 19,939 17,969 Total 24,641 41,472

Payments made towards these lease arrangements during the year ended 31 December 2011 as follows;


Principal Interest Total Principal Interest Total Lease payments made for streamer systems 18,350 2,764 21,114 10,990 2,511 13,502 Total 18,350 2,764 21,114 10,990 2,511 13,502

Future minimum lease payments under finance leases together with present value of the net minimum lease payments are as follows;


Minimum payments


Minimum payments


Within one year 21,112 20,093 20,648 19,108 After one year but not more than five years 4,808 4,548 24,673 22,365 More than five years - - - - Total minimum lease payments 25,921 24,641 45,321 41,472 Less amounts representing finance charges (1,279) - (3,849) - Total minimum lease payments 24,641 24,641 41,472 41,472

10. Interest payable (In thousands of USD) 31-Dec-11 31-Dec-10 Interest accrued on senior secured bonds 3,436 2,979 Interest accrued on convertible bonds 1,839 1,240 Total 5,275 4,219

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

11. Employee accruals and payables (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued salaries 2,959 1,112 Accrued bonuses 1,198 2,889 Other employee accruals and payable 118 - Total 4,275 4,001

87


The carrying value of the liability for warrants is measured at fair value, see Note 14.2 in the consolidated financial statements for more information.

The fair value of finance lease liabilities approximates their carrying amounts as this relates to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:




As of 31 December 2011, the Company held the following financial instruments measured at fair value:



Total 48 6,768


Reconciliation of opening and closing balances of Level 3 financial items is as per below:



9. Long–term finance lease The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer systems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2011, streamer systems worth USD 56,166,181 were leased under this arrangement. The relevant streamer systems have been pledged as security for the arrangement.

The outstanding liability under the above mentioned arrangements are disclosed in the Company’s statement of financial position as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below;

(In thousands of USD) 31-Dec-11 31-Dec-10 Finance lease – non current 4,702 23,503 Finance lease – current 19,939 17,969 Total 24,641 41,472

Payments made towards these lease arrangements during the year ended 31 December 2011 as follows;


Principal Interest Total Principal Interest Total Lease payments made for streamer systems 18,350 2,764 21,114 10,990 2,511 13,502 Total 18,350 2,764 21,114 10,990 2,511 13,502

Future minimum lease payments under finance leases together with present value of the net minimum lease payments are as follows;


Minimum payments


Minimum payments


Within one year 21,112 20,093 20,648 19,108 After one year but not more than five years 4,808 4,548 24,673 22,365 More than five years - - - - Total minimum lease payments 25,921 24,641 45,321 41,472 Less amounts representing finance charges (1,279) - (3,849) - Total minimum lease payments 24,641 24,641 41,472 41,472

10. Interest payable (In thousands of USD) 31-Dec-11 31-Dec-10 Interest accrued on senior secured bonds 3,436 2,979 Interest accrued on convertible bonds 1,839 1,240 Total 5,275 4,219

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

11. Employee accruals and payables (In thousands of USD) 31-Dec-11 31-Dec-10 Accrued salaries 2,959 1,112 Accrued bonuses 1,198 2,889 Other employee accruals and payable 118 - Total 4,275 4,001

88

12. Cost of sales Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crew salaries and other benefits 42,633 14,595 Other vessel operating expenses 616 2 Total 43,249 14,597

13. Sales, general and administrative costs


13.1 Salaries and other employee benefits Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Salaries and bonus 36,903 17,410 Social security costs 269 129 Pension costs 2,246 900 Other benefits 6,553 2,568 Crew travel related costs 2,052 181 Crew salaries and benefits included in cost of sales (refer to Note: 12) (42,633) (14,595) Total 5,390 6,593

The Company offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades.

The Company has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade.

In addition, the Company has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2011. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations.

All employees of the Company are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options in the consolidated financial statements.

The Company has set up a pension scheme for the majority of its employees under which the Company, on a monthly basis, contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2011 the Company has contributed USD 2.43 million to the pension scheme, full amount of which is expensed as employee benefits. Contributions made to the pension scheme during year 2010 were USD 1.02 million.

For employees who are not enrolled into the above pension scheme, the Company recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Company. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2011 the Company has recognized a liability of USD 0.22 million towards such pension payable. Liability recognized as of 31 December 2010 was 0.15 million.

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

31-Dec-11 31-Dec-10 Depreciation of seismic equipment 8,516 6,770 Disposal of seismic equipment (81) 2,825 Total 8,435 9,595

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

31-Dec-11 31-Dec-10 Interest expenses on senior bond 6,732 7,499 Interest expenses on convertible bond 7,443 4,114 Interest expenses on lease arrangements 2,764 2,759 Other interest expenses 94 664 Realized currency exchange loss 157 362 Unrealized currency exchange loss 3,204 963 Other financial losses - 576 Total 20,394 16,937

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

31-Dec-11 31-Dec-10 Interest income from deposit with banks 177 114 Interest income from subsidiaries 6,761 9,547 Other financial gains 174 247 Realized exchange gain 124 1,447 Unrealized exchange gain 3,103 1,493 Total 10,339 12,848


17. Changes in fair value of financial instruments The changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants in the consolidated financial statements. The fair value of the warrant liability at each period end date and the profit or loss on revaluation for the periods reported are as per below;


31-Dec-11 31-Dec-10 Warrant liability at fair value 48 6,768 Profit/(loss) on revaluation of the fair value of warrant liability 6,720 (3,561)

89

12. Cost of sales Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Crew salaries and other benefits 42,633 14,595 Other vessel operating expenses 616 2 Total 43,249 14,597

13. Sales, general and administrative costs


13.1 Salaries and other employee benefits Years ended (In thousands of USD) 31-Dec-11 31-Dec-10 Salaries and bonus 36,903 17,410 Social security costs 269 129 Pension costs 2,246 900 Other benefits 6,553 2,568 Crew travel related costs 2,052 181 Crew salaries and benefits included in cost of sales (refer to Note: 12) (42,633) (14,595) Total 5,390 6,593

The Company offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades.

The Company has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade.

In addition, the Company has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2011. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations.

All employees of the Company are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options in the consolidated financial statements.

The Company has set up a pension scheme for the majority of its employees under which the Company, on a monthly basis, contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2011 the Company has contributed USD 2.43 million to the pension scheme, full amount of which is expensed as employee benefits. Contributions made to the pension scheme during year 2010 were USD 1.02 million.

For employees who are not enrolled into the above pension scheme, the Company recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Company. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2011 the Company has recognized a liability of USD 0.22 million towards such pension payable. Liability recognized as of 31 December 2010 was 0.15 million.

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

31-Dec-11 31-Dec-10 Depreciation of seismic equipment 8,516 6,770 Disposal of seismic equipment (81) 2,825 Total 8,435 9,595

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

31-Dec-11 31-Dec-10 Interest expenses on senior bond 6,732 7,499 Interest expenses on convertible bond 7,443 4,114 Interest expenses on lease arrangements 2,764 2,759 Other interest expenses 94 664 Realized currency exchange loss 157 362 Unrealized currency exchange loss 3,204 963 Other financial losses - 576 Total 20,394 16,937

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

31-Dec-11 31-Dec-10 Interest income from deposit with banks 177 114 Interest income from subsidiaries 6,761 9,547 Other financial gains 174 247 Realized exchange gain 124 1,447 Unrealized exchange gain 3,103 1,493 Total 10,339 12,848


17. Changes in fair value of financial instruments The changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants in the consolidated financial statements. The fair value of the warrant liability at each period end date and the profit or loss on revaluation for the periods reported are as per below;


31-Dec-11 31-Dec-10 Warrant liability at fair value 48 6,768 Profit/(loss) on revaluation of the fair value of warrant liability 6,720 (3,561)

90

18. Related-parties 18.1 Receivable from subsidiaries

(In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 1 Ltd 3,921 - Polarcus 2 Ltd 4,635 - Polarcus Selma Ltd 282 - Polarcus 5 19 - Polarcus Multi-Client (CY) Ltd 4 - Polarcus US Inc. 1,203 - Polarcus 6 Ltd - 20,994 Polarcus Do Brazil Ltda 60 135 Polarcus Naila AS - 9,722 Polarcus UK Limited 519 14 Polarcus Alima AS 2,296 - Polarcus Seismic Ltd - 119 Polarcus Nadia AS - 8,057 Polarcus DMCC 154,562 93,810 Total 167,501 132,851

The above receivables are mainly for vendor payments made by the Company on behalf of its subsidiaries which are receivable within 12 months from 31 December 2011.

18.2 Loans to subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 1 Ltd (short term, interest free) 14,030 14,030 Polarcus 2 Ltd (short term, interest free) 14,030 14,030 Polarcus Samur Ltd (short term, interest free) 130,774 89,298 Polarcus Nadia AS (short term, interest at LIBOR+4%) 26,060 33,083 Polarcus Naila AS (short term, interest at LIBOR+4%) 6,142 21,296 Polarcus Alima AS (long term, interest at LIBOR+4%) 30,230 30,230 Polarcus Asima AS (long term, interest at LIBOR+4%) 71,500 71,500 Polarcus UK Limited (short term, interest free) 50,200 28,200 Polarcus Selma Ltd (long term, interest at LIBOR+4%) 125,827 - Total 468,793 301,667

18.3 Accounts receivable (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus Nadia AS 7,102 12,772 Polarcus Naila AS - 11,422 Polarcus UK Limited 728 586 Polarcus Asima AS - 4,652 Polarcus Alima AS 5,001 - Polarcus Seismic Ltd - 1,277 Polarcus Samur Ltd. 2,100 - Polarcus US Inc. 1,456 - Polarcus Selma Ltd 262 - Polarcus DMCC 2,260 - Receivable from external customers 1,706 - Total 20,614 30,709

18.4 Payable to subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 5 - 1,846 Polarcus 6 805 - Polarcus Asima AS - 7,021 Polarcus Seismic Ltd 1,661 - Polarcus DMCC (included in Accounts Payable)* 5,230 2,745 Total 7,696 11,612

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

18.5 Transactions with subsidiaries The Company is a holding company for the Polarcus Group and also earns revenues from leasing seismic equipment and providing offshore employee services to its subsidiaries. See Note 2 for information regarding revenues earned from subsidiaries. Additionally, during the year ended 31 December 2011, Company’s initial investment of USD 19.9 million in vessel Polarcus Selma (later renamed as ‘Vyacheslav Tikhonov’) was transferred to Polarcus Selma Ltd at net book value.

19. Authorization of financial statement The unconsolidated financial statements of the parent company Polarcus Limited for the year ended 31 December 2011 were authorized for issue in accordance with a resolution of the directors on 28 March 2012.

91

Peter Rigg

Erik Henriksen

Carl-Gustaf Zickerman

Tore Karlsson

Carl-Peter Zickerman

Hege Sjo

Ali A. bin Towaih Al Suwaidi

Kitty Hall

Jogeir Romestrand

18. Related-parties 18.1 Receivable from subsidiaries

(In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 1 Ltd 3,921 - Polarcus 2 Ltd 4,635 - Polarcus Selma Ltd 282 - Polarcus 5 19 - Polarcus Multi-Client (CY) Ltd 4 - Polarcus US Inc. 1,203 - Polarcus 6 Ltd - 20,994 Polarcus Do Brazil Ltda 60 135 Polarcus Naila AS - 9,722 Polarcus UK Limited 519 14 Polarcus Alima AS 2,296 - Polarcus Seismic Ltd - 119 Polarcus Nadia AS - 8,057 Polarcus DMCC 154,562 93,810 Total 167,501 132,851

The above receivables are mainly for vendor payments made by the Company on behalf of its subsidiaries which are receivable within 12 months from 31 December 2011.

18.2 Loans to subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 1 Ltd (short term, interest free) 14,030 14,030 Polarcus 2 Ltd (short term, interest free) 14,030 14,030 Polarcus Samur Ltd (short term, interest free) 130,774 89,298 Polarcus Nadia AS (short term, interest at LIBOR+4%) 26,060 33,083 Polarcus Naila AS (short term, interest at LIBOR+4%) 6,142 21,296 Polarcus Alima AS (long term, interest at LIBOR+4%) 30,230 30,230 Polarcus Asima AS (long term, interest at LIBOR+4%) 71,500 71,500 Polarcus UK Limited (short term, interest free) 50,200 28,200 Polarcus Selma Ltd (long term, interest at LIBOR+4%) 125,827 - Total 468,793 301,667

18.3 Accounts receivable (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus Nadia AS 7,102 12,772 Polarcus Naila AS - 11,422 Polarcus UK Limited 728 586 Polarcus Asima AS - 4,652 Polarcus Alima AS 5,001 - Polarcus Seismic Ltd - 1,277 Polarcus Samur Ltd. 2,100 - Polarcus US Inc. 1,456 - Polarcus Selma Ltd 262 - Polarcus DMCC 2,260 - Receivable from external customers 1,706 - Total 20,614 30,709

18.4 Payable to subsidiaries (In thousands of USD) 31-Dec-11 31-Dec-10 Polarcus 5 - 1,846 Polarcus 6 805 - Polarcus Asima AS - 7,021 Polarcus Seismic Ltd 1,661 - Polarcus DMCC (included in Accounts Payable)* 5,230 2,745 Total 7,696 11,612

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

18.5 Transactions with subsidiaries The Company is a holding company for the Polarcus Group and also earns revenues from leasing seismic equipment and providing offshore employee services to its subsidiaries. See Note 2 for information regarding revenues earned from subsidiaries. Additionally, during the year ended 31 December 2011, Company’s initial investment of USD 19.9 million in vessel Polarcus Selma (later renamed as ‘Vyacheslav Tikhonov’) was transferred to Polarcus Selma Ltd at net book value.

19. Authorization of financial statement The unconsolidated financial statements of the parent company Polarcus Limited for the year ended 31 December 2011 were authorized for issue in accordance with a resolution of the directors on 28 March 2012.

92A member firm of Ernst & Young Global Limited

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

To the Annual Shareholders’ Meeting of Polarcus Limited

AUDITOR’S REPORT We have audited the accompanying financial statements of Polarcus Limited, comprising the financial statements of the Parent Company and the Group. The financial statements of the Parent Company and the Group comprise the statements of financial position as of December 31, 2010, the statements of comprehensive income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

The Board of Directors’ and Chief Executive Officer’s Responsibility for the Financial Statements The Board of Directors and Chief Executive Officer are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements of Polarcus Limited present fairly, in all material respects, the financial position of the Parent Company and the Group as of December 31, 2011, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards. Oslo, 28 March 2012 ERNST & YOUNG AS Anders Gøbel State Authorised Public Accountant (Norway)

93

NOTES

94

Polarcus Limited:Reg. No: WK 201867Registered Address: Walker House, 87 Mary StreetGeorge Town, Grand Cayman KYI – 9001Cayman Islands

Polarcus 1 Ltd:Reg. No: WK- 204062Registered Address: Walker House, 87 Mary StreetGeorge Town, Grand Cayman KYI – 9001Cayman Islands

Polarcus 2 Ltd:Reg No: WK- 203939Registered Address: Walker House, 87 Mary StreetGeorge Town, Grand Cayman KYI – 9001Cayman Islands

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

Polarcus Selma Ltd:Reg. No: WK- 204020Registered Address: Walker House, 87 Mary StreetGeorge Town, Grand Cayman KYI – 9001Cayman Islands

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

Polarcus 6 Ltd: Reg. No: WK- 203972Registered Address: Walker House, 87 Mary StreetGeorge Tow, Grand Cayman KYI – 9001Cayman Islands

Polarcus DMCC:License No: 30852Registered Address:Almas Tower, Level 32Jumeirah Lakes TowersDubaiUnited Arab EmiratesCorrespondence Address:PO Box 283373, DubaiUnited Arab Emirates

Polarcus Seismic Limited:Reg. No: WK- 213496Registered Address: Walker House, 87 Mary StreetGeorge Town, Grand Cayman KYI – 9001Cayman Islands

Polarcus UK Ltd:Reg. No: 7068161Registered Address: St. James House13 Kensington SquareLondon W8 5HDU.K.

Polarcus Egypt Ltd:Reg. No: 41735 CairoRegistered Address: 10 Abdel AzimAshmawy StreetAl-NozhaCairo, Egypt

ADDRESSES

95

Polarcus do Brasil Ltda:Reg. No: 11.428.425/0001-12 MatrizRegistered Address: Av Nilo Peçanha, 50 – group 2817, Centro, Rio de Ja-neiro, Brasil

Polarcus Nadia AS:Reg. No: 994 063 901Registered Address: C/O Wikborg, Rein & CoP.O.Box 1513 Vika0117 OsloNorway

Polarcus Naila AS:Reg. No: 995 097 893Registered Address: c/o Wikborg, Rein & CoPO Box 1513 Vika0117 OsloNorway

Polarcus Shipholding AS:Reg. No: 995 542 846Registered Address: c/o Wikborg, Rein & CoPO Box 1513 Vika0117 OsloNorway

Polarcus Multi-Client (CY) Ltd:Reg. No: HE 267816Registered Address: c/o Ernst & YoungSpyrou Kyprianou, 27, Ernst & Young House, P.C. 4001, Limassol, Cyprus

Polarcus Alima AS:Reg. No: 995 963 426Registered Address: c/o Wikborg, Rein & CoPO Box 1513 Vika0117 OsloNorway

Polarcus Norway AS:Reg. No: 996 798 305Registered Address: c/o Wikborg, Rein & CoPO Box 1513 Vika0117 OsloNorway

Polarcus US Inc.EIN No: 80-0716980Registered Address: c/o Capitol Services Inc615 South DuPont Highway, Dover, Kent CountyDelaware 19901USA

Polarcus Amani AS:Reg. No: 998 025 966Registered Address:c/o Kjelstrup & Wiggen ASHenrik Ibsen Gate 200255 OsloNorway

Polarcus Asima AS:Reg. No: 998 025 877Registered Address:c/o Kjelstrup & Wiggen ASHenrik Ibsen Gate 200255 OsloNorway

Polarcus Adira AS:Reg. No: 998 026 016Registered Address:c/o Kjelstrup & Wiggen ASHenrik Ibsen Gate 200255 OsloNorway

Polarcus Samur AS:Reg. No: 898 025 942Registered Address:c/o Kjelstrup & Wiggen ASHenrik Ibsen Gate 200255 OsloNorway

96

POLARCUS LIMITEDc/o Polarcus DMCCAlmas Tower, Level 32,Jumeirah Lakes Towers,PO Box 283373, Dubai, United Arab Emirates

Polarcus Annual Report 2011

Documents

Transcript of Polarcus Annual Report 2011