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NorAm Drilling AS
Annual Report • May 24, 2023
3673_10-k_2023-05-24_07dcf602-bb8e-49fa-b797-aa287176167f.pdf
Annual Report
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ANNUAL REPORT 2022
NORAM DRILLING AS
24 May 2023
Contents
| General Information |
3 |
|---|---|
| Accounting and Auditing | 3 |
| NorAm Drilling Group | 4 |
| Board of Directors' Report 20 2 2 |
5 |
| Financial Statements 202 2 |
1 4 |
| Note Disclosures | 1 8 |
| Auditors Report | 2 6 |
General Information
This report contains forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements may be identified by the use of forward-looking terminology such as "believes", "experts", "predicts", "may", "will continue", "should", "would be", "seeks" or "anticipates" or similar expressions or comparable terminology, or by discussions of plans, intentions and strategy.
Such forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise. The Company or its officers assumes no obligation that such expectations will prove to be correct. These forward-looking statements are subject to risks and uncertainties that could cause actual results to vary materially from such forward-looking statements.
Accounting and Auditing
NorAm Drilling AS is audited by KPMG Norway. The accounting is outsourced to Amesto Business Partner, Norway.
NorAm Drilling Company performs its own accounting.
Alternative Performance Measurement (APM)
In the report we refer to the APM ADJUSTED EBITDA; Earnings Before Interest, Tax, Depreciation and Amortization and noncash stock compensation expenses.
THIS IS NORAM DRILLING GROUP
NorAm Drilling AS ("the Group", "NorAm" or "the Company") owns and operates a quality rig portfolio of "super spec" advanced high-end AC driven rigs tailored for the drilling of horizontal wells in the US land drilling market. These rigs are designed to combine the cost efficiency of a compact rig with the versatility of different rig classes, enabling the rigs to cover a broad range of wells for both liquids and gas.
The Company was established in 2007, and at year-end 2022 the Group's fleet consisted of 11 "super spec" rigs located in the Permian Basin.
The Company Structure
The parent company NorAm Drilling AS owns 100% of NorAm Drilling Company, Texas Corp., a US-based drilling contractor, located in Houston, Texas.
NorAm Drilling Company owns all eleven rigs and is financed through a combination of equity investments and intercompany loans, at arm's length terms, from its parent. NorAm Drilling Company is staffed with competent, local personnel that perform all aspects of a contract drilling company. The assets of NorAm Drilling AS consists mainly of shares in and loans to its US subsidiary.
Our Offices
NorAm Drilling AS head office is in Oslo, Norway. The office is located at Bryggegata 3, 0112 Oslo, Norway.
NorAm Drilling Company is headquartered in Houston, Texas. NorAm Drilling Company has yard facilities in Odessa, Texas.
Organization and Operations
Marty Jimmerson has served as Chief Executive Officer and Chief Financial Officer since joining the Company in January 2017. Thomas Taylor has served as Chief Operating Officer since November 2014 and has been with the Company for 13 years. Mr. Jimmerson and Mr. Taylor fulfil their roles for both NorAm Drilling AS and NorAm Drilling Company.
The executive team is supported with a compliment of business development, safety, operations (including electricians, mechanics and equipment specialists) and accounting functions. Each rig is supported by crews that work on 2-week hitches. Each hitch is staffed with crews working 12-hour shifts. The rig is managed by a rig manager and each shift is typically staffed with a minimum of a driller, derrickman, motorman and two floormen.
Board of Director's Report
Nature of the business activities and where conducted
NorAm Drilling AS (herein called "Company") and its subsidiaries (herein called "Group") were established on February 19, 2007.
NorAm Drilling AS owns 100% of NorAm Drilling Company, a Texas corporation, collectively referred to as NorAm or the Company herein. NorAm owns and operates a quality rig portfolio of "super spec" advanced high-end AC driven rigs tailored for the drilling of horizontal wells in the US land drilling market. Currently, all eleven of our rigs are under contract in the Permian Basin. These rigs are designed to combine the cost efficiency of a compact rig with the versatility of different rig classes, enabling the rigs to cover a broad range of wells for both liquids and gas. The Group's executive management team is based out of Houston, Texas with administrative functions located in both Houston and Oslo, Norway.
2022 Developments
MARKET and CONTRACTS
WTI began 2022 around \$75 per barrel and finished 2022 near \$80 per barrel. WTI reached a high of \$120 per barrel in June 2022 and a low of \$71 per barrel in early December 2022. WTI is currently trading around \$73 per barrel.
As of May 19, 2023, the US land drilling active rig count and Permian rig count was 697 and 349, respectively. As of December 31, 2022, the US land drilling active rig count and Permian rig count was 762 and 353, respectively. In comparison, as of December 31, 2021, the US land drilling active rig count and Permian rig count was 570 and 293, respectively. We currently have all eleven rigs under contract.
CARES ACT
On March 27, 2020, President Trump signed into law the "Coronavirus Aid, Relief, and Economic Security (CARES) Act." On May 5, 2020, we entered into an unsecured loan in the aggregate principal amount of MUSD 5.5 pursuant to the Paycheck Protection Program which is part of the CARES Act Initiatives. This loan was forgiven in full on May 11, 2021.
On December 27, 2020, an additional COVID-19 Pandemic Relief Bill was approved. This bill authorized another round of PPP loans ("second draw PPP loans"). On February 5, 2021, we entered into a second PPP loan in the aggregate principal amount of MUSD 2.0. This loan was forgiven in full in October 2021.
As a result of the COVID-19 pandemic, and as part of the Cares act, NorAm Drilling applied for support relating to the Employee Retention Tax Credit (ERTC) which is a payroll credit available from March 12, 2020 through September 30, 2021 for a total amount of approximately MUSD 4.0. The company received approximately MUSD 1.0 in 2Q 2022 and MUSD 1.6 in 3Q 2022. The Company received approximately MUSD 1.4 in January 2023 related to the final remaining outstanding ERTC payroll credit mentioned herein.
SHARE LISTING and DIVIDENDS
On October 7, 2022, the Company's shares commenced trading on the Euronext Growth Oslo exchange under the ticker "NORAM" following the successful equity raise of approximately MUSD 75 of gross proceeds. The Company issued 19,748,676 new shares in connection with the listing and receipt of gross proceeds. The proceeds from the listing in combination with cash on hand was used to repay an outstanding bond of MUSD 80.0 and accrued interest of MUSD 3.2 on November 14, 2022. The Company is debt free and paid its initial monthly dividend in December 2022 of MUSD 4.4 or NOK 1.00 per share in December 2022. The Company has also paid MUSD 22.5 or approximately NOK 5.50 per share after December 31, 2022. The dividend distributions were made from the Company's contributed surplus account which consists of previously paid in share premium transferred to the Company's share premium account. The Company intends to pay future dividends based upon maintaining a minimum liquidity of approximately MUSD 11.
COMPANY DEVELOPMENT, RESULTS and FINANCING
NorAm had revenue of MUSD 95.4 during the twelve months of 2022 compared to MUSD 50.4 during the twelve months of 2021. During the twelve months of 2022 we generated operating profit of MUSD 6.9 compared to an operating loss of MUSD 12.3 in the twelve months of 2021. During the twelve months of 2022 we generated ADJUSTED EBITDA of MUSD 26.1 compared to MUSD 6.0 in the twelve months of 2021. During the twelve months of 2022 we generated cash flow from operational activities of MUSD 16.0 compared to a negative MUSD 2.0 in the twelve months of 2021. The increase in revenue, operating profit, ADJUSTED EBITDA and cash flow from operational activities is primarily due to improvement in industry activity that commenced in late 2021 that resulted in higher average dayrates and fleet utilization in 2022 as we reactivated all of our rigs during 2022.
Capital expenditures were MUSD 3.4 in the twelve months of 2022, compared to MUSD 3.4 in 2021. As of December 31, 2022, our cash position was MUSD 13.1. As mentioned above, we raised approximately MUSD 75.0 of gross proceeds from the listing of our shares in October 2022 and in combination with cash on hand the listing proceeds were used to repay an outstanding bond of MUSD 80.0 and accrued interest of MUSD 3.2 in November 2022. The Company is debt free and paid its initial monthly dividend in December 2022 of NOK 1.00 per share.
On November 21, 2022, the Company's subsidiary entered into a loan agreement with a U.S. based bank for a Revolving Promissory Note ("Revolver") of MUSD 4.5. Use of proceeds for any borrowings under this Revolver are available for working capital and general corporate purposes. The Revolver is secured by accounts receivable and is expected to be utilized to reduce the Company's
need for liquidity on the balance sheet. There were no borrowings outstanding under the Revolver as of December 31, 2022.
The parent company NorAm Drilling AS had total operating income of MUSD 0.1 in 2022, the same as for 2021. Operating expenses increased to MUSD 1.2 in 2022 compared to MUSD 0.7 in 2021, primarily due to bond amendment fees. The company had a net income before tax of MUSD 10.2 in 2022, compared to a net loss of MUSD 7.8 in 2021. The main driver for the positive result is due to interest income on intercompany notes payable from its operating subsidiary and lower interest expense as a result of the repayment of its outstanding MUSD 80 bond.
On May 16, 2022, the Company and holders of the Bond loan agreed to the following amendments: (i) extend the maturity date from June 3, 2022, to June 3, 2023; (ii) schedule a principal installment of MUSD 5.0 on December 3, 2022; (iii) amend the prepayment structure to allow for partial prepayments at par value at a minimum of MUSD 5.0; and (iv) pay an amendment fee of USD 400,000.
KEY FINANCIAL FIGURES
| 2021 | |
|---|---|
| 50.4 | |
| (12.3) | |
| (19.5) | |
| 26.1 | 6.0 |
| 2022 95.4 6.9 3.0 |
(1) ADJUSTED EBITDA - Earnings Before Interest, Tax, Depreciation and Amortization plus noncash stock option expenses.
IMPAIRMENT ON FIXED ASSETS
Due to the uncertain market conditions, resulting from COVID-19 pandemic and oil production changes, we reviewed assumptions for the carrying values of our assets. This includes assumptions for development in dayrates, OPEX and other critical inputs were adjusted. The development in dayrates and rig utilization in 2020/2021 was considered as temporary setbacks, and not permanent changes, hence this is reflected in the Company's impairment model.
There is significant uncertainty relating to the recovery of the market, and the key inputs are therefore uncertain. The conclusion on the impairment calculation, based on information available and that dayrates and utilization have been better than projected, is that there is no need for impairment charges during 2021 or 2022. As of May 2023, all of our rigs were under contract. The actual dayrates and margins being earned on current contracts and the near-term outlook as a result of oil prices are all favorable compared to the assumptions used in our impairment analysis. Management and the board of directors will continue to follow the developments in the market closely and assess impairment continuously if expected future market conditions change.
FINANCING
On the balance sheet, the Group has equity of MUSD 82.0 equivalent to an equity ratio of 70.8% at year-end 2022, compared to MUSD 33.7 of equity and a 27.6% equity ratio at year-end 2021.
The Company's balance sheet at year end 2022 had equity of MUSD 175.8 and an equity ratio of 87.3%, compared to MUSD 120.0 of equity and a 58.7% equity ratio at year-end 2021.
In Q4 2021 the parent company refinanced the US subsidiary by converting MUSD 51.2 from debt to equity to ensure better financing of the US subsidiary.
The Board considers the equity for both the Company and Group to be in compliance with the requirement for sufficient equity under the Norwegian Limited Liability Companies Act.
The Company and Group has previously been financed through equity and a bond loan, see note 9 to the Financial Statements. On October 7, 2022, the Company's shares commenced trading on the Euronext Growth Oslo exchange under the ticker "NORAM" following the successful raise of approximately MUSD 75 of gross proceeds. The Company issued 19,748,676 new shares in connection with the listing. The proceeds from the listing in combination with cash on hand was used to repay an outstanding bond of MUSD 80.0 and accrued interest of MUSD 3.2 in November 2022. The Company is debt free and paid its initial monthly dividend in December 2022 of NOK 1.00 per share. The dividend distributions were made from the Company's contributed surplus account which consists of previously paid in share premium transferred to the Company's share premium account.
On November 21, 2022, the Company's subsidiary entered into a loan agreement with a U.S. based bank for a Revolving Promissory Note ("Revolver") of MUSD 4.5. Use of proceeds for any borrowings under this Revolver are available for working capital and general corporate purposes. The Revolver is secured by accounts receivable and is expected to be utilized to reduce the Company's need for liquidity on the balance sheet. There were no borrowings outstanding under the Revolver as of December 31, 2022.
CASH FLOW and LIQUIDITY
The cash position for the Group increased from MUSD 12.8 as of December 31, 2021, to MUSD 13.1 as of December 31, 2022.
For the Norwegian parent company, the cash position increased from MUSD 1.4 to MUSD 1.7.
KEY RISKS and UNCERTAINITIES
The Group and the Company are exposed to a number of risk factors when performing its activities, such as market risk, operational risk, credit risk and liquidity risk. Dayrates for land rigs in the US improved significantly during the 2022 and continued to strengthen through Q1 2023. Despite possible near-term pressure on dayrates as a result of WTI and natural gas price volatility, while seeing some softness on recent contract renewals, we remain encouraged that market fundamentals are intact and will continue to improve later in 2023 and into 2024. The Company's and the Group's key operational risks are comprised to a large extent of (i) global oil demand, (ii) China reopening, (iii) Russian
invasion of Ukraine, (iv) OPEC+ maintaining and complying with appropriate supply targets, (v) operating discipline demonstrated by US E&P operators, (vi) supply and demand activity for US and Permian land rigs, (vii) availability and costs of labor, equipment and rig supplies and (viii) any possible regulatory changes issued by the US government.
Global oil and gas prices have been historically and will likely continue to be volatile for the foreseeable future. Global demand and supply of oil; levels of exploration and production by oil and gas companies operating in the United States; worldwide political, regulatory, economic and military events as well as natural disasters have contributed to oil and gas volatility and are likely to continue to do so in the future. The US land drilling market is strongly related to energy prices. Day rates and utilization levels of the Group's rigs correlate with the price of oil and natural gas. An increase in oil price requires supply reductions or increases in demand. The Group's income is the most sensitive factor, and a reduction either in utilization or day rates compared to budget has clear negative effects on the result. Conversely, higher rates and utilization have very positive effects on our results. The cost level will vary with constraints in the market for input factors.
The client risk of the Group varies, and even though the Group targets blue-chip E&P clients with extensive operations, contracts may also be signed with smaller companies to increase utilization of the rigs. In such cases, a review of financial statements or payment references is performed to reduce risk of non-payment.
Supplier and client risks are also present in the market in which the Group is operating. Even if the Group targets contracts with larger and financially solid partners, the contracts will be subject to uncertainty with regards to the suppliers' or the clients' ability to meet their commitments, as they, too, on a general basis also will be subject to market and financial risk. Idle rigs will lead to significant loss of income.
In addition, there could be stacking expenses during weak periods of demand for rigs resulting on loss of work. Such expenses are modest in terms of influence on the result. The Group is also exposed to changes in the regulatory and fiscal frameworks in Norway and the USA.
BUSINESS OUTLOOK
The Group will continue its focus on operating its premium rig fleet and evaluate opportunities to build a larger US presence by further developing our US subsidiary. The foundation has been laid over the years, building strong inhouse drilling competences and safety records, a flat organization with focus on training and motivation of our drilling crews, effective corporate routines and strong client relationships.
By growing the Group's rig fleet from three rigs in 2009 to eleven "Super Spec" rigs by 2021, the Group has taken important steps forward to become an important player in the US onshore drilling industry.
The Group has an ongoing dialogue with its existing customers as well as potential new customers about rig performance and contracts. The Board emphasizes the importance of modern, efficient rigs and trained personnel as a powerful combination for reaching our drilling, safety and utilization targets and winning new contracts with quality clients.
A key driver for financial results in 2023 will ultimately be the continued price development of crude oil and natural gas prices which impacts capital spending by the US energy producers.
Key targets for 2023:
- Ensure continued high safety standard in line with our historical performance
- Continue to operate our rigs with an industry leading effectiveness and efficiency
- Scale our operations and overhead in response to any change in rig activity
- Maintain and develop customer relationships in order to obtain higher dayrates contracts with reputable clients
FUTURE DEVELOPMENT
Dayrates and utilization outlook
All eleven rigs are currently located in the Permian Basin. Our current drilling contract status as of May 23, 2023 is as follows:
- Rig 21 on contract pad-pad
- Rig 22 on contract through July 2023
- Rig 23 on contract through September 2023
- Rig 25 on contract through June 2023
- Rig 26 on contract through June 2023
- Rig 27 on contract through August 2023
- Rig 28 on contract through June 2023
- Rig 29 on contract through June 2023
- Rig 30 on contract pad-pad
- Rig 32 on contract through June 2023
- Rig 34 on contract through August 2023
Subject to key risks and uncertainties mentioned in this report, we currently expect continued strong demand for high end "super spec" drilling rigs in the Permian. Natural gas prices have declined from \$7.0 per MMBtu as of November 2022 to \$4.5 per MMBtu as of December 31, 2022. Natural gas prices have declined further in early 2023 and is currently trading at approximately \$2.35 per MMBtu. Current natural gas prices have resulted in some E&P operators reducing their near-term drilling plans which has resulted in some land rigs being released in gas plays such as the Haynesville and Eagle Ford basins. Some of these rig releases increased the available supply of "super spec" rigs in the Permian basin and could our impact the near-term outlook.
The Board expects to maintain the Group's strong safety record and low TRIR consistent or better than industry averages.
Operating expenses
Combined with focus on our rig personnel staffing levels and effectively managing our other daily operating costs we were able to maintain rig operating costs and maintenance capital expenditures during 2022 and in line with our expectations.
During 2021, we reinstituted the wage reduction implemented in 2020. Additionally, we increased wages on January 1, 2022 in order to retain and recruit employees and remain competitive with other drilling contractors' pay rates. We also experienced price increases during 2022 in other rig supplies as supply chain constraints increased. We have successfully passed along these increases in labor and rig supplies to our customers. Although supply chain issues have improved during 2022, we could incur additional increases in costs of supplies and challenges procuring supplies and materials in the near term. While our contracts generally allow us to pass along cost increases, we can not be certain that any future increases in costs will not negatively impact our operating margins and/or rig activity.
RESEARCH and DEVELOPMENT ACTIVITIES
Neither the Company nor the Group had research and development expenses in 2022.
GOING CONCERN
The Board considers the Financial Statements for 2022 to represent a true and fair view of the development and results of the Company's and Group's operations and accounts as of December 31, 2022. The Board confirms that going concern assumptions are satisfied as to the standards set by the Norwegian Accounting Act and which has formed the basis for the financial statements presented herein for the Company and the Group. This is based on the Boards expectations relating to market conditions going forward, with increased dayrates and utilization expected to continue to gradually recover over the next few years.
WORKING ENVIRONMENT
As of December 31, 2022, the Group had an operational organization of 302 people including three working at the administration office in Houston.
The Board considers the working environment in the Company and the Group to be good.
Management consists of the Chief Executive Officer / Chief Financial Officer and a Chief Operating Officer. Apart from these individuals, the Company uses external advisors for accounting, legal affairs and other professional services.
The absentee rate was minimal. There were no property damage incidents in 2022.
NorAm Drilling AS has no employees during 2022, hence no sick leave. No serious occupational accidents or incidents have been experienced over the year, whether in the parent company or in the subsidiaries.
EQUAL OPPORTUNTIES
The Group and the Company target to be an employer to promote equality for all employees' regardless of nationality, sex, skin color, language or religion. This is true for recruiting new people, for salary and bonus schemes, working relations, promotions and protection against harassment. Women will be encouraged to apply for posted available positions in order to increase the representation of both sexes in the organization. At the end of 2022, the Group had three women employed. There will be no discrimination between men and women regarding recruitment, salaries in relation to position/competence, or promotion, or any other aspect of the Group's activities.
The group has conducted a high-level salary analysis showing that on average, men has higher salary than women. The main reason for this is that the management group consist of only men, and management level has higher average salary than the employees working on the rigs. Among employees working on the rigs, there is no indication on significant differences in average salary between men and women with the same experience etc.
During 2022 the group has had no involuntary part-time employees, and no persons have been on leave of absence.
The NorAm Drilling AS Board of Directors consists of three men. NorAm Drilling Company has the same board as NorAm Drilling AS.
EXTERNAL ENVIRONMENT
NorAm Drilling AS has limited activity and does not pollute the external environment. The Group undertakes activities that are potentially polluting. The oil and gas well drilling business, by its very nature, can, if proper procedures are not followed adversely impact the environment. This can range from blowouts of wells or pollution of the area surrounding the drilling activities.
NorAm Drilling takes all reasonable precautions by assuring proper equipment and maintenance and that the rig personnel are all properly trained. Also, NorAm Drilling conducts standard procedures beyond regulations to ensure not to pollute. Other actions taken by NorAm Drilling includes converting engine systems into Dual Gas system, whereby our customers agree, allowing our engines to run on natural gas at a lower cost and generating less pollution. The Company is also evaluating installing power converters whereby rigs may be connected to the electrical grid where feasible. This will further reduce emissions.
NorAm Drilling has implemented Health, Environment and Safety services to support the company's activities and the rig crew is trained in Occupational Safety and Health Administration (OSHA) HSE regulations in the US. The focus is to train all site personnel in their daily routines to act safely and to prevent unwanted occurrences with the rigs.
NorAm Drilling complies with US state and federal regulations in its activities, including environmental protection regulation. The operator carries the main responsibility regarding the external environment when drilling a well under standard daywork drilling contracts.
The Group will publish a human rights statement in line with the Norwegian Transparency Act reporting requirements by 30th June 2023.
NorAm Drilling has a group insurance policy for the liability of the Company's and its subsidiaries' directors and officers. The insurance covers personal legal liabilities including legal costs for defense. The limit of liability is NOK 100 million per claim and in aggregate per year.
Signature of the Board, May 24, 2023
Chairman Board member Board member
Ole B. Hjertaker Gunnar Eliassen Christopher Baker
Marty Jimmerson Chief Executive Officer
CONSOLIDATED 2022 REPORT
| NorAm Drilling AS | INCOME STATEMENT (Amounts in USD 1,000) |
NorAm Group | ||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | Note | Note | 2022 | 2021 | |
| - | - | 2 | Sales | 2 | 95,446 | 50,382 |
| 110 | 110 | Other operating income | - | - | ||
| 110 | 110 | Total operating income | 95,446 | 50,382 | ||
| 197 | 77 | 2 | Payroll Expenses | 2 | 29,449 | 19,751 |
| - | - | Depreciation of tangible and intangible assets | 8 | 18,879 | 18,307 | |
| - | - | Rig mobilization, service and supplies | 26,096 | 16,388 | ||
| - | - | Insurance rigs and employees | 5,833 | 3,959 | ||
| 1,008 | 575 | 3 | Other operating expenses | 3 | 8,306 | 4,281 |
| 1,205 | 652 | Total operating expenses | 88,562 | 62,687 | ||
| - | - | |||||
| -1,095 | -542 | Operating profit (+) / loss (-) | 6,884 | -12,305 | ||
| 15,274 | - | 4, 9 | Interest income from group companies | |||
| 263 | 0 | 4 | Other interest income | 4 | 402 | 0 |
| 2,069 | 49 | 4 | Other financial income | 2,069 | 49 | |
| 6,158 | 7,200 | 4 | Other interest expenses | 4 | 6,158 | 7,200 |
| 171 | 66 | 4 | Other financial expenses | 4 | 186 | 79 |
| 11,277 | -7,217 | Net financial items | -3,873 | -7,229 | ||
| 10,182 | -7,759 | Profit(+)/Loss(-) before income tax | 3,011 | -19,534 | ||
| -216 | -686 | 5 | Income tax expense | 5 | 34 | -701 |
| 10,398 | -7,073 | Net profit(+)/Loss(-) | 2,978 | -18,834 |
CONSOLIDATED 2022 REPORT
| NorAm Drilling AS | BALANCE SHEET (Amounts in USD 1,000) |
NorAm Group | |||
|---|---|---|---|---|---|
| 2022 | 2021 | Note | Note | 2022 | 2021 |
| ASSETS | |||||
| Non-current assets | |||||
| Intangible assets | |||||
| - | - | Total intangible assets | - | - | |
| Tangible assets | |||||
| - | - | Rigs and accessories | 7 | 86,312 | 101,918 |
| - | - | Other tangible assets | 7 | 258 | 170 |
| - | - | Total tangible assets | 86,569 | 102,087 | |
| Financial assets | |||||
| 84,788 | 84,557 | 8 Investment in subsidiaries |
- | - | |
| 115,481 | 118,307 | 9 Loan to group companies |
- | - | |
| 200,268 | 202,864 | Total financial assets | - | - | |
| 200,268 | 202,864 | Total Non-current Assets | 86,569 | 102,087 | |
| Current assets | |||||
| Receivable | |||||
| - | 0 | Accounts receivable | 14,802 | 6,143 | |
| -768 | 14 | Other receivable | 1,336 | 1,060 | |
| -768 | 14 | Total receivable | 16,138 | 7,203 | |
| Cash and cash equivalent | |||||
| 1,750 | 1,445 | 10 Bank deposit/cash |
10 | 13,098 | 12,782 |
| 1,750 | 1,445 | Total cash and cash equivalents | 13,098 | 12,782 | |
| 982 | 1,458 | Total current assets | 29,236 | 19,985 | |
| 201,250 | 204,322 | TOTAL ASSETS | 115,806 | 122,073 |
| NorAm Drilling AS | BALANCE SHEET (Amounts in USD 1,000) |
NorAm Group | |||
|---|---|---|---|---|---|
| 2022 | 2021 | Note | Note | 2022 | 2021 |
| EQUITY & LIABILITIES | |||||
| Equity | |||||
| Owners equity | |||||
| 12,547 | 8,839 | 11 Share capital |
11 | 12,547 | 8,839 |
| 136,573 | 94,860 | 11 Share premium |
11 | 136,573 | 94,860 |
| 439 | 439 | 11 Other paid in capital |
11 | 369 | 369 |
| 149,559 | 104,138 | Total owners equity | 149,489 | 104,068 | |
| Accumulated profits | |||||
| 26,201 | 15,897 | 11 Other equity |
11 | -67,456 | -70,339 |
| 26,201 | 15,897 | Total accumulated profits | -67,456 | -70,339 | |
| 175,760 | 120,035 | Total equity | 82,033 | 33,729 | |
| Liabilities | |||||
| 1,098 | 1,314 | 5 Deferred tax |
5 | 1,746 | 1,962 |
| 1,098 | 1,314 | Total deferred tax | 1,746 | 1,962 | |
| Non-current liabilities | |||||
| 0 | 80,000 | 12 Bond loan |
12 | 0 | 80,000 |
| 0 | 0 | Other long term liabilities | 9 | 0 | 0 |
| 0 | 80,000 | Total non-current liabilities | 0 | 80,000 | |
| Current liabilities | |||||
| 20 | 2,160 | Accounts payable | 4,607 | 2,996 | |
| - | - | 5 Tax payable |
5 | 250 | - |
| 267 | 151 | Public duties payable | 267 | 151 | |
| 24,106 | 662 | 9 Other current liabilities |
9 | 26,904 | 3,236 |
| 24,393 | 2,973 | Total current liabilities | 32,027 | 6,382 | |
| 25,490 | 84,287 | Total liabilities | 33,773 | 88,344 | |
| 201,250 | 204,322 | TOTAL EQUITY & LIABILITIES | 115,806 | 122,073 |
Oslo, 24.05.2023
Ole Bjarte Hjertaker Christopher Baker
Chairman Board member
Board member
Gunnar Eliassen Marty Jimmerson CEO
| NorAm Drilling AS | BALANCE SHEET (Amounts in USD 1,000) |
NorAm Group | |||||
|---|---|---|---|---|---|---|---|
| 2022 | 202211 | Note | Note | 2022 | 2021 | ||
| EQUITY & LIABILITIES | |||||||
| Equity | |||||||
| Owners equity | |||||||
| 12,547 | 8,839 | 11 Sharecapital | 11 | 12,547 | 8,839 | ||
| 136,573 | 94,860 | 11 Share premium | 11 | 136,573 | 94,860 | ||
| 439 | 439 | 11 Other paid in capital | 11 | 369 | ਤਵਰ | ||
| 149,559 | 104,138 | Total owners equity | 149,489 | 104,068 | |||
| Accumulated profits | |||||||
| 26,201 | 15,897 | 11 Other equity | 11 | -67,456 | -70,339 | ||
| 26,201 | 15,897 | Total accumulated profits | -67,456 | -70,339 | |||
| 175,760 | 120,035 | Total equity | 82,033 | 33,729 | |||
| Liabilities | |||||||
| 5 | Deferred tax | 5 | |||||
| 1,098 1,098 |
1,314 1,314 |
Total deferred tax | 1,746 1,746 |
1,962 1,962 |
|||
| Non-current liabilities | |||||||
| 0 | 80,000 | 12 Bond loan | 12 | 0 | 80,000 | ||
| 0 | O | Other long term liabilities | 9 | 0 | 0 | ||
| 0 | 80,000 | Total non-current liabilities | 0 | 80,000 | |||
| Current liabilities | |||||||
| 20 | 2,160 | Accounts payable | 4,607 | 2,996 | |||
| 5 Tax payable | 5 | 250 | |||||
| 267 | 151 | Public duties payable | 267 | 151 | |||
| 24,106 | 662 | 9 Other current liabilities | 9 | 26,904 | 3,236 | ||
| 24,393 | 2,973 | Total current liabilities | 32,027 | 6,382 | |||
| 25,490 | 84,287 | Total liabilities | 33,773 | 88,344 | |||
| 201,250 | 204,322 | TOTAL EQUITY & LIABILITIES | 115,806 | 122,073 |
| NorAm Drilling AS | STATEMENT OF CASH FLOW (Amounts in USD 1,000) |
NorAm Group | |||
|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | ||
| 10,182 | -7,759 | Profit(+)/Loss(-) before income tax | 3,011 | -19,534 | |
| - | - | Tax paid for the period | - | 425 | |
| - | - | Depreciation of fixed assets | 18,879 | 18,307 | |
| - | - | Change in accounts receivable | -8,659 | -1,720 | |
| 2,140 | 2,109 | Change in accounts payable | 1,611 | 1,665 | |
| -2,472 | -1,574 | Change in other current balance sheet items | 1,206 | -1,104 | |
| 9,850 | -7,224 | Net cash flow from operational activities | 16,048 | -1,961 | |
| - | - | Purchase of tangible fixed assets | -3,361 | -3,376 | |
| 2,826 | 7,700 | Received payment on loans to group companies | - | - | |
| 2,826 | 7,700 | Net cash flow from investing activities | -3,361 | -3,376 | |
| 72,004 | - | Issued capital | 72,004 | - | |
| -4,375 | - | Dividends | -4,375 | - | |
| -80,000 | - | Repayment of long term debt | -80,000 | 1,782 | |
| -12,371 | - | Net cash flow from financing activities | -12,371 | 1,782 | |
| 305 | 476 | Net change in cash and cash equivalent | 316 | -3,555 | |
| 1,445 | 969 | Cash and cash equivalents opening balance | 12,782 | 16,337 | |
| 1,750 | 1,445 | Cash and cash equivalents closing balance | 13,098 | 12,782 |
Notes to Financial Statement
Note 1 - Accounting Principles
The Financial Statements include Income statement, Balance Sheet, Statement of Cash Flow and Note Disclosures. The Financial Statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway.
The Financial Statements are based on the basic principles, and the classification of Assets and Liabilities is according to the definitions of the Norwegian Accounting Act. In application of the accounting principles and presentation of transactions and other information, emphasis has been put not only on legal form, but on economic reality. Conditional losses that are probable and quantifiable are expensed. There have been no changes in the accounting principles used.
1-1 BASIS FOR CONSOLIDATION
The Group's consolidated financial statements comprise Noram Drilling AS and companies in which Noram Drilling AS has a controlling interest. A controlling interest is normally obtained when the Group owns more than 50% of the shares in the company and can exercise control over the company. Minority interests are included in the Group's equity. Transactions between Group companies have been eliminated in the consolidated financial statement. The consolidated financial statement has been prepared in accordance with the same accounting principles for both parent and subsidiary.
1-2 USE OF ESTIMATES
Management has used estimates and assumptions that have affected assets, liabilities, incomes, expenses and information on potential liabilities in accordance with Norwegian generally accepted accounting principles.
1-3 FOREIGN CURRENCY TRANSLATION
Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into USD using the exchange rate applicable on the balance sheet date. Nonmonetary items that are measured at their historical price expressed in a foreign currency are translated into USD using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognized in the income statement as they occur during the accounting period.
1-4 REVENUE RECOGNITION AND OPERATIONAL COSTS
Income from sale of goods and services are recognised at fair value of the consideration, net after deduction of VAT, returns, discounts and reductions. Sales are taken to income when the company has delivered its products to the customer and there are no unsatisfied commitments which may influence the customer's acceptance of the product. Delivery is not completed until the products have been sent to the agreed place, and risks relating to loss and obsolescence have been transferred to the customer.
NorAm Drilling Group revenue relates to rental of rig capacity and sale of drilling services from the US based subsidiary NorAm Drilling Company. Sales regarding rental of rig is invoiced and booked in line with actual contract and the period of delivering the services, while drilling services are invoiced and booked in the same period as the services has been provided.
Expenses are recognized with the income to which the expenses relate. Expenses that may not be related to income are recognized when accrued.
1-5 INCOME TAX
The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities. Deferred tax is calculated as 22%/21% (Norway/USA) of temporary differences and losses carried forward. Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilized. Taxes payable and deferred taxes are recognized directly in equity to the extent that they relate to equity transactions.
Temporary differences in juristrictions with other currency than USD, is caclulated using local currency and converted to USD at foreign exchange rate at the balance sheet.
1-6 BALANCE SHEET CLASSIFICATION
the time they incur.
Current assets and current liabilities consist of receivables and payables due within one year, and items connected to the flow of goods. Other balance sheet items are classified as non-current assets / non-current liabilities.
Current assets are valued at the lower of cost and fair value. Current liabilities are recognized at nominal value at
Notes to Financial Statement Current assets are valued at the lower of cost and fair value. Current liabilities are recognized at nominal value at
Note 1 - Accounting Principles the time they incur.
Fixed assets are valued at cost, less depreciation and impairment losses. Non-current liabilities are recognized at nominal value.
1-7 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized and depreciated over the estimated useful life. Costs for maintenance are expensed as incurred, whereas costs for improving and upgrading property, plant and equipment are added to the acquisition cost and depreciated with the related asset. If carrying value of a non-current asset exceeds the estimated recoverable amount, the asset is written down to the recoverable amount. The recoverable amount is the greater of the net realizable value and value in use. In assessing value in use, the discounted estimated future cash flows from the asset are used. Operational leasing is expensed as ordinary rental expense and classified as an ordinary operating expense. Equipment leased on terms that transfer practically all economic rights and obligations to the company (financial leasing) is depreciated as a capital asset, and is included as a liability under interest bearing debt at the present value of minimum rental expense.
1-8 SUBSIDIARIES
Subsidiaries are valued at cost in the company accounts. The investment is valued as cost of the shares in the subsidiary, less any impairment losses. An impairment loss is recognized if the impairment is not considered temporary, in accordance with generally accepted accounting principles. Impairment losses are reversed if the reason for the impairment loss disappears in a later period.
Dividends, group contributions and other distributions are recognized in the same year as they are recognized in the subsidiary financial statement. If dividends / group contribution exceed withheld profits after acquisition, the excess amount represents repayment of invested capital, and the distribution will be deducted from the recorded value of the investment in the balance sheet for the parent company.
1-9 ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES
Accounts receivable and other current receivables are recorded in the balance sheet at nominal value less provisions for doubtful accounts. Provisions for doubtful accounts are based on an individual assessment of the different receivables. For the remaining receivables, a general provision is estimated based on expected loss.
1-10 PENSION OBLIGATIONS AND EXPENSES
Noram Drilling AS has a contribution-based pension plan. Yearly payments to the insurance company are expensed as pension costs.
1-11 CASH FLOW STATEMENT
The cash flow statement has been prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits, and other short term investments which immediately and with minimal exchange risk can be converted into known cash amounts, with due date less than three months from purchase date.
1-12 Functional Currency and Presentational Currency
Functional and presentation currency is for NorAm Drilling Company AS and the NorAm Drilling Group is USD. This is based on the following rationale;
All significant Balance Sheet items is denominated in USD (Loan to group companies, accounts
NorAm Drilling Company AS
All significant P/L transactions is denominated in USD (Interest income from group companies, Other interest expenses)
Notes to Financial Statement
| Note 2 – Segment and Geographic Information | ||||
|---|---|---|---|---|
| 2022 | ||||
| (USD) | Noram Drilling AS | NorAm Drilling Company | Group | |
| Sales income from third parties | - | 95,446,106 | 95,446,106 | |
| Sales income from other segments | 109,688 | - | - | |
| Depreciation | - | 18,879,303 | 18,879,303 | |
| Write-down tangible assets | - | - | - | |
| Other operating expenses | 1,204,958 | 68,477,725 | 69,682,684 | |
| Operating profit | -1,095,270 | 8,089,078 | 6,884,120 | |
| Financial expenses | 6,328,481 | 15,184 | 6,343,666 | |
| Financial expenses other segments | - | 15,273,577 | - | |
| Financial income | 2,332,132 | - | 2,470,942 | |
| Financial income other segments | - | - | ||
| Net financial items | -3,996,349 | -15,288,761 | 3,872,724 | |
| Taxes | -216,106 | 250,000 | 33,894 | |
| Non Current Assets | 200,268,209 | 86,569,418 | 86,569,418 | |
| Interest bearing debt third parties Interest bearing debt other segments |
- | - 115,480,503 |
- - |
| Noram Drilling AS | NorAm Drilling Company | Group | |
|---|---|---|---|
| - | 50,381,654 | 50,381,654 | |
| - | - | ||
| - | 18,307,394 | 18,307,394 | |
| - | - | - | |
| 43,727,642 | 44,379,413 | ||
| -11,653,382 | -12,305,152 | ||
| 12,074 | 7,278,519 | ||
| - | - | - | |
| - | 49,545 | ||
| - | - | ||
| -12,074 | 7,228,974 | ||
| -14,467 | -700,542 | ||
| 102,087,396 | 102,087,396 | ||
| - | 80,000,000 | ||
| 118,306,926 | - | ||
| 109,688 651,770 -542,082 7,266,445 49,545 -7,216,900 -686,075 202,863,519 80,000,000 |
Note 3 - Payroll expenses / Number of Employees / Remuneration/ Auditor's Fee
| 2022 | 2021 | |||
|---|---|---|---|---|
| Payroll expenses etc. (in USD) | NorAm Drilling AS Group |
NorAm Drilling AS | Group | |
| Salaries | 59,163 | 29,395,271 | 67,520 | 18,328,595 |
| Payroll tax/Social Security | 8,342 | -425,303 | 9,520 | 1,422,897 |
| Pension costs | - | - | - | - |
| Other benefits | 129,870 | 478,540 | - | - |
| Payroll expenses etc. | 197,375 | 29,448,508 | 77,041 | 19,751,492 |
| Number of man-labour years | 0 | 343 | 0 | 218 |
Management Remuneration - Noram Drilling AS (USD)
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| Company officers | Period | Salaries | Pensions | Other benefits | Total | Total |
| Marty Jimmerson | 01.01 - 31.12 | 497,379 | - | - | 497,379 | 404,317 |
| Board | Period | Salaries | Pensions | Other benefits | Total | Total |
| Ole Bjarte Hjertaker (Board member/Chairman) | 01.01 - 31.12 | 27,053 | - | - | 27,053 | 32,315 |
| Hermann Refsum Flinder (Board member)** | 01.01 - 15.03 | 6,982 | - | - | 6,982 | 32,835 |
| Kristian Melhuus (Board member) | - | - | - | - | 18,709 | |
| Gunnar Eliassen (Board member) | 01.01 - 31.12 | 27,053 | - | - | 27,053 | 13,350 |
| Christopher Baker (Board member)** | 15.03 - 31.12 | 9,641 | - | - | 9,641 | - |
| Espen W. Marcussen (Deputy Board member) | 01.01 - 31.12 | 3,043 | - | - | 3,043 | 5,669 |
| Total Officers | 497,379 | - | - | 497,379 | 404,317 | |
| Total Board | 73,772 | - | - | 73,772 | 102,879 | |
| Total Remuneration Board and Management | 571,151 | - | - | 571,151 | 507,196 |
*Marty Jimmerson received salary from US subsidiary Noram Drilling Company
** Herman R. Flinder and Christopher Baker has been paid board remuneration from the US subsidiary NorAm Drilling Company
Herman R. Flinder was replaced as board member 15 March 2022.
CEO Marty Jimmerson has a 1 year rolling employment agreement. In addition to a base salary he is also entitled to a bonus subject to the company's performance.
Mr. Jimmerson is entitled to (i) one-year base salary; (ii) annual cash bonus up to 33% of annual salary and (iii) group health coverage benefits for up to 18 months in the event of a change in control of his employment contract is terminated for anything other than cause. The CEO is also entitled to a 3-month notice period prior to termination.
It has not been given loan or security for the CEO, CFO, COO, directors or shareholders
Notes to Financial Statement
Management Remuneration - Group
| (USD) | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Company officers | Salary | Pension costs | Other | Total | Total | |
| Noram Drilling AS | - | - | - | - | - | |
| Subsidiaries | 497,379 | - | - | 497,379 | 404,317 | |
| Board | ||||||
| Noram Drilling AS | 73,772 | - | - | 73,772 | 102,879 | |
| Subsidiaries | - | - | - | - | - | |
| Total Officers | 497,379 | - | - | 497,379 | 404,317 | |
| Total Board | 73,772 | - | - | 73,772 | 102,879 | |
| Remuneration Board and Management | ||||||
| (excl. Share based) | 571,151 | - | - | 571,151 | 507,196 |
Noram Drilling AS Share-Based Payment
On 15.02.22, Marty Jimmerson, CEO, and Thomas Taylor, COO, had 50 000 options each that expired with an exercise price of NOK 20.00.
On 28.02.22, Marty Jimmerson and Thomas Taylor were granted 150 000 options each. The grant was Equity Based and vest equally on February 28, 2023, 2024 and 2025. The grant expires on 28.02.27. The strike price is NOK 9. Fair value of granted options is calculated using the Black-Scholes-Merton option pricing model.
On 01.09.22, each Board of Director and certain members of management were granted a total of 300 000 options. The grant was Equity Based and vest equally on September 1, 2024, 2025 and 2026. The grant expires on 01.09.27. The strike price is NOK 40. Fair value of granted options is calculated using the Black-Scholes-Merton option pricing model.
The strike price for all granted options shall be reduced by any declared and paid dividends. In December 2022, the company declared and paid a dividend of NOK 1 per share.
Recognized cost in 2022 relating the share options are USD 360 984.
Historical details for the option plans are as follows:
| 01.01.2021 - 31.12.2021 | 01.01.2021 - 31.12.2021 | ||||
|---|---|---|---|---|---|
| Options | Weighted Average Exercise Price (NOK) |
Options | Weighted Average Exercise Price (NOK) |
||
| Outstanding | |||||
| at the beginning of period | 100,000 | 20.00 | 100,000 | 20.00 | |
| Granted | 600,000 | 24.50 | |||
| Exercised | |||||
| Terminated | |||||
| Forfeited | |||||
| Expired | (100,000) | 20.00 | |||
| Outstanding at the end of period | 600,000 | 23.50 | 100,000 | 20.00 | |
| Vested options | 100,000 | 8.00 | 100,000 | 20.00 |
Auditors remuneration (USD, excl. MVA (VAT))
| 2022 | 2021 | |||
|---|---|---|---|---|
| NorAm Drilling AS | Group | NorAm Drilling AS | Group | |
| Ordinary audit | 57,605 | 57,605 | 66,662 | 66,662 |
| Other confirmation services | 4,408 | 4,408 | - | - |
| Tax advisory services | 2,802 | 2,802 | 4,298 | 4,298 |
| Other non audit services | 76,348 | 76,348 | 33,434 | 33,434 |
| Total | 141,163 | 141,163 | 104,394 | 104,394 |
The ordinary audit expense includes fees for auditing the US subsidiary for the Group consolidated accounts.
Notes to Financial Statement
Note 4 Net Financial Items
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| NorAm Drilling AS | Group | NorAm Drilling AS | Group | |||
| Financial income | ||||||
| Interest income from group companies | 15,273,577 | - | - | - | ||
| Other interest income | ||||||
| Interest income bank | 262,901 | 401,711 | 313 | 313 | ||
| Other financial income | ||||||
| Currency gains | 2,069,231 | 2,069,231 | 49,232 | 49,232 | ||
| Total financial income | 17,605,709 | 2,470,942 | 49,545 | 49,545 | ||
| Financial expenses | ||||||
| Other interest expenses | ||||||
| Interest expense bond loan | 6,157,754 | 6,157,754 | 7,200,003 | 7,200,003 | ||
| Other interest expenses | - | - | - | - | ||
| Other financial expenses | ||||||
| Other financial expense | - | - | - | - | ||
| Write-down investments in subsidiaries | - | - | - | - | ||
| Currency losses | 170,727 | 185,912 | 66,442 | 78,516 | ||
| Total Financial expenses | 6,328,481 | 6,343,666 | 7,266,445 | 7,278,519 | ||
| Net financial items | 11,277,228 | -3,872,724 | -7,216,900 | -7,228,974 |
Note 5 - Tax
| (USD) | 2022 | 2021 | ||
|---|---|---|---|---|
| NorAm Drilling AS | Group | NorAm Drilling AS | Group | |
| Tax base calculation | ||||
| Profit (+)/ Loss (-) before income tax | 10,181,957 | 3,011,396 | -7,758,983 | -19,534,127 |
| Permanent differences | 2,911,548 | 2,911,548 | 2,911,548 | 2,911,548 |
| Temporary differences | 3,304,634 | 3,213,915 | 3,304,634 | 3,289,292 |
| Losses carried forward | - | - | - | - |
| Tax refund 2019 COVID-19 effect | - | - | - | - |
| Foreign exchange differences | -14,818,279 | -14,818,279 | 111,265 | 111,265 |
| Tax base | 1,579,860 | 9,323,500 | -1,431,536 | -13,222,022 |
| NOL Utilization | -1,579,860 | 9,073,500 | - | - |
| Tax | - | 250,000 | - | - |
| Income Tax Payable this year | - | 250,000 | - | - |
| Income Tax Expense: | ||||
| Income Tax Payable this year | - | 250,000 | - | - |
| Changes in deferred tax | -216,106 | -216,105 | -1,102,455 | -1,117,797 |
| Currency effects | - | - | - | - |
| Tax refund 2019 COVID-19 effect | - | - | -12,317 | -12,317 |
| Total Income Tax Expense | -216,106 | 33,895 | -1,114,772 | -1,130,114 |
| Deviation in FS 2020 due to error in NOL's carried forward | - | - | 428,696 | 428,696 |
| Total Income Tax Expense in P&L | -216,106 | 33,895 | -686,076 | -701,418 |
| Income Tax Payable: | ||||
| Income Tax Payable this year | - | 250,000 | - | - |
| AMT Credit Refund | - | - | - | - |
| Prepaid tax | - | - | - | - |
| Total Income Tax Payable | - | 250,000 | - | - |
| Specification of Basis for Deferred Tax Asset: | ||||
| Differences to be balanced | ||||
| Fixed assets | -16,553 | 74,307,125 | -23,127 | 86,396,455 |
| Current assets | - | - | - | - |
| Deferred gain carried forward | 9,241,595 | 9,241,595 | 12,911,476 | 12,911,476 |
| Other differences | -120,618 | -120,618 | - | - |
| Total temporary differences | 9,104,424 | 83,428,102 | 12,888,349 | 99,307,931 |
| NOL's carried forward | -4,114,793 | -139,461,095 | -6,916,420 | -158,224,728 |
| Interest limitation carried forward | -1,447,676 | -32,224,953 | -1,618,044 | -32,395,321 |
| Basis for calculation of deferred tax asset/liability | 3,541,955 | -88,257,946 | 4,353,885 | -91,312,118 |
| Deferred tax asset (-) /liability (+) | 779,230 | -18,648,567 | 957,855 | -18,469,942 |
| Valuation allowance | 318,489 | 20,394,433 | 355,970 | 20,431,914 |
| Deferred tax asset (-) /liability (+) after valuation allowance | 1,097,719 | 1,745,866 | 1,313,824 | 1,961,971 |
| Deviation in FS 2020 due to error in NOL's carried forward | ||||
| Deferred tax asset (-) /liability (+) in balance sheet | 1,097,719 | 1,745,867 | 1,313,824 | 1,961,971 |
| Deferred tax/tax asset not recorded in balance | 318,489 | 20,394,433 | 355,970 | 20,431,914 |
Deferred tax/ deferred tax asset
Estimated deferred tax asset in subsidiary NorAm Drilling Company is not recorded in the balance sheet due to uncertainty related to valuation of this asset.
Notes to Financial Statement
| Note 6 - Earnings per share | ||||
|---|---|---|---|---|
| 2022 | ||||
| (USD) | NorAm Drilling AS | Group | NorAm Drilling AS | Group |
| Result after income tax | 10,398,063 | 2,977,502 | -7,072,908 | -18,833,585 |
| Weighted number of shares | 28,042,843 | 28,042,843 | 23,392,317 | 23,392,317 |
| Options | 600,000 | 600,000 | 100,000 | 100,000 |
| EPS | 0.37 | 0.11 | -0.30 | -0.81 |
| Diluted EPS (incl. Options) | 0.36 | 0.10 | -0.30 | -0.80 |
Note 7 Tangible assets
Group
| Property, plant and equipment | Rigs and rig related | Vehicles and Office | |
|---|---|---|---|
| (USD) | accessories | Equipment | Total |
| Acquisition cost at 01.01 | 199,912,627 | 2,328,815 | 202,241,441 |
| Additions | 3,171,666 | 189,686 | 3,361,352 |
| Disposals | - | - | - |
| Acquisition cost at 31.12 | 203,084,292 | 2,518,500 | 205,602,793 |
| Accumulated depreciation 31.12 | 116,772,727 | 2,260,621 | 119,033,348 |
| Accumulated impairment loss 31.12.201 | - | - | - |
| Reversed impairment loss 31.12.2016 | - | - | - |
| Net carrying value at 31.12 | 86,311,566 | 257,879 | 86,569,445 |
| Depreciation for the year Impairment loss for the year |
18,761,437 | 117,866 | 18,879,303 |
| The useful economic life is estimated to be | 3-15 years | 3-5 years |
Both the parent company and the group use linear depreciation for all tangible assets
Impairment trigger analysis and impairment assessment on tangible assets
Due to the uncertain market conditions, resulting from COVID-19 pandemic and oil production changes, we have reviewed assumptions for the carrying values of our assets. This includes assumptions for development in dayrates, OPEX and other critical inputs were adjusted. The development in dayrates and rig utilization early 2021 was considered as temporary setbacks, and not permanent changes, hence this is reflected in the company's impairment model.
There is significant uncertainty relating to the recovery of the market, and the key inputs are therefore uncertain. The conclusion on the impairment calculation, based on information available and that dayrates and utilization have been better than projected, is that there is no need for impairment charges during 2021 or 2022. As of May 2023, all of our rigs were under contract. The actual dayrates and margins being earned on current contracts and the near term outlook as a result of oil prices are all favorable compared to the assumptions used in our impairment analysis. Management and the board of directors will continue to follow the developments in the market closely and assess impairment continuously if expected future market conditions change.
Note 8 Shares in Subsidiaries
| (USD) | ||||||
|---|---|---|---|---|---|---|
| Company | Book value | Shares | Share of voting rights | Equity 2022 | Result 2022 | Main Office |
| NorAm Drilling Company | 84,787,707 | 100% | 100% | -9,170,420 | -231,114 | Houston |
On December 23, 2021, the parent company converted part of its debt against it US Subsidiary NorAm Drilling Company The capital increase is done by issuance of 218.000 shares to a total amount of USD
Impairment trigger analysis and impairment assessment for investments in subsidiaries
Book value of investment in subsidiary exceeds booked value of equity in the subsidiary. Based on this, management has tested shares in subsidiaries for impairment. The test is based on value in use test for fixed assets in the subsidiaries, adjusted for net interest bearing debt. See note 7. No impairment is recognized in 2022.
The changes in the impairment calculations has not resulted in any impairment expenses as of year-end 2022, and the headroom is in line with 2021.
There are always uncertainty relating to future changes in the market, hence the result of the calculation could change with other inputs. The most sensitive inputs to the impairment calculations is expected dayrates, OPEX, utilization and discount rate. Based on a small headroom in calculated NPV, small adjustment on key inputs, would lead to an impairment in shares.
Note 9 Intercompany Balances
| (USD) | 2022 | 2021 |
|---|---|---|
| Noram Drilling AS | ||
| Loan to NorAm Drilling Company (subsidiary) | 115,480,503 | 118,306,926 |
| Loan from NorAm Drilling Company (subsidiary) | ||
| Accounts payable to NorAm Drilling Company (subsidiary) | 19,861 | 2,162,639 |
| NorAm Drilling AS receivables from NorAm Drilling Company (subsidiary) | - | - |
Due to the difficulties in the market following COVID-19, Noram Drilling AS has given it's subsidiary a temporary relief of any interest on intercompany loan.
Notes to Financial Statement
| Note 10 - Restricted bank accounts | |||
|---|---|---|---|
| (USD) | 2022 Noram Drilling AS |
Group | 2021 Noram Drilling AS |
Group |
|---|---|---|---|---|
| Restricted cash related to debt service on Bond loan | - | - | 759,314 | 759,314 |
| Employees tax deduction, deposited in a separate bank account | 2,339 | 2,339 | 5,799 | 5,799 |
| Secure deposit office leasing and credit cards | - | 21,590 | - | 15,090 |
| Total | 2,339 | 23,929 | 780,203 | 780,203 |
Note 11 - Equity and Shareholder Information
Share Capital Noram Drilling AS and the Group
| 2022 | 2021 | |||||
|---|---|---|---|---|---|---|
| No. of shares | Face value NOK | Book value NOK | No. of shares | Face value NOK | Book value NOK | |
| Ordinary shares | 43,140,993 | 2.00 | 86,281,986 | 23,392,317 | 2.00 | 46,784,634 |
| Total | 43,140,993 | 86,281,986 | 23,392,317 | 46,784,634 | ||
| Equity (USD) | |||||
|---|---|---|---|---|---|
| Noram Drilling AS | Share | Share | Other paid in capital | Other | Total |
| Capital | Premium | Equity | |||
| Equity 31.12.2021 | 8,838,955 | 94,860,376 | 438,907 | 15,897,132 | 120,035,371 |
| Share subscription | 3,708,393 | 68,295,331 | 72,003,724 | ||
| Profit (+)/Loss (-) | 10,398,063 | 10,398,063 | |||
| Dividends paid | -4,374,704 | -4,374,704 | |||
| Dividends payable | -22,542,704 | -22,542,704 | |||
| Stock option agreement | 334,448 | -94,082 | 240,366 | ||
| Equity 31.12.2022 | 12,547,348 | 136,572,748 | 438,907 | 26,201,114 | 175,760,117 |
| Equity | |||||
|---|---|---|---|---|---|
| Group | Share | Share | Other Equity | Other | Total |
| Capital | Premium | Contributed | Equity | ||
| Equity 31.12.2021 | 8,838,955 | 94,860,376 | 369,053 | -70,339,475 | 33,728,909 |
| Share subscription | 3,708,393 | 68,295,331 | 72,003,724 | ||
| Profit (+)/Loss (-) | 2,977,502 | 2,977,502 | |||
| Dividends paid | -4,374,704 | -4,374,704 | |||
| Dividends payable | -22,542,704 | -22,542,704 | |||
| Stock option agreement | 334,448 | -94,082 | 240,366 | ||
| Equity 31.12.2022 | 12,547,348 | 136,572,748 | 369,053 | -67,456,055 | 82,033,094 |
Noram Drilling AS and Group
The company declared and paid dividends of MUSD 22.5 subsequent to December 31, 2022 through the date of the issuance of this report.
10 Largest Shareholders as per 31.12.2022
| Number of shares | Share (%): | |
|---|---|---|
| Geveran Trading Ltd | 20,818,658 | 48.3 % |
| Seabulk AS | 2,673,034 | 6.2 % |
| Euroclear Bank S.A. | 1,573,141 | 3.6 % |
| Merrill Lynch Prof. Clearing Corp. | 1,404,217 | 3.3 % |
| SFL Corporation Ltd | 1,266,225 | 2.9 % |
| The Bank of New York Mellon S.A. | 992,153 | 2.3 % |
| Danske Bank A/S | 953,113 | 2.2 % |
| Danske Bank A/S | 950,000 | 2.2 % |
| Verdipapirfondet DNB SMB | 918,976 | 2.1 % |
| The Bank of New York Mellon | 700,000 | 1.6 % |
| Other | 10,891,476 | 25.2 % |
| Total | 43,140,993 | 100% |
Notes to Financial Statement
| Note 12 Liabilities | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| (USD) | NorAm Drilling AS | Group | NorAm Drilling AS | Group |
| Long term liabilities with maturity before 5 years | ||||
| Bond | - | - | 80,000,000 | 80,000,000 |
| Other long term liabilities | - | - | - | - |
| Total | - | - | 80,000,000 | 80,000,000 |
Bond
03.06.2014 the Group issued a new Bond loan of USD 120 000 000 with 5 years maturity. This agreement has been amended at several occasions, latest on 16 May 2022.
On 3 October 2022, the Company provided notice of exercise of its call option on the full bond loan. The Company paid off the bond loan of MUSD 80 and accrued interest of MUSD 3.2 on 30 November 2022.
On 21 November 2022, the Company's subsidiary ("Borrower") entered into a Loan agreement with a U.S. based bank that provides for a Revolving Promissory Note ("Revolver") of MUSD 4.5. Use of proceeds for any borrowings under this Revolver are available for working capital and general corporate purposes based upon a borrowing base calculation equal to 70% of eligible accounts. Financial covenants include (i) a debt service coverage ratio of not less than 1.2 to 1; (ii) Minimum liquidity requirement of MUSD 5.0 and (iii) a debt to EBITDA ratio of not more than 2.0 to 1.0. The Revolver is secured by accounts receivable and expected to be utilized to reduce the required level of liquidity on our balance sheet.
Definitions:
Debt Service Coverage Ratio - Borrower will maintain, as of the last day of each fiscal year, a ratio of (a) net income after taxes plus depreciation, amortization and other non-cash expenses, less any distributions during such fiscal year, to (b) current maturities of long-term debt and long-term leases of not less than 1.2 to 1.0.
Minimum Liquidity - maintain, as of the last day of each quarter, Liquidity of at least MUSD 5.0. Liquidity means total market value of Unencumbered Liquid Assets. Unencumbered Liquid Assets means assets owned by Borrower which are not subject to any lien (other than a lien in favor of Lender): (1) cash or cash equivalents held in the United States; and (ii) funds available to be advanced under the note.
Debt to EBITDA Ratio - Borrower will maintain, as of the last day of each fiscal year, a ratio of (a) Debt to (b) EBITDA of not more than 2.0 to 1.0. Notes Payable and other debt payable to NorAm Drilling AS will not be included as "Debt".
Distributions - mean all dividends and other distributions made by Borrower to its shareholder.
EBITDA - Borrower's combined earnings before interest expense, income taxes, depreciation and amortization.
The Group complied with the financial covenants as of 31.12.2022.
Note 13 – Cares act
On March 27, 2020, President Trump signed into law the "Coronavirus Aid, Relief, and Economic Security (CARES) Act". The CARES Act, among other things, included provisions relating to refundable payroll tax credit, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvements property.
During 2020, the company entered into two sperate unsecured loans totaling MUSD 7.5. Both loans were forgiven in full in 2021.
The company also applied for support relating to the Employee Retention Tax Credit (ERTC), part of the CARES Act, which is a payroll credit available from March 12, 2020 through September 30, 2021, for a total amount of approximately MUSD 4.0. The company received approximately MUSD 1.0 in 2Q 2022 and MUSD 1.6 in 3Q 2022. The company received approximately MUSD 1.4mm in January 2023 related to the final remaining outstanding ERTC payroll credit.
Note 14 – Subsequent events
Market & Activities
WTI began 2022 around \$75 per barrel and finished 2022 near \$80 per barrel. WTI reached a high of \$120 per barrel in June 2022 and a low of \$71 per barrel in December 2022. WTI is currently trading around \$73 per barrel.
As of May 19, 2023, the US land drilling active rig count and Permian rig count was 697 and 349, respectively. As of December 31, 2022, the US land drilling active rig count and Permian rig count was 762 and 353, respectively. In comparison, as of December31, 2021, the US land drilling active rig count and Permian rig count was 570 and 293, respectively. We currently have all eleven rigs under contract.
Outlook
Dayrates for land rigs in the US improved significantly during 2022 and continued to strengthen during 1Q 2023. The extent of a continued recovery in the US drilling industry cannot be reasonably predicted and is subject to many variables including, but not limited to: (i) global oil demand, (ii) China reopening, (iii) Russian invasion of Ukraine, (iv) OPEC+ maintaining and complying with appropriate supply targets, (v) operating discipline demonstrated by E&P operators, (vi) supply and demand activity for US and Permian land rigs, (vii) availability and costs of labor, equipment and rig supplies and (viii) any possible regulatory changes issued by the US government.
Subject to key risks and uncertainties mentioned herein, we currently expect continued strong demand for our high end "super spec" drilling rigs. Natural gas prices have declined from \$7.0 MMBtu as of November 2022 to \$4.5 per MMBtu as of December 31, 2022. Natural gas prices have declined further in early 2023 and is currently trading at approximately \$2.30 per MMBtu. Current natural gas prices have resulted in some E&P operators reducing their near-term drilling plans which has resulted in some land rigs being released in gas plays such as the Haynesville and Eagle Ford basins. Some of these rig releases increased the available supply of "super spec" rigs in the Permian basin and could impact our near-term outlook.
The company declared and paid dividends of MUSD 22.5 subsequent to December 31, 2022 through the date of the issuance of this report.
KPMG AS Kanalveien 11 P.O. Box 4 Kristianborg N-5822 Bergen
Telephone +47 45 40 40 63 Internet www.kpmg.no Enterprise 935 174 627 MVA
To the General Meeting of NorAm Drilling AS
Independent Auditor's Report
Opinion
We have audited the financial statements of NorAm Drilling AS, which comprise:
- the financial statements of the parent company NorAm Drilling AS (the Company), which comprise the balance sheet as at 31 December 2022, the income statement and cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and
- the consolidated financial statements of NorAm Drilling AS and its subsidiaries (the Group), which comprise the balance sheet as at 31 December 2022, the income statement and cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion
- the financial statements comply with applicable statutory requirements,
- the financial statements give a true and fair view of the financial position of the Company as at 31 December 2022, and its financial performance and its cash flows for the year then ended in accordance with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and
- the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2022, and its financial performance and its cash flows for the year then ended in accordance with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by relevant laws and regulations in Norway and the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| Offices in | |
|---|---|
| slo | Elverum | Mo i Rana | |
|---|---|---|---|
| lta | Finnsnes | Molde | |
| rendal | Hamar | Sandefjord | |
| ergen | Haugesund | Stavanger | |
| odø | Knarvik | Stord | |
| nammen | Kristiansand | Straumo |
Penneo Dokumentnøkkel: HTTBY-7E38O-K8V2F-LEZ1I-T7L1N-P4YEC
Other Information
The Board of Directors and the Managing Director (management) are responsible for the information in the Board of Directors' report. The other information comprises information in the annual report, but does not include the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the information in the Board of Directors' report.
In connection with our audit of the financial statements, our responsibility is to read the Board of Directors' report. The purpose is to consider if there is material inconsistency between the Board of Directors' report and the financial statements or our knowledge obtained in the audit, or whether the Board of Directors' report otherwise appears to be materially misstated. We are required to report if there is a material misstatement in the Board of Directors' report. We have nothing to report in this regard.
Based on our knowledge obtained in the audit, it is our opinion that the Board of Directors' report
- is consistent with the financial statements and
- contains the information required by applicable statutory requirements.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's and the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
- identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
- obtain an understanding of internal control relevant to the audit 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 Company's and the Group's internal control.
- evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
- conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's and the Group's ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern.
- evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves a true and fair view.
- obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Bergen, 24 May 2023 KPMG AS
Bjart Roger Vie State Authorised Public Accountant (This document is signed electronically)
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